The Tax Authority Will no Longer Be Able to Cancel the FOP Status Based Solely on the Results of a Desk audit — bill
Can a tax inspector, without leaving their office, determine that an FOP (individual entrepreneur) exceeded the income limit in a given month? The answer is no. However, tax practice increasingly reveals a conflict between controlling authorities' desire for swift administration and taxpayers' right to proper verification procedures. This issue is most acutely felt by single tax payers whose registration is cancelled based on desk audits — audits conducted solely on the basis of declaration data.
The problem arises because an FOP's annual or quarterly reporting does not include a monthly breakdown of income, making it impossible to establish actual limit exceedances during transitional periods.
The new bill No. 15398, informed by recent Supreme Court practice, aims to end this procedural simplification. The legislative initiative promises to restore the primary function of desk audits: to verify the data indicated by the taxpayer in the tax report, rather than the reality of business processes.
Specification of Article 76 of the Tax Code of Ukraine
The draft law proposes to supplement paragraph 76.1 of Article 76 of the Tax Code of Ukraine with a new sentence. This addition directly prohibits a desk audit conducted solely on the basis of tax reporting, which does not allow for determining the taxpayer's monthly income volume, from being the basis for cancelling an FOP's registration as a single tax payer.
This change is important as it prevents subjective interpretation by tax authorities of general figures in declarations and guarantees that for a consequence as serious as deprivation of status, a full documentary audit must be conducted.
Precedent as a Prerequisite
The authors of the bill refer to the legal position of the Supreme Court outlined in the ruling dated 15 April 2025, in case No. 160/23272/24. In this case, the court concluded that the tax authority cannot cancel the registration of a single tax payer solely based on the results of a desk audit if it is necessary to examine primary documents and the actual amount of income received.
The plaintiff was an individual entrepreneur who changed her taxation system during 2023. Initially, she was in the third group of the single tax with a 2% rate, which was in effect during martial law and had no income volume restrictions. From July 2023, the entrepreneur switched to the second group of the single tax.
After submitting her annual declaration, the State Tax Service conducted a desk audit and concluded that, during her period in the second group, the entrepreneur exceeded the allowable income limit. To reach this conclusion, the tax authority applied a proportional calculation of the annual limit based on six months in the second group, subsequently deciding to cancel her registration as a single tax payer from 1 January 2024.
The Supreme Court disagreed with this approach. The court emphasised that a desk audit is conducted solely based on tax reporting data and does not involve examining primary accounting documents, bank statements, or other evidence that could confirm or refute the actual amount of the taxpayer's income.
The Supreme Court drew attention to the principle of non-retroactivity of the law, guaranteed by Article 58 of the Constitution of Ukraine. The court noted that the rules for proportional determination of the maximum income volume for single tax payers were introduced only from 1 August 2023, so they cannot be applied to legal relations that arose before this date, including in July 2023.
Moreover, the court stressed that cancelling the registration of a single tax payer is a significant interference with their rights, and therefore such a decision cannot be based solely on the results of a desk audit without proper examination of primary documents and other evidence confirming the actual circumstances of business activity.
Documentary Audit — The Only Lawful Way
The approach proposed by the Bill generally corresponds to established judicial practice regarding the limits of tax authorities' powers during desk audits.
For example, in case No. 380/23118/24, the Eighth Administrative Court of Appeal stated that cancellation of a single tax payer's registration is only possible based on the results of a documentary audit. The court emphasised that a desk audit is a current documentary control of the correctness of tax reporting and arithmetic indicators. However, issues of a taxpayer's compliance with the conditions of the simplified taxation system, including permitted types of activity, are not subject to desk audits and require a documentary audit.
Courts follow a similar approach in other categories of disputes. In particular, in case No. 640/30530/20, the court noted that even the presence of a tax debt, which, according to the Tax Code, can be grounds for cancelling single tax payer status, must be confirmed by proper evidence obtained during a documentary audit. Conclusions made solely on the basis of desk audit results cannot be sufficient legal grounds for depriving a taxpayer of the right to use the simplified taxation system.
Thus, judicial practice consistently holds that a desk audit cannot replace a documentary audit if establishing violations requires examining primary documents, business transactions, bank statements, or other evidence on which the right to remain in the simplified taxation system depends.
Adoption of this bill will ensure real guarantees of taxpayers' rights. It transforms judicial practice from an argument in court disputes into an imperative legal norm.
If adopted, the tax authority will no longer be able to cancel an FOP's registration in one day by a decision made without leaving the office. A documentary audit, with a visit to the site or a request for primary documents, will be required.
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