VAT refund audits: how tax authorities identify risks and what taxpayers need to know

In Ukraine, the system of budgetary VAT refunds has traditionally been an area of heightened attention from supervisory authorities. It concerns the reimbursement of significant amounts from the state budget to businesses, so the state needs to ensure that the claimed refund is justified and the underlying transactions are real. For this reason, any VAT amount claimed for refund automatically attracts the tax service’s scrutiny and is accompanied by several stages of audits.

Normative framework: what the Tax Code says
The procedure for VAT refunds and related audits is established by Article 200 of the Tax Code of Ukraine (TCU) and by the rules on desk and documentary audits (Articles 75, 76, 78 TCU). From 1 July 2024, the updated paragraphs 200.10–200.11 TCU introduced new time limits for auditing returns with claimed budget refunds; the right to a refund arises only if there is no tax debt, the negative VAT value is confirmed by registered tax invoices/customs declarations, and the criteria of paragraph 200.4 TCU are met.
The key stage is the desk (cameral) audit of the return based on the State Tax Service data; if its results raise doubts about the claimed amount, tax authorities may appoint an unscheduled documentary audit under subparagraph 78.1.8 TCU.

Desk audit: first filter on the way to refund
Under the updated rules, the desk audit of a VAT return with a claimed refund is carried out within 20 calendar days following the deadline for filing the return. During this period, tax officers analyse the arithmetic of the return, the presence and timeliness of registering tax invoices in the Unified Register, the correctness of customs data, and information about the riskiness of the taxpayer and its counterparties.
In practice, problems at this stage are most often created by blocked tax invoices, late registration of adjustments, or discrepancies between the Unified Register and the return. If there are signs of fictitious supply chains, “transit” counterparties, or atypical volumes of transactions, the tax authority initiates an unscheduled documentary audit.

Documentary audit: grounds and time limits
An unscheduled documentary audit of VAT refunds is appointed when a return claims a refund and/or contains a significant negative value (over UAH 100,000), and also for smaller amounts if transactions look risky.
As a general rule, the duration of such an audit is up to 40 calendar days after the filing deadline, and for compliant taxpayers up to 10 working days, with a possibility of extension in exceptional cases.
Formally, auditors should review only the legitimacy of the claimed refund and negative VAT value, but in practice tax officers sometimes go beyond these limits and assess additional liabilities for other transactions. Courts often find such actions unlawful and cancel tax notices-decisions.

What they usually find: typical violations
Practice shows that during refund audits the tax authorities most often disallow input VAT due to non-business-related transactions, lack of properly executed primary documents, and formal documentation of supplies without actual movement of goods or services.
Special focus is placed on risky counterparties and technical errors: problems with staff and assets at suppliers, arithmetic mistakes in returns, duplicated input VAT, or incorrect accounting of VAT paid from budget funds often become grounds for reducing the negative VAT value.
As a result, refund amounts may be reduced or cancelled completely, and the taxpayer may face additional VAT, fines, and penalty interest. At the same time, the taxpayer has the right to submit objections, file an administrative appeal, and go to court, where, given proper evidence, it is often possible to defend their position.

Risk status and invoice blocking as audit triggers
The introduction of the electronic invoice monitoring system (SMKOR) turned the “risky taxpayer” status into one of the key triggers for VAT refund audits. Regular blocking of tax invoices, suspension of corrections, and the inclusion in the risky taxpayers list almost automatically increase the likelihood of unscheduled audits and denial of refunds.
Therefore, taxpayers claiming significant VAT refunds should systematically work on reducing their risk profile: tracking risk criteria, promptly submitting explanations and documents on blocked invoices, and appealing unjustified STS decisions in administrative and judicial procedures. Transparent ownership, real staff and assets, and well-documented supply chains are strong arguments in favour of the taxpayer in any audit.

How to prepare for audits: practical steps for business
First, before claiming a refund, conduct an internal VAT review: verify registration of all tax invoices in the Unified Register, reconcile amounts with accounting and customs declarations, and check the correct carry-forward of the negative VAT value.
Second, impeccably prepared primary documents are critical — contracts, acts, invoices, waybills, warehouse receipts, and certificates must contain all mandatory details, because the “quality of primary documents” often determines the fate of the refund.
Third, carefully select counterparties by analysing open registers, tax history, the presence of staff and assets, and court disputes, since cooperation with “transit” companies can nullify even ideal accounting.
Fourth, it is advisable to prepare in advance a “for audit” document bundle and appoint persons responsible for communication with the tax authorities, which allows quick responses to requests and shortens the audit.
Finally, the taxpayer must be ready to defend their rights through administrative and court appeals; with proper documentation and real transactions, the chances of successfully defending the refund are quite high.

Conclusions
VAT refund audits are an essential part of the refund mechanism and at the same time one of the most risk-prone areas for business: in trying to combat abuse, tax authorities often block refunds of legitimately paid amounts, creating cash gaps.
A comprehensive approach helps minimise these risks: correctly completed returns, impeccable primary documents, careful selection of counterparties, and a readiness to actively defend one’s rights. The more systematically a company manages its VAT, the less likely that budget refunds will turn into a long “tax war” instead of a tool to support liquidity.

Author – Maksym Bahniuk, Head of Tax and Customs Law Practice at WINNER Law Firm.
If you have any questions or issues related to VAT refund audits, blocked input VAT, or appealing tax authority decisions, contact our tax law team for professional support.