Inventory conduction during the tax authority’s audit

Sub-paragraph 20.1.9 Paragraph 20.1 Article 20 of the Tax Code of Ukraine stipulates that controlling bodies, defined by Sub-paragraph 41.1.1 Paragraph 41.1 Article 41 of this Code, have a right to request, during audits, the audited taxpayers to conduct inventory of fixed assets, tangible assets, funds, withdrawal of residual assets, cash from using information and documents regarding results of such inventory as a result of such audits or during subsequent tax control measures.

According to changes, made by the Law of Ukraine № 2719-IX as of 03.11.2022 "On amendments to the Tax Code of Ukraine and some other laws of Ukraine regarding privatization of state and communal property subject to tax liens and ensuring administration of the tax debt repayment", the Sub-paragraph 69.2 Paragraph 69 Sub-section 10 Section XX "Transitional provisions" of the Code, which entered into force on 24.11.2022, was granted with a permission to conduct unscheduled documentary audits, which are carried out at the taxpayer’s request and/or for reasons, determined by Sub-paragraphs 78.1.2 (in terms of the transfer pricing control), 78.1.5, 78.1.7, 78.1.8, 78.1.12, 78.1.14 - 78.1.16, 78.1.21 and 78.1.22 of Paragraph 78.1 Article 78 of this Code, and/or documentary unscheduled audits of taxpayers regarding whom tax information was obtained, which indicates the taxpayer’s violation of currency legislation in terms of compliance with deadlines for receipt of products for import and/or foreign exchange earnings for export, and/or documentary unscheduled audits on taxation issues by legal entities or other non-residents who carry out economic activity through a permanent representation on the territory of Ukraine, income received by non-residents with a source of origin from Ukraine, and/or unscheduled documentary audits of non-residents (their representative offices).

Conducting audits in the occupied territories and in areas where it is dangerous to stay, documentary unscheduled audits during the martial law are carried out in the presence of safe:

- access, admission to territories, premises and other property, which are used for carrying out economic activities and/or are taxation objects, or are used to receive income (profit), or are related to other taxation objects by such taxpayers;

- access, admission to documents, certificates on financial and economic activity, received income, expenses of taxpayers and other information related to the calculation and payment of taxes, levies, payments, compliance with the legislative requirements, implementation of control over which is entrusted to the controlling bodies , as well as financial and statistical reporting in manner and on grounds determined by the law;

- inventory conduction of fixed assets, tangible assets, funds, withdrawal of residual tangible assets, cash.

Requirement to conduct inventory is sent (handed) to the taxpayer according to Article 42 of the Code.

To date, the main acts establishing procedure for inventory conduction of assets and liabilities and processing their results are the Law of Ukraine № 996-XIV as of 16.07.1999 "On accounting and financial reporting in Ukraine" (hereinafter – Law № 996-XIV), Resolution of the Cabinet of Ministers of Ukraine № 419 as of 28.02.2000 "On approval of Procedure for submitting financial reporting" (hereinafter – Resolution № 419) and Order of the Ministry of Finance of Ukraine № 879 as of 02.09.2014 "On approval of Regulation on the inventory of assets and liabilities", registered in the Ministry of Justice of Ukraine on 30.10.2014 under № 1365/26142 (with changes and amendments) (hereinafter – Regulation № 879).

Paragraph 2 Article 3 of the Law № 996-XIV stipulates that tax, statistical and other types of reporting using a monetary measure are based on the accounting data.

Article 4 of the Law № 996-XIV stipulates that financial reporting must contain all information about the actual and potential consequences of economic operations and events that can affect decisions made on its basis.

Recording of facts of economic operations is ensured in primary documents according to Article 9 of the Law № 996-XIV. At the same time, documentation of economic operation with the corresponding primary documents does not indicate their unconditional compliance with content of the operation itself.

If there was no actual operation, relevant documents cannot be considered primary documents for tax accounting purposes, even if all the formal requisites of such documents are envisaged by current legislation.

Clause 6 of Paragraph 7 Section I of Regulation № 879 establishes that inventory conduction is mandatory, among other things, on the basis of properly executed document of the body, which according to the law has a right to demand such inventory.

Herewith, current tax legislation does not define a clear form of requirement to conduct inventory, since such document provides for the obligation of a specific person to perform certain actions. Therefore, each situation, especially in current circumstances of the martial law, is individual.

Part 1 of Article 10 of the Law № 996-XIV stipulates that inventory conduction is a responsibility of each enterprise in order to ensure reliability of the accounting data and financial (tax) reporting.

Law № 996-XIV applies to all legal entities created according to Ukrainian legislation, regardless of their organizational and legal forms of ownership, to representative offices of foreign economic entities that are required to keep accounting records and submit reporting.

Sub-paragraph 16 Paragraph 3 Section III "On approval of Amendments to the Procedure for registration of the documentary audit results on compliance with Ukrainian legislation on matters of the state customs affairs, tax, currency and other legislation by taxpayers-legal entities and their separate subdivisions", approved by Order of the Ministry of Finance of Ukraine № 657 as of 21.07.2017, stipulates that the descriptive part of an act (certificate) of the documentary audit has to contain information about inventory of the taxpayer's fixed assets, tangible assets, funds, including withdrawal of balance of the tangible assets, cash, as well as information about inventory of documents, conducted by the taxpayer during audit, calculations (in case of conduction).

As follows,

- during the audit, representatives of the State Tax Service have a right to request the taxpayer to conduct inventory;

- in order to conduct inventory, the taxpayer must receive a duly executed document with such  requirement;

- representatives of the State Tax Service may be present during inventory;

- conducting inventory at request of the State Tax Service, representatives of the State Tax Service are not a part of the inventory commission.