In the UA-Times interview, the Deputy Business Ombudsman Yaroslav Gregirchak described the systematic report on tax administration preparation, the entrepreneurs burning issues and how business appeals about the State Tax Service actions can be reduced.
– When the Business Ombudsman Council embarked on preparing the systematic report, why did they choose the taxation topic? The document presents a lot of complicated problems, which might have been difficult to summarize.
-This report is the first case in the history of the Business Ombudsman Council, when it was decided to prepare a document on the topic that was previously covered by our system report. In fact , in November 2015 we published the report on the same topic – tax administration. But this issue still remains the most relevant for Ukrainian business.
57% of complaints ,received from businesses, are related to the tax issues. Every third complaint we receive concerns the VAT administration issue. Over time, our team has seen that the systemic recommendations, that we provided in 2015, need to be refreshed.
In general, the experience, that was generated over the years, has proved that the set of topics which determine the issue scope should be slightly larger than before. That is why this prompted our team to write a new version of the systemic report on the tax administration.
– What the exact issues are the Business Ombudsman Council exploring in this systemic report?
-It should be noted that this is a tax administration report. In this document, we did not mention such things as various formation aspects of the state fiscal policy. We are not interested in the set of taxes, rates, the State Tax Service institutional aspects etc. These are strictly politicized things , so this is not our topic.
Our team responds to those cases when the rules are not followed and there is a manifestation of dishonest behavior from the state (in particular, the tax) authority. We can offer certain numerous legislative changes , but their outline is not to formulate political decisions in terms of changing approaches to the public policy implementation . And if certain fundamental decisions have already been made, let’s make some point changes to minimize the manifestations of dishonest behavior.
We also did not write sections on some types of taxes, because we did not see any particular problems with their administration in terms of fiscal policy. For example, it is an individual income tax, rent, military duty. We did not mention these topics. However, there are sections where, in principle, certain administration aspects and taxes are covered. We are talking about five last sections. We discuss the tax audits procedural aspects, tax authorities conclusions appeal , generalizing tax consultancy , information disclosure by tax authorities and maintaining integrated taxpayer cards.
– By the way, I wonder how do you estimate Ukraine in the taxes direction in the international rankings?
-The information we have seen in the international rankings is better than I expected. For example, in the Doing Business ranking, Ukraine ranks 65th out of 190 countries in the state of ” taxes payment “. This is not so bad. But at the same time, Ukrainian business spends about 328 hours a year on the tax administration procedures. This is much more than 213 hours that are on average in our region – Europe and Central Asia.
– You focused on the analysis of relevant taxes for most entrepreneurs – VAT, SSC, flat tax and corporate income tax. What are the main entrepreneurs’ problems now?
-In terms of the greatest business issue concentration, this is clearly the VAT administration. In addition to the traditional disputes between tax authorities and businesses, which arise in the control and verification work focused on VAT, and in the budget VAT reimbursement, many problems are generated in the process of such technological tools for the tax administration as the Unified Register of Tax Invoices. ), The System of Electronic Administration (SER) and the System of monitoring tax invoices for their compliance with risk criteria (SMKOR).
If we talk about SMCOR, and this issue is currently most relevant for business, then there are three main types of business difficulties. This includes inclusion risky taxpayers list inclusion, tax invoices registration suspension, court decisions non- enforcement by taxpayers. In particular, there is a problem with the enforcement of court decisions that require the tax invoices registration – such an disappointing phenomenon, unfortunately, occurs.
In the context of the flat tax, there are problems with the ability to re-register as a flat tax payer in the expected way for a business. Why is it relevant now? Because for some medium and small enterprises, and especially sole trader, the forced reaction to the conditions of quarantine was the transition to either a general system of taxation, or liquidation in general. Over time, circumstances may change and the entrepreneur wants to return to the flat tax. There may be some inconsistencies in these processes.
We also absolutely do not like some other problems in the context of the simplified taxation system. What’s going on? In the Unified State Register sole trader data contains a certain list of codes of economic activity that can be carried out so-called Clasifier of Economic Types of Activities codes. But at the same time the departmental Register of single tax payers does not contain these codes. Here is such a discrepancy. But this can lead to the risk that the entrepreneur may be liable in the form of right loss to be in the simplified taxation system.
There are also some problems single social payment. On the one hand, the problems of “sleeping” sole traders have been largely solved, thanks to recent changes in the law №592. But the problem remains in the actual interpretation of the legal nature of the requirement to pay the debt (arrears) with single social payment. Formally, it is a document that only declares the point of view of the tax authority that the taxpayer must pay the arrears of the single contribution. We understand the nature of the notice to taxpayer. Therefore, we do not like that the requirement to pay the debt with single social payment does not have the characteristics of the notice to taxpayer. There are no requirements for its content. There is no obligation to justify the debt scope calculation.
