Can the tax office fine a business after a routine visit to the establishment?
This is how a factual inspection works: the traffic police visited our client’s store and reported a violation during the sale of alcoholic beverages.
The result is a tax notice and a fine of over 750,000 UAH!
The ASA Group team discovered a number of significant violations of the State Tax Service during the inspection and registration of its results.
What mistakes the DPS made and how we managed to completely cancel the fine in court — we analyze in this case.
Traffic police accusations
Violation No. 1. Improper execution of fiscal checks
DPS version:
- the company sold alcoholic beverages, but did not indicate the digital value of the excise tax stamp barcode — the series and stamp number — on fiscal receipts;
- The checks issued to buyers do not comply with the established form and cannot actually be considered proper settlement documents.
Fine: 750,000 UAH.
Violation No. 2. Lack of product code according to the UKT Foreign Economic Activity Code
DPS version:
- The company conducted sales of excisable goods through the RPO without programming the commodity subcategory code in accordance with the UKT Foreign Economic Activity Code.
Fine: 5,100 UAH.
Business position
The ASA Group team built the company’s defense on 6 arguments.
Argument #1. The State Tax Service had no reason to inspect
In the order to conduct an actual inspection, the tax authority referred to subparagraphs 80.2.2 and 80.2.7 of the Code of Taxation of Ukraine.
However, to apply these norms, the State Tax Service had to have specific information:
- about possible violations of the rules of settlement transactions, circulation of excisable goods, or other requirements controlled by the tax authority;
- or about the use of undocumented labor and the payment of salaries without paying taxes.
During the trial, the tax authorities did not provide any evidence confirming the receipt of such information before the audit was scheduled.
The State Tax Service only formally indicated in the order the relevant provisions of the Tax Code, but was unable to prove that it had information prior to the inspection regarding possible violations by the Client of the norms of current legislation, which became the basis for the inspection of a specific taxpayer.
Argument #2. The tax office did not check which type of excise stamps were on sale
The old excise stamps did not contain a barcode or QR code. Therefore, alcohol labeled with such stamps could legally be in circulation until fully sold within the expiration date.
Therefore, the absence of a digital barcode value in a check did not always indicate a violation: if the goods had an old-style excise stamp, it was technically impossible to enter such details in the check.
However, the DPS:
- did not establish which brands were applied to the alcohol sold – old or new;
- did not examine the original documents for the purchase of the goods;
- did not investigate whether the detected transactions related to new excise stamps.
Therefore, the conclusion of a violation was premature.
Argument #3. Data from the electronic PRO system is not enough for a fine
During the audit, the tax authority relied exclusively on information from the RRO data accounting system. However, such data is in the nature of tax information and may serve as a basis for further audit, but does not replace direct evidence of a specific settlement transaction – in our case, fiscal checks.
To confirm the violation, the State Tax Service should have examined the fiscal checks, but:
- The tax office did not have any of the checks on which the fine was based;
- Some documents were not provided even after the court directly requested the inspection materials.
Argument #4. The State Tax Service overestimated the basis for calculating the fine
The tax office calculated sanctions based on the total amount of the checks.
However, in such receipts, along with excisable goods, other goods were also sold. The State Tax Service included the entire purchase price in the penalty base, although the potential violation concerned only excisable goods.
For example, if alcohol cost about UAH 500 in one check, and the total purchase amount was over UAH 780, the tax authority applied a sanction to the entire amount of the check.
The court found such a calculation unfounded.
Argument #5. Two separate fines were combined into one PPR
The State Tax Service applied sanctions for two different violations and based on different paragraphs of Article 17 of the Law on RRO:
- for an improper settlement document;
- for the absence of a product code according to the UKT Foreign Economic Activity Code.
However, instead of separate tax notices-decisions for each financial sanction, the tax authority issued one PPR.
The courts recognized that this did not comply with the established procedure for processing tax notices.
Argument #6. The calculation of sanctions was signed by the wrong persons
The tax notice itself was signed and sealed by one official. At the same time, the calculation of financial sanctions, which is an integral part of the PPR, was signed by other persons.
The court recognized this as another shortcoming in the processing of the tax decision.
Court conclusions
The courts of first and appellate instance supported the position of the ASA Group team and canceled the fines imposed on the client based on two key conclusions:
1. The inspection was ordered illegally
The State Tax Service did not prove that, before issuing the order, it had specific information that gave it the right to conduct a factual inspection.
Because of this, the inspection itself did not create the appropriate legal consequences, and the tax notice-decision adopted based on its results was subject to cancellation.
2. The State Tax Service did not substantiate the legality of the penalties applied
The court did not limit itself to a procedural violation, but additionally verified the content of the tax authority’s claims.
He found that the DPS:
- did not find out the type of excise stamps;
- did not have all fiscal checks;
- incorrectly determined the basis of the fine;
- did not prove the exact amount of sanctions;
- made shortcomings during the registration of the PPR.
That is, the fine was canceled not because of one formal error, but because of a whole set of shortcomings.
