Lost primary documents because of the war: tax audits can be limited

A company may have lost accounting records, contracts, invoices, and other primary documents as a result of hostilities.

What happens during the next tax audit?

On 3 September, Ukraine’s State Tax Service separately reminded businesses of a special protection mechanism for such cases.

This concerns subparagraph 69.28 of subsection 10, section XX of the Tax Code of Ukraine.

It applies to taxpayers that carried out activities in areas of hostilities or temporarily occupied territories and, because of the war, lost their primary documents or cannot remove them from those areas.

There is an important opportunity here.

A properly documented loss of primary documents may result in a moratorium on documentary tax audits for the relevant tax periods.

To use this mechanism, the taxpayer must submit a notice to the tax authority regarding the loss of, or inability to remove, primary documents.

The notice must specify:

• the circumstances of the loss of, or inability to remove, the documents;
• the relevant tax periods;
• a general list of the lost primary documents;
• where possible, the details of those documents.

Once a proper notice has been submitted, tax returns for the specified periods cannot be challenged solely because the primary documents are unavailable.

Moreover, the taxpayer may retain:

• deductible expenses;
• a negative corporate income tax base;
• input VAT credit;
• a negative VAT balance.

However, there is an even more important point.

The State Tax Service explains that taxpayers who have properly notified it of the loss of primary documents in accordance with subparagraph 69.28 of the Tax Code are not subject to audits for the tax periods specified in the notice, including after the end of martial law.

The burden is on the tax authority to prove that there are no grounds for applying this special mechanism.

If the State Tax Service refuses to apply it, the authority must issue a reasoned decision stating the grounds and supporting evidence. Such a decision may be challenged administratively or in court.

It is therefore essential not to confuse two different situations.

Ordinary loss of documents and loss of documents caused by hostilities, or by their location in the relevant territories, have different legal consequences.

In the first case, as a general rule, the documents must be restored.

In the second case, provided that the statutory conditions are met, a business may use the special mechanism set out in subparagraph 69.28 of the Tax Code.

That is why, after an office, warehouse, or accounting department has been destroyed, it is not enough simply to say: “the documents are gone.”

The circumstances of their loss must be properly documented from a legal standpoint, the relevant tax periods must be identified, and a notice must be filed with the State Tax Service.

Sometimes one properly prepared document today may determine whether the State Tax Service will have the right to audit the relevant tax periods several years from now.

You can seek legal advice now, so that you do not later need legal defence services.

Would you like legal advice on the loss of primary documents and protecting your business during tax audits?

📞 Call: 096 574 81 02
📧 Email: info@uk-winner.com

Author: Ihor Yasko, Managing Partner at WINNER Law Firm, PhD in Law.