The Supreme Court recovered over 40 thousand hryvnias in court costs from the State Tax Service in favor of an individual entrepreneur due to a tax officers' error in the inspection order

The Supreme Court, composed of judges of the Cassation Administrative Court panel, issued a ruling that became an important decision in the field of tax control. Case No. 380/26084/24 concerned the appeal of penalty sanctions amounting to 1,094,145.00 hryvnias imposed on an individual entrepreneur for violating the procedure of accounting for goods inventory. The main issue was how detailed and personalized the order for conducting a factual inspection must be.

The tax officers conducted a control cash transaction — they purchased a cable adapter worth 299 UAH at a trading place rented by the individual entrepreneur. Immediately after, the entrepreneur was presented with an order to conduct a factual inspection of the electronics store.

The entrepreneur refused to sign the documents and allow officials to conduct the inspection, arguing that the order was issued regarding the store, not him personally, and the address indicated did not match the actual place of trade.

Despite this, the controlling authority drew up an act recording the absence of documents for goods worth over 1 million hryvnias.

Based on this act, the Main Department of the State Tax Service in Lviv region issued a tax notice-decision to impose financial sanctions.

The Lviv District Administrative Court and the Eighth Administrative Court of Appeal sided with the tax service. The courts reasoned that the factual inspection was appointed based on a report about possible violations in the store network.

The fact that the order indicated only the commercial name of the store, not the entrepreneur's full name, was considered by the courts not a significant violation, since the individual entrepreneur actually conducted activities at that address, which was confirmed by the fiscal receipt.

The courts believed that having tax information about violations within the store network is sufficient grounds to inspect any entity trading there.

Position of the Supreme Court

The Supreme Court disagreed with this approach, overturned the previous courts' decisions, and fully satisfied the entrepreneur's claim.

The Supreme Court emphasized that the inspection order is not an internal document of the tax service but a legal act of individual action. It must be clear and understandable so that the taxpayer can identify themselves, as well as the scope and limits of the inspection.

The court stressed that the commercial name cannot be a subject of tax legal relations. The order must contain specific details of the taxpayer (full name of the individual entrepreneur), as they are the bearer of rights and obligations. Using an abstract name instead of the surname nullifies legal certainty.

The "fruit of the poisonous tree" principle

The panel of judges concluded that if the inspection order is issued with significant violations, namely the absence of individualization of the subject, then the entire inspection is illegal.

The results of such an inspection cannot produce legal consequences, regardless of what violations, for example, absence of goods accounting, were actually found.

Besides canceling the fine, the Court ordered the recovery of court costs in the amount of 41,577.51 hryvnias in favor of the entrepreneur, which include the court fee for filing the claim, appeal, and cassation complaints.

Important consequences for business

The Court emphasized the necessity of strict compliance with the requirements of Article 81 of the Tax Code of Ukraine regarding the issuance of inspection orders. The absence of proper identification of the taxpayer (in particular full name or taxpayer identification number) in the order may be grounds for recognizing the inspection as unlawful.

Taxpayers are advised to verify the compliance of the order with legal requirements before the start of the inspection. In case of significant formal violations, this can be an argument in further challenging the inspection results.

The Court noted that general information about possible violations within a group of business entities is not automatically grounds for appointing an inspection of a specific person without proper individual formalization of the decision.

This decision confirms that the formal legality of the order is a mandatory prerequisite for any state intervention in economic activity.

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