VAT refund has always been a painful cashflow issue for Ukrainian businesses. Introduction of electronic VAT administration system («EAS») improved the situation and businesses started receiving the VAT refund due to them on a regular basis. However, the State still owes circa UAH 4.7 billion of VAT refund to taxpayers for the periods preceding February 2016 that should have been recorded in the temporary VAT refund register.
Interestingly, after deployment of the EAS, the Supreme Court of Ukraine (the «SCU») changed its previous position in relation to recovery of VAT refund. Specifically, SCU ruled that recovery of VAT refund from the State Budget cannot be claimed through a court of law. Instead, the SCU ruled that the taxpayers should require the tax authorities to submit a relevant conclusion to the State Treasury authorities. The High Administrative Court of Ukraine (the «HACU») endeavored to overrule this position of the SCU, but their efforts were unsuccessful. The SCU overruled the favourable judgment of HACU and concluded that VAT refund is vested in the powers of the tax and treasury authorities. In the SCU’s opinion, the courts should not substitute tax and treasury authorities and thus, cannot rule on the recovery of the VAT refund from the State Budget.
In this way, the new illogical and fiscally driven tax jurisprudence was established. This resulted in the cancellation of judgments of appeal courts and HACU supporting the taxpayers by the SCU. In certain cases, the taxpayers have already received their VAT refunds, but due to the cancellation of positive court rulings, they had to repeatedly protect their rights in courts. The newly formed Supreme Court followed the above-mentioned SCU’s position.
Needless to say, that the tax authorities were reluctant to submit the relevant conclusions to the treasury authorities even if the taxpayers succeeded in courts. Thus, the SCU’s position introduced additional barriers to the taxpayers in getting the VAT refunds due to them. The things became even more difficult when the VAT refund procedure has been changed and the local tax authorities have deprived the right to submit VAT refund conclusions to the state treasury authorities. This resulted in the non-enforceability of court rulings requiring the local tax authorities to submit conclusions to the treasury. Certain taxpayers continued protecting their rights in courts by changing the order of execution of favourable court rulings to fit into the modified powers of the tax authorities or even continued trying to recover the VAT refund due from the State Budget irrespective of the established tax jurisprudence. There also were taxpayers that decided to wait for the VAT refund in general order based on the temporary VAT refund registry that never functioned as expected.
On 12 February 2019, the Grand Chamber of the Supreme Court overruled the position of the SCU and concluded that recovery of VAT refund from the State Budget is an efficient way to protect and restore the rights of the taxpayers. This is the historic date for the taxpayers that are still waiting for their VAT refunds, either included into the temporary VAT refund register or not. Now the taxpayers may claim the VAT refund due to them directly from the State Budget. Furthermore, the taxpayers are also entitled to claim a penalty for unreasonable delays in VAT refund due to them. This is especially relevant given that starting 1 January 2019 the maximum amount of the court fee for submission of claims to administrative courts is limited to 10 subsistence minimums (UAH 19,210).
However, the new issues are waiting for such taxpayers in the courts of law. Such issues may include the statements of the tax authorities on expiry of the statute of limitation, refusal of the courts in the renewal of missed procedural terms or upholding the motions changing the subject-matters of the taxpayers’ claims. As always, each specific case should be considered based on actual circumstances but doing nothing is not usually the best position as far as overdue VAT refund is concerned.