Tax and Customs Disputes in the Conditions of Armed Aggression

Recently, Supreme Court Judge Ihor Olender has presented a report at the online seminar “Tax and Customs Disputes: Legal Doctrine and Practice of the Supreme Court”. The judge noted that the armed aggression of the Russian Federation has been going on since 2014, and during this time the practice of law enforcement has already faced many tax and customs disputes related to this fact.

The report presented a number of decisions of the Supreme Court concerning tax or customs legislation for analysis and directly related to the fact of armed aggression by the Russian Federation. Despite the fact that during the martial law the parliament adopted a number of separate legal norms for the legal regulation of tax and customs relations, the already existing conclusions of the Supreme Court on the anti-terrorist operation (ATO)-related cases may undoubtedly be used in deciding future tax and customs disputes by analogy. Below is an overview of some of the Supreme Court’s decisions:

1. Regarding fines for late payment of the single contribution – the decision of the Supreme Court of November 6, 2018 in case №812/292/18

Description of the case: The communal enterprise (location – Luhansk) appealed to the court with a claim to the tax authority, asking to cancel the decision on the application of fines and penalties for late payment of a single contribution.

Conclusions of the Supreme Court: with reference to the provisions of the Law of Ukraine “On Collection and Accounting of the Single Contribution for Compulsory State Social Insurance”, it is noted that the fact that the payers of the single contribution shall be registered with the revenue operation is the basis for stopping the application to such payers of measures of influence, recovery and liability for violations. Submission of a certificate of the Chamber of Commerce and Industry of Ukraine as a condition for exemption from fines and/or penalties for late and/or incomplete accrual, calculation or payment of a single contribution is an unreasonable requirement of the revenue authority.

What norms are effective during martial law: In accordance with par. 9 of note  21, note 22 of Chapter VIII “Final and Transitional Provisions” of the Law of Ukraine “On Collection and Accounting of the Single Contribution for Compulsory State Social Insurance”, temporarily, for the period of martial law, state of emergency and for three months after the termination or abolition of martial law, state of emergency, the penalties defined by part eleven of Art.  25 of this Law shall not apply. Temporarily, for the period of the legal regime of martial law, state of emergency and for three months after the termination or abolition of martial law, state of emergency, single payers shall not be charged a penalty, and the penalty for these periods shall be subject to write-off.

Consequently, as of today, the very fact of martial law is the reason for not applying penalties. However, time will tell how the supervisory authorities will follow this regulation, whether they will comply with the law and whether it will be necessary to appeal their decisions in court.

2. Regarding fines for delay in registration of a tax invoice –the decision of the Supreme Court of November 14, 2018 in case No. 805/365/17-a

Description of the case: The company (location – Donetsk region) appealed to the court with a claim to the tax authority to declare illegal and cancel the tax notice-decision, which imposed a fine for delaying the registration of the tax invoice.

Findings of the Supreme Court: According to the copies of documents provided by the plaintiff, it can be seen that all production facilities of the coal mining company remained on the territory of hostilities in the ATO zone under the influence of force majeure, which makes it impossible to operate under normal safe conditions and prevents profits. Due to the location on the territory of the ATO, the company has been deprived of the opportunity to carry out normal economic activities.

In addition, the courts noted that the plaintiff had provided a certificate (opinion) of the Chamber of Commerce and Industry, which certified the Company’s force majeure from April 14, 2014 in economic activities in the Donetsk region to implement legislation of Ukraine relating to the collection and payment of taxes and mandatory payments.

Thus, with reference to the Law of Ukraine “On Interim Measures for the Period of the Anti-Terrorist Operation” No. 1669-VII, the plaintiff was released from liability for improper performance of its obligations from April 14, 2014 (the date of the start of the ATO).

What norms are effective during martial law: in the event that the taxpayer is unable to timely fulfill its tax obligation, in particular on compliance with the deadlines for payment of taxes and fees, submission of reports, including reports provided for in par. 46.2 of Art. 46 of the Tax Code of Ukraine, registration in the relevant registers of tax or excise invoices, adjustment calculations, submission of electronic documents containing data on actual fuel residues and turnover of fuel or ethyl alcohol, etc., taxpayers shall be exempt from liability under the Tax of Code of Ukraine with obligatory termination of such duties within six months after the termination or abolition of martial law in Ukraine (subpar. 69.1 of par. 69 of subsection 10 of section XX of the Tax Code of Ukraine).

3. Regarding the cancellation of registration as a VAT payer – the decision of the Supreme Court of January 24, 2019 in case No. 805/221/16-a

Description of the case: The company (location – Donetsk region) appealed to the court against the tax notice-decision on cancellation of registration by a VAT payer, made on the grounds that the taxpayer has not been submitting to the supervisory authority declarations of value-added tax for 12 consecutive months.

Foundings of the Supreme Court: with reference to the Law of Ukraine “On Interim Measures for the Period of Anti-Terrorist Operation”, it is established that the basis for exemption from liability of the payer for non-performance (improper performance) is the location of the latter in the ATO zone and presence of its Chamber of Commerce and Industry of Ukraine certificate, which confirms the circumstances of force majeure.

The plaintiff received a certificate certifying force majeure during the anti-terrorist operation regarding the timeliness of submission of tax returns by the VAT company, including for the disputed period.

