2.2.2. Types of tax control in Ukraine

Article 62 of the tax code of Ukraine singles out 3 methods or means of tax control. They are (1) keeping registration of taxpayers, (2) information and analytical support of the regulatory authorities and (3) inspections and verifications in accordance with the tax code, and also inspection for compliance with legislation, enforcement of which is assigned to the responsibility of the regulatory authorities, in accordance with the laws of Ukraine and the relevant scope of relations regulated

Each of these directions forms the following subchapter 6, 7 and 8 accordingly in the second chapter of the tax code.

Thus, In Ukraine applying the criterion of the method of the tax control, tax control can be

1) registration of taxpayers,

2) information and analytical support and

3) inspections and verifications.

Registration of taxpayers is provided in subchapter 6 «Registration of taxpayers» of the tax code of Ukraine and is being done to create conditions for the exercise of control by the controlling authorities over the correctness of calculation, timely and complete payment of the taxes, financial penalties calculated, compliance with tax and other laws, enforcement of which is assigned to the responsibility of the controlling authorities. All taxpayers are subject to registration with the controlling authorities.

The taxpayer is required to register with the relevant controlling authorities on the primary and non-substantive place of registration, to report on all the taxable items and facilities related to taxation to controlling authorities on the location of such facilities at the primary place of registration.

Application for the registration of the taxpayer’s place of registration is submitted to the relevant controlling authority within 10 working days after the creation of a separate subdivision, registration of movable or immovable property or opening a facility or unit through which the transactions are being conducted or which are subject to taxation.

Features of registration of taxpayers for certain taxes, as well as of certain categories of taxpayers are covered by the appropriate sections of the tax code.

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Registration of taxpayers can be separated into the following:

1) Registration of legal entities and separate subdivisions of legal entities (article 64);

2) Registration for self-employed persons (article 65).

Also subchapter 6 «Registration of taxpayers» of the tax code of Ukraine regulates how to change the registration information of taxpayers who are not registered as entrepreneurs and do not exercise independent professional activity (article 66); establishes the conditions and procedure for deregistration in the controlling authorities of legal entities, their separate subdivisions and self-employed persons (article 67); sets what information should be submitted for registration of taxpayers by the state registration authorities for business entities and other authorities (article 68); provides requirements for the opening and closing of accounts of taxpayers with banks and other financial institutions (article 69) and regulates a status of the State register of individual taxpayers (article 70) [77].

Information and analytical support of controlling authorities is provided in subchapter 7 «Information and research support of controlling authorities» of the tax code of Ukraine and is a set of measures for collection, procession and use of information required to perform functions assigned to the controlling authorities.

For information and research support of the controlling authority, the information is used which was received:

1) from taxpayers and tax agents, especially information from the tax declarations, payments and other accounting documents; the copies of documents for accounting of revenues, expenditures and other indicators related to the definition of the taxable items (tax liability), source documents which are maintained in electronic form, ledgers, financial statements and other documents relating to the calculation and payment of taxes and fees provided by major taxpayers in electronic form; financial and economic transactions of taxpayers; application of payment transactions;

2) from the executive authorities, local self-government authorities and the National Bank of Ukraine, especially information on the taxable items that are provided and / or registered with such authorities; on the implementation of state control over business activity of the taxpayer; from the accounting documents, which are submitted by the

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taxpayer to controlling authorities and / or local self-government authorities; on the rates of local taxes and fees established by the local self-government authorities and tax concessions granted by such authorities; on the permits, licenses, patents, certificates for the right to conduct certain activities, which shall include, inter alia: name of the taxpayer, to whom such permits, licenses and patents were issued; tax identification number or registration number of the registration card of a natural person; type of permission document; type of activity for which the permission document is issued; the date when the permission document was issued; duration of the permission document, information on termination (suspension) of validity of permission document indicating with the grounds for such termination (suspension); payment of the appropriate fees for the issuance of permit; a list of places of activity for which the certificate has been issued; on export and import transactions of taxpayers;

3) from banks and other financial institutions — information on availability and movement of funds in the taxpayer’s accounts;

4) from the authorities of other countries, international organizations and non-residents;

5) the results of tax control;

6) for information and research support, other information is also used, which was declared as information to be disclosed in accordance with the law and / or voluntarily or at the request provided by the controlling authority in the manner prescribed by law [77].

