Publications Request from the tax: How to react correctly and what to do?

Most economic entities, at least once in their economic activity, face requests from the tax office to provide explanations and documentary evidence of certain economic transactions. 

The problem here is that economic agents properly analyse the risks that arise at that time.

First of all it is necessary to understand that receiving such a request from the tax office is the first evidence that your business has certain problems and it has attracted additional attention from the tax office. Since making such requests is not a whim of the tax inspector, it is done in strict compliance with the requirements of the law, if the necessary factors are present. In this case it is either the analysis of tax information held by the tax authorities, the analysis of their databases, or the receipt of such tax information from an external source, for example a complaint from one of your counterparties. 

It should be understood that in order to submit such a request, the procedure for sending it and the right to submit it -  are clearly regulated by the tax legislation: article 20 of the Tax Code, article 73 of the Tax Code.  The procedure for submitting this request and for providing a reply to this question is also regulated by the procedure for periodically providing information to the tax authorities upon request.

What to do when you receive a request from the IRS

When a request is received from a tax entity, two questions arise quite reasonably from the economic entity:

  1. "How do I respond to these tax requests correctly?" 
  2. "Is it even worth providing the information required in this request?" 

Some economic entities erroneously believe that they are sparing themselves the negative consequences simply by ignoring the request or by not receiving it. This often leads only to a worsening of the situation of the economic operator.

Why is that? Because, first, not receiving a given request is only, from the tax authorities' point of view, an indication that the business is a risk payer: This leads to the inclusion of this economic entity in the list of risky ones and, consequently, to all negative consequences, such as the refusal to register tax invoices.

It is therefore important to understand that it is obligatory to receive a tax request.

So you got a request from the IRS. What do you do with it? How do you react to it properly? Clearly, the right reaction, the right position and the strategy regarding the response to this request should be developed by your lawyer. But you have three main paths.

The first you received a request and simply ignore it, do not provide a reply - it is not the right solution. Why? Because failure to respond to the request by the tax office automatically gives grounds to the tax office to order you to carry out an unscheduled inspection. Yes, indeed, article 73 of the Tax Code, paragraph 3 provides: the right of a payer not to respond to a request by a tax official if, in the opinion of the payer, the request does not meet the requirements of the tax law, the requirements and grounds referred to in the same paragraph 3 of article 73.

However, you must understand for yourself that the negative consequences that the refusal of a reply produces are simply to ignore the request; in fact, it is worse than just correctly write the response to the request to the tax office, which indicates your disagreement with him and your refusal to grant the IRS’s request on the grounds that the request is against the law.

The second response to this request is that, after an analysis of the request, you come to the understanding that the request does not meet the requirements of the law, not only on the grounds of the request but also on the procedure for its execution, or send it to your address. Accordingly, write a written response to the tax office, which declares its opposition to the request on the grounds of tax law and essentially rejects the request by the tax office.

This position is the most acceptable and correct one from the point of view of legal practice, since even the Administrative Court of Cassation of the Supreme Court of Ukraine has repeatedly stated in its decisions that: That if the tax request is not in accordance with article 73, paragraph 3, of the Tax Code of Ukraine, does not have clear references to the paragraphs of the legislation which, in the opinion of the tax payer, is violated, does not specify clear grounds for submitting the request; does not indicate clear violations that have been established, in fact. This request is not enforceable, as without this specificity the economic operator is unable to provide detailed, correct, complete explanations regarding the questions set out in the request, and is thus deprived of the right to defend itself correctly.

On this basis, the court (often) always becomes a party to the economic entity in such difficult situations. It is therefore worth making use of this mechanism. In any case, it is worth providing a response that points to disagreement.

We also wish to draw your attention to the fact that the number of such refusals is not regulated or limited, that is, if every next request by a tax official is considered to be not in compliance with the requirements of the law -  You shall state this in your replies and you have such right.

Third response to the request. I’m not in favour of such a reaction, but there are times when economic agents mistakenly believe that they are doing well, that their economic activities are legal and legitimate, that they have no irregularities, and that they decide to go to the tax and give them exactly what they’re supposed to do, That is, to explain, to give the documents primary. What is wrong with this reaction, in my personal opinion, is that when you give the IRS all the primary documents they require -  You basically give them the opportunity to conduct an unscheduled off-site inspection of your business. 
All of you should understand that sending you a request is almost always only a procedural necessity in order to start an unscheduled check.

What kind of check: exit or exit is already up to you, because if you provide all documents, it will probably not be an exit check. If you do not provide the documents - the check is likely to be mobile, since the tax certificate must contain references to primary documents.

How to respond correctly to tax inquiries


  • The first thing to pay attention is that your explanations should be as detailed as possible and have links to all the business documents that you will provide to the tax. For what? In order to maximise the possibility for tax officers in any way, in one way or another, to interpret your business operations and to give them conclusions and analyses that are not true.
  • The second thing to notice is that all of the primary documents that you will refer to in the explanatory notes and that you will provide in the future tax documents - they have to be properly processed, They must contain all obligatory particulars - which are provided by law for these primary documents. They must also be free of any system errors and linked logically and consistently with each other, and must not have any strings attached, since any inconsistencies in these primary documents will certainly form the basis of the verification act, as evidence of a tax violation, evidence of the fictitious nature of your business operations, and in fact, will be the basis for further prosecution of you in the form of taxes and fines.
  • The third point to pay attention is that if you have already decided to provide in the tax statement and primary documents, then in the primary documents you should present everything you have: that is to provide the most complete package of documents, which will show that your business transaction was real and had a business purpose. These documents must not only be drawn up from a contract of receipt and transfer of services and payment, and whatever the case may be, it is advisable to join to these documents all the documents that were drawn up in the course of carrying out an economic transaction (business transaction).

Even documents confirming your negotiating process with your counterparty, documents confirming some internal ledgers kept by your enterprise and indirectly confirming that the transaction was carried out: They should also be provided for this request. 

What is it for? Why is it important? Because you must understand that it is likely that after receiving your request the IRS will assign you a check and will pay you taxes and fines. In future, you will have to appeal the conclusions of this inspection to the courts. Now, the moment you present some primary documents to the court that you have not provided in response to the request, or the time you have completed the audit, the audit, the court may simply not take them into consideration or consider them as evidence, on the grounds that these documents were not in fact available at the time of the audit.

In conclusion, I would like to draw your attention to the fact that, in fact, the only negative consequence of the reaction (correct, wrong) to the request of the tax authority will be only the appointment of an unscheduled tax audit.

However, the correctness of the reaction, the correctness of the analysis of the given request and the correct preparation for the answer to the given question should still be entrusted to professional tax lawyers.

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