The practice of conducting tax audits shows that one of the most common arguments of controllers to additionally accrue the arrears and financial penalties for VAT and company income tax to the payer is the recognition of certain transactions fictitious. What are the criteria to recognize transactions as fictitious?
According to the Guidelines to form the evidence base on fictitious of the taxpayer’s business transactions, there are criteria (attributes) indicating the risks of fictitious transactions of the payer.
Criterion 1
Transactions with respect to a product that is illegally legalized are considered non-commodity regardless of the distance of such a taxpayer in the chain of sales from the original seller.
Criterion 2
The seller does not belong (according to tax, financial and statistical reporting, unified register of tax invoices) to the subjects of material production and economic activity for the production of appropriate product. For example, among the activities of the taxpayer in accordance with the Classifier of economic activities-2010, recorded in the Unified State Register of Legal Entities and Individuals-Entrepreneurs, the relevant codes of the producer are not specified, he/she did not purchase the goods being sold (this should be reflected in the tax invoice registry). Consequently, such a product could not be sold by the payer, since he/she could not confirm its purchase, therefore, the transaction was fictitious.
Criterion 3
A company did not submit tax reporting or did not pay taxes.
Criterion 4
Tax invoices (adjustments calculations) were not registered in the Unified Register of Tax Invoices (hereinafter – URTI).
Criterion 5
The taxpayer is absent at the location, he/she has no real estate at the location (the right to lease of such property is not registered), a repeated change of his/her location was allowed.
Criterion 6
There are no material and technical possibilities for production, loading, temporary storage of the appropriate volume of goods at limited intervals, and no data confirming the purchase of transportation services.
Criterion 7
A small number of employees (from 1 to 5).
Criterion 8
The presence of signs of fictitiousness, in particular, criminal proceedings and sentences under Art. 205 of the Criminal Code of Ukraine (fictitious company).
Criterion 9
Refusal of taxpayer officials from admission to the audit (in the absence of substantiated grounds for non-admission).
At the same time, the taxpayer must remember that the rules of admission to audit are regulated by Art. 82 of the Tax Code of Ukraine, according to which officials of the controlling body have the right to proceed with the audit provided the following documents are presented (or sent):
- referral for audit, which specifies the date of issue, the name of the controlling body, details of the order to carry out the relevant inspection, the name and details of the subject, which verification is carried out, purpose, type (documentary scheduled/unscheduled or actual), grounds, starting date and the length of the audit, the position and surname of the official person who will carry it out;
- copies of the audit order, which indicates the date of issue, the name of the controlling body, the name of the taxpayer to be audited, the purpose, type (documentary planned/unscheduled or actual audit), the grounds for the audit, the start date and duration of the audit, the period of activity that will be audited.
The direction and order of the audit is valid if the signature of the supervisor (his/her deputy or authorized person) of the controlling body and sealing with the seal of the controlling body are valid;
- service certificate of persons indicated in the direction for the audit.
Failure to submit (or non-sending) to the taxpayer of these documents or presentation of documents that have been documented with a violation is grounds for preventing the official persons of the controlling body from conducting a documentary outward or actual audit.
Criterion 10
The existence of an error in the product code in the tax invoice.
Criterion 11
Failure to enter into a contract in writing.
Criterion 12
Absence of primary documents, non-confirmation of their data by tax reporting documents; the absence of certain mandatory requisites in the primary documents.
In the absence (incorrectly filled) of any mandatory requisites, the original document may be considered fictitious, and the transaction is such as non-documented and therefore did not occur.
Criterion 13
The handwriting examination confirmed the fact that the original document was not signed by the person indicated in his/her requisites.
Criterion 14
Lack of documents confirming the conformity of products: certificates of quality, origin, specifications, etc.
Criterion 15
Absence from the sellers of the goods of licenses and permits for the corresponding activity.
When the audit whether any or several of the above criteria for the tax is the basis for the conclusion of the intangibles of the economic transaction of the taxpayer and his/her counterparty.
The presence of a taxpayer of certain criteria defined by the SFSU as the basis for the conclusions about the unrealistic nature of the economic transaction is not a clear indication of the risk for the payer to lose the tax credit and tax expenses.
