The State Tax Service cannot refuse business without specific reasons — Supreme Court on blocking tax invoices

The Supreme Court, in a panel of judges of the Administrative Cassation Court, after considering case No. 380/17115/24, recognized the refusal to register tax invoices as unfounded. In this case, the Supreme Court confirmed that authorities are obliged to properly justify the reasons for refusal, rather than limiting themselves to general statements.

The dispute arose after the Main Department of the State Tax Service in Lviv region refused the Limited Liability Company to register four tax invoices issued during the sale of sunflower seeds totaling over UAH 1.07 million. The tax authority stated that the taxpayer allegedly did not provide all documents.

The LLC insisted that it provided the tax authority with a complete package of documents, including contracts for the purchase and sale of sunflower seeds, consignment and delivery notes, bank statements, warehouse lease agreements, product loading documents, income orders, and even an inspection report of the warehouses by the State Service of Ukraine on Food Safety and Consumer Protection.

The court of first instance agreed with the company's arguments and obliged the State Tax Service to register the tax invoices. The appellate court sided with the tax authority, considering the provided documents insufficient.

Supreme Court Decision

The court emphasized that the procedure for making decisions on registration or refusal to register tax invoices is defined by Procedure No. 520. The taxpayer has the right to submit explanations and documents confirming the reality of the business transaction, including contracts, primary and settlement documents, bank statements, and other evidence.

After amendments to Procedure No. 520, the procedure became multi-stage and provides for the possibility of submitting additional explanations and documents upon request of the controlling authority.

At the same time, the Supreme Court noted that such a procedure does not exempt the controlling authority from the obligation to make a decision that is substantiated, motivated, and made taking into account all documents submitted by the taxpayer, as required by part two of Article 2 of the Code of Administrative Procedure of Ukraine.

Judicial practice holds that a decision to refuse registration of a tax invoice must contain specific reasons for refusal. General formulations such as "failure to provide documents" without specifying which documents are missing are insufficient.

In this case, it was established that after the suspension of the registration of tax invoices, the plaintiff submitted initial explanations and documents, and after receiving an additional request from the controlling authority — also additional explanations and documents.

Thus, the taxpayer used all opportunities provided by Procedure No. 520 to confirm the reality of business transactions.

The Supreme Court noted that the key to resolving the dispute is not the formal fact of submitting or not submitting documents, but the substantive assessment by the controlling authority of the evidence actually provided by the taxpayer, and the presence in the decision of specific motives that would allow understanding why the submitted documents do not confirm the declared business transaction.

The controlling authority's reference to a general formulation about "failure to provide documents regarding the warehouse" without detailing which documents are considered missing or why the provided documents are insufficient does not meet the requirements of individual motivation of an administrative act.

In particular, if the taxpayer has submitted documents directly related to the storage of goods (warehouse lease agreements, acceptance-transfer acts, warehouse documents, transport and delivery notes, bank statements, as well as other primary documents), the controlling authority is obliged to substantively correlate them with the criteria it refers to and explain why these documents do not confirm the actual transaction or the presence of warehouse storage conditions.

Instead, a formal refusal without such correlation effectively nullifies the taxpayer's right to participate in the administrative review procedure and contradicts the principles of good governance and legal certainty.

The Supreme Court also rejects the controlling authority's argument that the taxpayer must independently determine a complete and exhaustive list of documents sufficient to confirm the business transaction. Although the taxpayer is the bearer of primary evidence, it is the authority that, after receiving it, is obliged to evaluate it and, in case of doubts, specify which aspects remain unconfirmed.

Thus, the appellate court's ruling is subject to cancellation, and the decision of the court of first instance is to be upheld.

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