Verifications are conducted in accordance with article 75(5) of the tax code which sets that in order to obtain tax information, the controlling authorities have right to verification of the data of enterprises in relation to the taxpayer.

Verification is a comparison of the accounting data and other documents of enterprises which is conducted by the controlling authorities with the purpose of documentary confirmation of the economic relations with the taxpayer, as well as confirmation of the relations, type, amount and quality of operations and transactions, which were carried out between them, in order to understand their reality and completeness. Verification is not an inspection and is carried out in the manner specified by the Cabinet of Ministers of Ukraine in a special decree [81].

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Inspections are provided in subchapter 8 «Inspections» of the tax code of Ukraine and are main forms of tax control. The controlling authorities shall have the right to conduct office (it can be translated also as cameral), document (scheduled or unscheduled (they can be translated also as planned or routine and unplanned or extraordinary); on-site or off-site (they can be translated also as indoor and off-premise)) and factual inspections (inspections can be translated also as audits, but the tax code uses this term too, thus, such a notion is more appropriate to use).

Office and document inspections are carried out by the controlling authorities within their competence only in cases and in the manner prescribed by tax law, and the factual inspection — by the tax code and other laws of Ukraine, control over compliance with which is entrusted to the controlling authorities.

The office inspection is an inspection, which is held in the premises of the controlling authority only on the basis of the information specified in tax declarations (calculations) of the taxpayer and data of the system of electronic administration of value added tax. The office inspection is conducted by officials of the controlling authority without any special decision of the head of such an authority or the relevant instruction to do so. All tax reporting shall be the subject to the office inspection as a continuous procedure. Consent of the taxpayer for the inspection and its presence during the office inspection is not required.

The document inspection is an inspection subject of which is the timeliness, reliability, completeness of calculation and payment of all taxes and fees, as well as compliance with the currency and other laws, control over compliance with which is entrusted to the controlling authorities, compliance with the legislation by the employer when concluding an employment contract, registration of labour relations with employees, and which is carried out on the basis of tax declarations (calculations), financial, statistical and other reports, registers of tax and accounting reports, the source documents used in the accounting and tax reports and related to the calculation and payment of taxes and fees, compliance with the requirements of other legislation, control over compliance with which is entrusted to the controlling authorities, as well as documents and tax information,

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including the results of inspections of other taxpayers obtained by the controlling authority.

The document inspections can be scheduled and unscheduled.

Scheduled document inspection is conducted in accordance with the schedule of inspections. Transfer pricing issues specified in Article 39 of the tax code are not subjects of a scheduled document inspection.

Periodicity of document scheduled inspections of taxpayers is determined by the degree of risk in the activities of taxpayers, which is categorized into high, average and small. Low risk taxpayers are included in the schedule for the audit not more frequently than once every three calendar years, average risk taxpayers — not more frequently than once every two calendar years, high risk taxpayers — not more frequently than once per calendar year. This question will be analyzed more detail in the further chapter.

The head of the controlling authority decides on scheduled document inspection to be carried out for which the relevant order is issued.

The right to conduct a scheduled document inspection of the taxpayer is granted only if copy of the order on the scheduled document inspection and written notice specifying the starting date of the audit was delivered to such a taxpayer on receipt or sent by a recommendation letter with notification about delivery of a copy of the relevant order no later than 10 calendar days before the date of the said inspection.

In case of the inspections are planned in respect to the same taxpayer by the controlling authorities and state financial control authorities which carry out such inspections together at the same time within the reporting period. Coordination procedure for such inspections and involvement of other authorities envisaged by law, is established by the Cabinet of Ministers of Ukraine [80].

Duration of the scheduled document inspection shall not exceed 30 working days for large taxpayers, for small businesses — 10 business days, and for other taxpayers — 20 working days.

The period of this inspection may be extended upon the decision of the head of the controlling authority for not more than 15 working days for large taxpayers, for small

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businesses — no more than 5 working days, for other taxpayers — not more than for 10 working days.

Unscheduled document inspection is not provided in the schedule of the controlling authority and is conducted given at least one of the circumstances specified in the tax code.

