​The Ministry of Finance has approved criteria for the VAT risk management system prepared by the SFS and discussed them with business representatives

On March 21, criteria for the VAT risk management system were discussed which had been prepared by the State Fiscal Service (SFS). Among the participants of the discussion were Y. Kapinus, State Secretary of the Ministry of Finance, Y. Bugrimova, Advisor to the Minister of Finance, representatives of the SFS and the Business Ombudsman Council, Ukrainian and international business representatives and experts.

What’s it about?

In December 2017, the operation of the VAT risk management system was suspended to find a coordinated solution which will not put any business sector at risk and, at the same time, will pose an effective tool to tackle VAT fraud. On February 21, 2018, the Government adopted its Decree No. 117. It must be noted that the risk assessment criteria used to take some time to be approved, which enabled some taxpayers to enjoy a fake tax credit. To make the VAT refund process transparent, the SFS now agrees these criteria with the Ministry of Finance in advance and publishes them on its official website.

The new monitoring system includes 4 stages:
Stage 1. Excluding criterion:

Supply of goods (services) to end consumers and/or transactions exempt from taxation;

Supply volume lower than UAH 500,000 and if the respective company’s executive manager is the director of less than 3 VAT payers;

Tax load is over 3%.

If a submitted tax bill/corrective calculation meets one of the above criteria, it is captured in the Register of Tax Bills. If it doesn’t, it is transferred to the second stage of risk assessment.

Stage 2. Control of the payer’s related risks:

A tax payer is registered using stolen or lost documents or documents belonging to non-existing, deceased, missing persons etc.

If a tax payer meets one of the above criteria, her/his tax bill/corrective calculation is suspended.

Otherwise, the tax bill/corrective calculation is transferred to the third stage of risk assessment.

Stage 3. Monitoring of criteria for the positive tax history of the taxpayer:

If the taxpayer does not meet any of the criteria for a positive tax history, her/his tax bill/corrective calculation is transferred to the fourth stage of risk assessment. If she/he does, it is registered.

Stage 4. Control of the transaction’s risk criteria:

If one of the listed criteria is met, the respective tax bill/corrective calculation is suspended.

During the discussion, business representatives and experts expressed their proposals regarding the criteria which were respected by the SFS. To enable a rapid reaction and to prevent VAT fraud, the criteria will be subject to permanent reviews and, if required, new criteria will be added.

The Ministry of Finance is aware that a small number of tax bills submitted by diligent companies are at risk of being blocked. To prevent it, the Ministry of Finance and the SFS prepared a procedure aimed to minimize such cases. Preliminary calculations and tests have proven that the number of tax bills blocked last year can be significantly reduced based on the new system’s criteria. A number of measures have been launched to speed up de-blocking for tax bills submitted by diligent business. Also, business representatives, representatives of the Business Ombudsman Council and experts agreed to cooperate intensively and to inform the Ministry of Finance and the SFS properly about the operation of the VAT risk management system.

What real-sector business should know to speed up the release of its tax bills:

An electronic register of suspended tax bills is implemented where tax payers will be able to trace the status of their suspended tax bills in the online mode. This solution will make the entire process more transparent;

The registration rejection form has been amended. Now, it shall contain a clear and motivated reason due to which the registration of a tax bill is denied. If a tax payer fails to submit some documents and/or submits incorrect documents, the registration rejection form will contain references to the concrete respective document;

If the decision of the responsible commission is not registered within 5 working days (7 days for tax bills amounting more than UAH 30 million), the respective suspended tax bills/corrective calculation is registered automatically;

Claims against the commission’s decisions are submitted electronically;

The agreed risk criteria for tax payers determining a positive tax history are published on the SFS official website.