Another STS audit: how tax authorities fine sole proprietors millions for online sales and cash-on-delivery payments

The tax authorities issued a series of tax assessment notices against an entrepreneur, imposing penalties exceeding UAH 5.5 million.

The allegations are based on a standard Ukrainian e-commerce model: goods are sold online, delivered through a postal service, and payments are transferred through a financial intermediary.

The tax authorities characterize this arrangement as “settlement transactions conducted without the use of RRO/PRRO.” However, in our view, a detailed review of the audit materials, the content of the tax assessment notices, and the attached calculations reveals significant legal and arithmetic inconsistencies in the conclusions of the supervisory authority.

Key arguments against the tax authority’s actions:

• The payment is cashless.The entrepreneur does not receive cash directly from the buyer. Funds are credited to the entrepreneur’s bank account in non-cash form by a financial institution. In these circumstances, it is crucial to correctly identify the party that actually carried out the settlement transaction and was obliged to process it through an RRO/PRRO system and issue the relevant settlement document.
• The obligation to issue a receipt lies with the delivery provider.Under clause 10 of NBU Regulation No. 148, when cash or card payments are accepted at a postal branch, the settlement transaction is carried out by the payment institution — the delivery service — which issues the fiscal receipt to the customer.
• There is no evidence of violations.The audit report contains no specific transaction, date, express waybill number, or customer details. The State Tax Service completely ignored fiscal reports and logs from the entrepreneur’s already registered RRO systems.
• Unlawful penalty rates were applied.The tax authorities applied increased basic penalty rates of 100% and 150%, contrary to Article 58 of the Constitution of Ukraine, while disregarding the preferential rates of 10%, 25%, and 50% that were legally applicable during the relevant periods.
• Arithmetic manipulations are present.The assessment base in the calculations attached to the tax assessment notices was unjustifiably increased compared with the audit report by tens of thousands of hryvnias. The final amounts also contain arbitrary digit rearrangements and unsupported charges.
• There are contradictions concerning primary documents.The State Tax Service simultaneously confirms receipt of a complete set of documents from a Group 2 sole proprietor and claims that the documents were not provided, confusing provisions of the Tax Code in its decisions.

An official complaint has now been filed with the higher-level State Tax Service, seeking the full cancellation of the unlawful tax assessment notices.

Ukrainian businesses that operate transparently and pay taxes through cashless transactions should not become victims of formalistic and unlawful financial penalties.

Author — Yuliia Popadyn, Attorney-at-Law, Tax and Housing Law Practice, Attorney Association “Law Firm WINNER”.