Business has two months to whiten its tax reputation

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Business met the tax compromise proposed by the government with caution. Only 305 companies took advantage of the provided opportunity after nearly a month and a half since the corresponding law has entered into force. Moreover, only 35 of them came to tax inspectors voluntarily, while others were forced by the State Fiscal Service, which sent tax assessment notices to the companies.

Agreeing to the procedure of tax compromise, any company is allowed to write off 95% of its VAT and profit tax liabilities concealed before April 1, 2014. They will have to return the remaining 5% to the state. Therefore, the business will not only reconcile with the taxmen, but also save itself from prosecution for the past sins and use of «tax pits» by the law enforcement agencies.

Damp the ardor

It is not so much the desire to help entrepreneurs that stands behind the government’s initiative, but rather the need to fill the budget. Based on the preliminary estimates the SFS expected that the tax compromise would bring UAH 1 — 3 bn. Director of the Department of Tax and Customs Audit at the SFS Natalia Ruban says a total of 17,000 taxpayers are exposed to the risks associated with participation in the shadow tax schemes. «In many cases special reports have been drawn up, there are even criminal cases. There are some taxpayers that did not undergo any inspections at all,» said Ruban. The official also clarified that the SFS estimates the amount of shady VAT for those 17,000 companies at UAH 100 bn. The amount of income tax is approximately the same.

Theoretically, upon payment of 5% of UAH 100 bn the previously hidden UAH 5 bn of taxes would return to the state treasury. In the meantime, the state budget received only UAH 6 mn of the expected billions — UAH 3.5 mn was paid as VAT and UAH 2.5 mn was paid for profits, said Director of the Coordination and Monitoring Department at the SFS Maksym Moklyak. He added that based on the revised tax declarations the companies should still pay another UAH 40 mn of VAT and UAH 38 mn of profit tax.

Fear factor

The companies are reluctant to agree to the tax compromise for several reasons. First of all, they fear publicity, which can lead to pressure from law enforcement officials after the SFS settles its cases with tax dodgers. Yet, representatives of the tax department try to convince otherwise. Head of the Chief Investigation Department for Financial Investigations at the SFS Vadym Melnyk explains that using tax compromise businesses will be automatically protected from any other liability. «For taxpayers it would be beneficial to use the compromise, because regardless of the amounts owed their activities will be virtually decriminalized,» said Melnyk.

The taxmen are ready to turn a blind eye even on such methods of tax evasion as forgery of tax declarations. Provision of false information in declarations is forgery, but it can be viewed as a type of tax evasion, said Melnyk.

Another reason for which the business is in no hurry to sit down with the tax authorities is its concern about taxmen’s abuses. Under the law, the SFS inspects the amounts declared payable based on the compromise principles. Based on the results of the audit tax authorities are allowed to charge additional amounts higher than those offered by the companies. But even having appealed through the courts against decisions of the tax authorities, the company will not be able to use the compromise, and therefore will be forced to pay the full amount of taxes, which was originally indicated in its tax declaration.

The lack of sufficient working capital is no less problematic for businesses. Payment of 5% of old debts at once will only aggravate the problem, since, according to the Chairman of the SFS Ihor Bilous, in some cases, the amount of debt to be paid is close to UAH 50 mn. Some companies agree to compromise, but ask for permission to pay in installments, the official said. However, the legislator did not provide such an opportunity.

Victims of the regime

In any case, the SFS does not have much time to convince businesses and negotiate with them on the compromise. Starting from January 1 the law gives only 160 days for the whole procedure. The deadline for application for the tax compromise expires on April 16. After that the taxmen will have another 70 days to finish inspection of applicants.

At this point, according to Bilous, the agency is actively negotiating with the managers of oil and gas companies for participation in the fiscal compromise initiative. And not all of them agree to such innovation under pressure, says Bilous. The companies, which have multi-million debts, are especially active. «They understand that now they have the opportunity to write everything off and never go back to this issue. Otherwise, upon completion of the tax compromise initiative they will have to pay in full,» said the official.

There is a large number of companies with risk transactions in the public sector. In particular, Naftogaz is one of them, which clearly owes much more than UAH 1 bn, even though the SFS does not name any exact amounts, according to Bilous. Tax assessment notice was also issued to Ukrnafta.

Recovery of funds is problematic at the majority of the state-owned companies caught in tax evasion. Many of them are lossmaking, and the former management of such enterprises is either removed from offices or hiding. «We will address the issue of embezzlement of budget funds at the state-owned companies. We will submit the cases to the prosecutor’s office and put their former managers on wanted lists,» said Bilous. At the same time, the taxmen have little hope to return the hidden taxes from the public sector.