The court drew attention to the provisions of subparagraph 102.6.4. of paragraph 102.6 of Article 102 of the Tax Code of Ukraine, which stipulates that the deadlines for filing a tax return shall be extended by the head of the supervisory authority (their deputy) at the written request of the taxpayer, if such taxpayer had limited freedom of movement due to imprisonment or captivity in the territory of other states or due to other documented force majeure circumstances. The company appealed to the supervisory authority with a request to extend the deadlines for filing tax returns.

What norms are effective during martial law: for taxpayers and controlling bodies, the course of periods shall be terminated, control over the observance of which is entrusted to controlling bodies (subparagraph 69.9 of paragraph 69 of subsection 10 of section XX of the Tax Code of Ukraine), as determined by tax and other legislation. As of today, there are no clarifications on whether the 12-month period during which the decision to cancel the registration shall be annulled if the VAT return is not submitted. Therefore, it is currently impossible to predict the actions of the tax authorities in this case, and there is a potential for litigation on this issue.

In view of these norms, the suspension of the periods occurred automatically on the basis of the law, so the submission of a separate request in accordance with Art. 102.6, as stated in the Supreme Court’s decision, is not required.

4. Regarding payment of rent for state or communal land – the decision of the Supreme Court of June 05, 2018 in case No. 805/4569/16-a

Description of the case: The company (location – Donetsk region) appealed to the court to declare illegal and cancel tax claims, to oblige the defendant to make changes to the integrated cards of land tax and rent of legal entities by excluding information about the presence of tax debt (arrears).

Findings of the Supreme Court: with reference to the Law of Ukraine “On Temporary Measures for the Period of the Anti-Terrorist Operation” No. 1669-VII, it is determined that land tax payers operating in the territory of the anti-terrorist operation shall be exempt from their liabilities, in particular, from payments for state or communal land from April 14, 2014 to June 8, 2016.

The company exercised its right and submitted to the tax authority adjusting calculations for 2016, by which the plaintiff reduced tax liabilities for January, February, March, April, May and part of June 2016, and which were accepted by the defendant, but not reflected in the integrated cards of the company. The above indicates that the company complies with the requirements of tax legislation in determining (clarifying) tax liabilities.

What norms are effective during martial law: temporarily, for the period from March 1, 2022 to December 31 of the year following the year in which the martial law is terminated or abolished, the state of emergency shall not be charged or paid for land (land tax and rent) for land plots of state and communal property (land shares), located in the territories where hostilities are being conducted (were conducted) or in the territories temporarily occupied by the armed forces of the Russian Federation, and which are owned or used, including on lease terms, by natural or legal persons, as well as for land plots (land shares), defined by the regional military administrations as littered with explosives and/or on which there are fortifications.

The list of territories where hostilities are being conducted (were conducted) or temporarily occupied by the armed forces of the Russian Federation is determined by the Cabinet of Ministers of Ukraine (subpar. 69.14 of par. 69 of subsection 10 of section XX of the Tax Code of Ukraine).

Therefore, the basis for the exemption from rent will be the very fact of the presence of a land in a certain area. As of today, there is no such list, which would be approved by the Cabinet exactly for tax purposes.

5. Regarding fines for violation of reporting deadlines – the decision of the Supreme Court of February 06, 2018   in case № 812/275/17

Description of the case: The company (location – Luhansk) filed a lawsuit to cancel the tax notice-decision. In support of its claims, the company noted untimely submission of tax reports on rent for subsoil use in connection with the occurrence of force majeure in the form of anti-terrorist operation in Luhansk region, which was reported to the supervisory authority and sent an application to extend the deadline of tax reporting.

Foundings of the Supreme Court: on the basis of the Law of Ukraine “On Interim Measures for the Period of Anti-Terrorist Operation” No. 1669-VII, it is determined that during the term of this Law, the only appropriate and sufficient document confirming the occurrence of force majeure which took place on the territory of the anti-terrorist operation as a basis for exemption from liability for non-performance (improper performance) of obligations is a certificate of the Chamber of Commerce and Industry of Ukraine.

The plaintiff repeatedly appealed to the supervisory authority with applications for extension of the deadline for submission of tax calculations of payments for subsoil use in connection with the occurrence of force majeure, with the provision of appropriate certificates.

The tax authority, which at the time of the contested decision was aware that the plaintiff had these certificates (they were repeatedly provided by the plaintiff to the tax authorities), had to take this fact into account when making the contested decision. Therefore, the tax notice-decision was declared illegal and canceled. 

What norms are effective during martial law: in the event that the taxpayer is unable to timely fulfill their tax duty, including reporting, taxpayers shall be released from liability under the Tax Code of Ukraine with mandatory performance of such duties within six months after termination or the abolition of martial law in Ukraine (subpar. 69.1 of par. 69 of subsection 10 of section XX of the Tax Code of Ukraine).

Moreover, according to par. 102.9 of Art. 102 of the Tax Code of Ukraine, for the period of the legal regime of martial law, state of emergency imposed in Ukraine, the course of periods specified in this Code, other legislation, control over compliance with which is entrusted to the supervisory authorities, shall be suspended.

Thus, as stipulated by law, a taxpayer can not be held liable for late reporting during martial law, while obtaining a certificate of the Chamber of Commerce and Industry of Ukraine is not required by law.