A recent case highlights the potential for unforeseen challenges from tax authorities. Our client, an agricultural production company, faced the denial of a substantial VAT tax credit. The tax authority’s basis for denial was the lack of an active construction permit at the precise time materials were acquired.
The authority argued that these transactions were conducted “outside the scope of economic activity.” We successfully refuted this claim.
During litigation, our attorney, Valentyn Bychek, successfully advocated for the client’s position, demonstrating that:
• A construction permit does not constitute a primary source document governing tax obligation related to the purchases.
• The scope of tax audits does not extend to verifying the presence or validity of construction permits.
• The specific construction project was consistent with the client’s registered activities under the National Classifier of Ukraine “Classifier of Types of Economic Activity” (KVED).
To prevent similar disputes, we recommend the following best practices:
Select reliable construction material suppliers to ensure the legitimacy and economic reality of the supplies cannot be easily challenged by tax authorities.
Plan procurement activities to commence only after project documentation is finalized or, minimally, upon submission of the application for a construction permit.
Maintain confidence in the eventual issuance of the required construction permit.
Confirm that the construction project alignswith your company’s officially registered KVED codes.
Should you encounter challenges or inquiries from tax authorities regarding your activities or rights, we stand ready to provide expert assistance and strategize the most favorable solution.