The tax code sets 16 conditions when the unscheduled document inspection can be conducted. For example, it can be conducted if the results of inspections of other taxpayers or receipt of tax information the evidence of possible violations by the taxpayer of tax, currency and other laws were revealed, control over compliance with which is entrusted to the controlling authorities, and if the taxpayer failed to provide an explanation and its documentary evidence on the compulsory written request of the controlling authority within 10 business days following the receipt, indicating possible violations by this taxpayer of tax, currency and other laws.

The head of the controlling authority decides on unscheduled document inspection to be carried out for which the relevant order is issued.

The right to conduct unscheduled document inspection of the taxpayer is granted only if a copy of the order on the unscheduled document inspection is handed to it before such an inspection starts.

Duration of the unscheduled document inspection shall not exceed 15 working days for large taxpayers, for small businesses — 5 working days, for individual entrepreneurs who do not have employees — 3 working days, and for other taxpayers — 10 working days.

The period of this inspection may be extended by a decision of the head of the controlling authority for not more than 10 working days for large taxpayers, for small businesses — for not more than 2 working days, and for other taxpayers — for not more than 5 working days.

The document inspections can be on-site and off-site inspections.

Document on-site inspection is an inspection which is held at the location of the taxpayer or the location of the property with respect to which such an inspection is carried out.

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Document off-site inspection is an inspection, which is conducted in the premises of the controlling authority.

The tax code also single out an unscheduled document off-site electronic inspection (electronic inspection).

Unscheduled document off-site electronic inspection (electronic inspection) is carried out on the basis of an application filed by the taxpayer with a low risk (article 77(2) of the tax code defines risks) to the controlling authority with which it is registered for tax purposes. The application shall be submitted within 10 days prior to the start of the electronic inspection, but not before the official notification of the central executive body responsible for the formation and implementation of national tax and customs policy concerning the introduction of such an inspection for the relevant taxpayers which apply the simplified system of taxation, accounting and reporting either are SMEs or other taxpayers.

The factual inspection is an inspection, which takes place at the place of actual exercise of activities of the taxpayer, at the location of economic and other property of such taxpayer. Such an inspection is carried out by the controlling authority as to compliance with of the legislation on regulation of cash turnover, procedure for settlement transactions conducted by taxpayers, exercise of cash transactions, availability of licenses, patents and certificates, including for the production and circulation of excisable goods, compliance with the law by the employer when concluding an employment contract, registration of labour relations with employees.

The factual inspection is carried out without prior notification of the taxpayer (a person).

The factual inspection can be carried out based on the decision of the head of the controlling authority, executed as the order, a copy of which is given to the taxpayer or his representative, or persons who actually carry out transactions before the start of such inspection, and in case of at least one of 7 circumstances is met. For example, one of these circumstances can be a situation if due to the results of inspections of other taxpayers evidence of possible violations by the taxpayer of the law in relation to the production and sale of excisable goods, exercise of settlement transactions, cash transactions by the

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taxpayer, the availability of patents, licenses and other documents were revealed and control over availability of which is entrusted to the controlling authorities, and there is a need to verify these facts.

The factual inspection is carried out by two or more officers of the controlling authority in the presence of officials of the company or its representative and / or the person who actually performs the transactions.

Duration of the factual inspection shall not exceed 10 days.

The time period for this inspection can be extended by the decision of the head of the controlling authority for not more than 5 days.

The grounds for extending the inspection are the following:

1) an application of the enterprise (in case it needs to submit the documents relating to the inspection);

2) an alternating operating mode or summarized accounting of the working time of the enterprise and/or its economic facilities.

For all types of on-site inspections there are conditions and procedure for admission of officials of the controlling authorities provided in article 81 of the tax code of Ukraine. Officials of the controlling authority have the right to proceed with the document on-site inspection, the factual inspection if there are grounds to conduct those and presentation of the following documents:

1) assignment for carrying out such inspections, stating the relevant information about the inspection (date, name of the controlling authority, number of the order, taxpayer’s information, aim, type, date of the beginning, duration of the inspection, position and name of the inspector), which must be signed and sealed by the controlling authority;

2) copies of the order for the inspection;

3) service certificate of the inspectors specified in the assignment for the inspection.

The basis for reports of officials of the controlling authorities during the inspections includes:

documents specified in the tax code;

tax information;

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expert reports;

judicial decisions;

and other materials obtained in the manner and by method provided by the tax code.

Results of inspections are regulated by article 86 of the tax code and sets different consequences for the taxpayer, depending on found violations [77].

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