After all, the arrears should not just be stated declaratively, they should contain a certain calculation. And the main nuance is that the classic notice to taxpayer can be challenged in administrative or judicial proceedings, and if it is cancelled, it means that the dispute is finally resolved in favour of the taxpayer. And what are the requirement abolition consequences to pay the debt (arrears) from the single social payment ? Virtually none of them. Because a requirement is just a debt reminder. And the debt itself continues to “hang” in the integrated card, and may lead to a new claim issuance.
-Why do such problems arise?
– In general, this is a global problem that can be seen in terms of the way the State Tax Service proves their competence. It draws up different types of decisions, tax notice-decisions , conclusions, debt repayment requirements. In principle, the application of administrative appeal procedures can be quite limited. That is, not all types of decisions that cause negative fiscal consequences can be appealed administratively. For example, the classic option is to include the taxpayer in the risky list . It cannot be challenged as a tax notice – decision.
Our opinion concerning this issue is as follows. Any decision, action or inaction of any subject of power, including the tax authority, may be appealed in a pre-trial administrative procedure at the level of a departmental commission to consider such complaints or appeals.
We hope that the result will be achieved in our country after the Law On Administrative Procedure adoption. There is a separate 5th section the on administrative appeals. Then it will create an umbrella effect, when all people , including local authorities, will have to implement such a mechanism.
– How do these procedures work now?
-Now the situation is different. The only problem is that certain types of dishonest behavior, decisions or inaction can be challenged.
For example, we have a classic case of state registrars decisions appeal in the so-called Anti-Raider Board of the Ministry of Justice. This is an administrative pre-trial appeal, when the commission convenes, a quasi-court hearing takes place, evidence is presented and a conclusion is reached, which then is signed and executed by o the Minister of Justice or Deputy claim. Thus, in the pre-trial procedure, for example, the registration action is cancelled.
We have a great way to challenge the public procurement results in a special commission that exists at the level of the Antimonopoly Committee. Obviously, this is why we receive some complaints on this topic. This is the most progressive approach from the institutional point of view, because this commission is outside the departmental verticals, where such a decision is made.
There are some cases, for example, a tax notice – decision, which can be appealed by the State Tax Service of Ukraine. Currently, we are remotely attending relevant hearings at the regular basis. There in the pre-trial procedure you can get a positive result. In general, without the Business Ombudsman Council participation , about 15-18% of complaints are accepted. With our participation, this figure reaches about 30%.
But the problem is that not all types of complaints can be appealed by entrepreneurs in such commissions. I will remind once again, it is impossible to appeal, for example, the decision before inclusion in the risky list and others.
–And what are questions on the income tax administration?
-Regarding an income tax they account for almost 10% of complaints on tax issues and a third of complaints on tax audits. In general, the problems demonstrate the lack of homogeneity in law enforcement practice, especially at the regional level. Here we have identified such problems.
For example, there is a problem with accounting for certain expenses. The taxpayers believe that it happens due to the lack of a reasonable economic goal. We are skeptical about this, because recently, an income tax accounting has been integrated with accounting. The tax authorities don’ t have to deal with this issue. By and large, the taxpayers should not delve into assessing whether certain costs incurred by business have been economically feasible, if those costs have actually been incurred.
However, if the concept of a “business deal” is applied, then, at least, it is necessary to establish clear criteria by which the tax authorities are guided in its application. So that businessmen could clearly understand what is permitted to be included in costs.
There is also the problem that the business has to be paid with income tax in advance when paying dividends. There are situations in the complaints when in the 4th quarter the business has already been paid the full tax for the year and intends the dividends to be paid , but there is a demand from the tax authorities to pay income tax in advance. This can lead to income tax overpayment.
–In your opinion, what exactly was difficult to prepare this report?
-We started preparing it approximately in March-April. Some sections, such as the single social payment. , were already completed in late April. And then on May 13 the law №592 was passed, and later – on July 1 the Grand Chamber of the Supreme Court decision was published . We had to urgently revise this section.
The same was about the tax audits. Initially, we sharply criticized the State Tax Service practice making repeated changes to the schedule of tax inspections during the calendar year. This was the case until the adoption of the law №466. The law stipulated that schedules could be changed twice a year. This is a good decision to remove the State Tax Service unpredictability. In this sense, the situation has improved. But in the new document there is such a concept which allows to make extraordinary changes to schedules, as “a technical error”. This can be an additional basis for making adjustments to the inspections schedule more often than twice a year, in a way that actually expands the tax authorities power.
In our opinion, the State Tax Service should be guided solely by a risk-oriented approach in conducting inspections, especially scheduled ones. How is the effectiveness of this activity currently assessed? We do not fully understand. Therefore, one of our recommendations for the Ministry of Finance is to convey clear Key Performance Indicators (KPI) to the State Tax Service. It would allow all of us to assess the quality of the risk-oriented approach. This will apply to the relationship between scheduled and unscheduled inspections. We would know that over time the number of scheduled inspections could be increased and the number of unscheduled inspections could be decreased.
Translated by Mariia Pylypenko
