New Grounds for Unscheduled Documentary Tax Audits: Changes by Law No. 466

The Law of Ukraine dated 16.01.2020 No. 466-IX (widely known as Law No. 466) introduced significant adjustments to tax control procedures. The most notable changes concern the grounds for conducting unscheduled documentary audits of legal entities.

These innovations aim to increase business transparency and expand the tools available to tax authorities in the field of international taxation.

Transfer Pricing and Non-Resident Audits

Effective May 23, 2020, regulations allow tax authorities to initiate unscheduled control measures in the following cases:

• Failure to Submit Reporting: A taxpayer failed to submit a tax return or transfer pricing reports within the established deadline (pursuant to sub-cl. 39.4 of Art. 39 of the TCU).
• Unregistered Activities: Information has been received indicating that a non-resident is conducting business through a permanent establishment in Ukraine without tax registration.

This regulation was introduced to strengthen control over the registration of non-resident representative offices and ensure proper taxation of their income.

Information from Foreign Authorities as an Audit Trigger

Starting July 1, 2020, controlling authorities gained the right to revisit previously audited periods. This becomes possible if, after a scheduled or unscheduled audit, the State Tax Service receives documents from foreign government agencies.

Such documents must indicate violations by the taxpayer regarding:

1. Tax legislation.
2. Currency regulation.
3. Other legislation under the jurisdiction of the tax authorities.

It is important to understand that such an audit is conducted exclusively on the issues that served as the direct basis for its appointment. This significantly increases the efficiency of monitoring non-resident income generated within Ukraine.

Audits During the Appeals Process: New Rules

Since January 1, 2021, an additional ground related to the appeal process of previous audit results has emerged. Now, an unscheduled documentary audit can be scheduled if the taxpayer submits:

• Objections to the audit report (sub-cl. 86.7 of Art. 86 of the TCU).
• A complaint against the issued tax assessment notice (TAN).

The condition for such an audit is that the taxpayer refers to circumstances not previously investigated, and their objective review is impossible without an on-site visit.

Legal Insight: Such an audit is strictly limited to the issues being appealed. This gives businesses a chance to have erroneous decisions reviewed but requires careful preparation of the evidence base.