Disputes Between Tax Authorities and Businesses: Advice for Taxpayers

Dmytro Lazebnyi, Attorney at Law

Source: Yurydychna Praktyka

2025 has shown that regulatory and tax pressure is increasing, which in one way or another leads to an increase in the number of disputes with the tax authorities. However, unlike in previous years, courts are increasingly siding with taxpayers. This gives businesses a chance, but it can only be taken advantage of with the right preparation.

Statistics on Tax Disputes in 2025

In 2025, the State Tax Service planned 4,700 business audits. In 2024, tax authorities conducted over 13,000 scheduled and unscheduled audits. According to the Tax Audit Department, these audits resulted in additional charges of over UAH 38 billion, which is almost three times more than in 2019 (in 2020-2023, most types of tax audits were under a moratorium).

Nina Yuzhanina, a member of the Verkhovna Rada Committee on Finance, Taxation and Customs Policy, says that in January-April 2025, 67% of court cases were decided in favour of taxpayers, while at the end of 2024, this figure was 41%. Thus, the number of cases won by businesses in 2025 increased by 26%.

At the same time, the attention of tax authorities to taxpayers will only increase.

Court Practice in Tax Disputes in 2025

The issue of procedural deadlines for filing a lawsuit to appeal a tax assessment notice

One of the important decisions made by the Supreme Court in tax disputes is the decision of 16 July 2025 made in case No. 500/2276/24 on the issue of procedural deadlines for filing a claim to appeal a tax assessment notice after the administrative appeal procedure.

Previously, court practice on this issue varied. Issues of time limits for appealing a tax assessment notice are regulated by a number of articles of various regulatory acts:

• 1 month if the tax assessment notice was appealed through administrative procedure (in accordance with paragraph 19 of Article 56 of the Tax Code of Ukraine);
• 3 years if the administrative procedure was not applied (in accordance with Article 102 of the Tax Code of Ukraine);
• 6 months, as for any administrative dispute (in accordance with Article 122 of the Code of Administrative Procedure of Ukraine).

Subsequently, the practice of judicial authorities has developed various approaches to determining the time limits for appealing against tax assessment notices:

• in accordance with the practice of the Supreme Court (case No. 2540/2576/18), a taxpayer has 3 years to file a claim if he has not used the administrative appeal procedure;
• at the same time, the Administrative Cassation Court (case No. 160/11673/20) held a different opinion, i.e. the taxpayer has only 6 months to file a claim.

Supreme Court Practice

The Supreme Court’s different interpretations of the above provisions of the current legislation resulted in different decisions on the same issue.

In case No. 500/2276/24, the Supreme Court finally agreed on the issue of the time limits for taxpayers to appeal tax assessment notices. The Grand Chamber of the Supreme Court concluded that the deadline for filing a lawsuit to cancel a tax assessment notice or other decision of the controlling authority on the accrual of a monetary obligation, subject to the prior use of pre-trial procedure, is one month following the date of completion of the administrative appeal procedure.

In administrative proceedings, the Supreme Court has set the following deadlines for appealing decisions/actions/inaction of public authorities:

• if the taxpayer has not appealed against the decision of the controlling authority in a pre-trial (administrative) procedure, the deadline for filing a lawsuit is six months (part two of Article 122 of the Code of Administrative Procedure of Ukraine);
• if the taxpayer has appealed against the decision of the controlling authority in a pre-trial (administrative) procedure, which does not relate to the accrual of monetary obligations (e.g., blocking of tax invoice; assigning risk status, etc.), the deadline for filing a lawsuit is 3 months (part four of Article 122 of the Code of Administrative Procedure of Ukraine);
• if the taxpayer has appealed against the decision of the controlling authority in a pre-trial (administrative) procedure, which provides for the accrual of monetary obligations (e.g., a tax assessment notice), the deadline for filing a lawsuit is 1 month (paragraph 56.19 of Article 56 of the Tax Code of Ukraine).

We hope that from now on, the application of limitation periods in the matter of appealing tax assessment notices, as well as other decisions of tax authorities, will have the same approach.

Case Study

Ilyashev & Partners Law Firm successfully represented a Ukrainian hotel chain in a dispute with the State Tax Service of Ukraine and secured the cancellation of tax assessment notices totaling over UAH 4 million.

Among the charges brought against the hotel chain were storage in areas not intended for alcoholic beverages, production without a licence, false reporting of their sale and purchase volumes, and storing without excise tax stamps.

Ilyashev & Partners’ attorneys collected evidence that the tax assessment notices were unlawful, the tax inspection results were biased and its results were based solely on the assumptions made by tax authority representatives.

In the courts of first and appellate instances, Ilyashev & Partners’ team proved that the company stored alcoholic beverages according to law and that the hotel chain did not participate in the illegal production of alcoholic beverages.

Repayment of Tax Debt by Taxpayers Registered in the Occupied Territories

In accordance with the provisions of subparagraph 69.40 of paragraph 69 of subsection 10 of section XX of the Tax Code of Ukraine, temporarily, from 01.08.2023, the controlling authorities shall not take measures to repay tax debts arising before 24 February 2022 in relation to taxpayers – business entities whose tax address as of the date of the beginning of the temporary occupation is:

• territories of Ukraine temporarily occupied by the Russian Federation;
• territories where active hostilities are taking place;
• as of the date of the start of possible hostilities, territories of possible hostilities;
• as well as in relation to taxpayers – natural persons (including persons engaged in independent professional activities) whose place of residence is the territories of Ukraine temporarily occupied by the Russian Federation or territories where active hostilities are taking place, or territories of possible hostilities.

The legislation also establishes certain time limits for the validity of these rules, but in practice, the tax authorities deliberately ignore the rules and file lawsuits despite the existing legislative ban.

Such cases are not uncommon, as confirmed by court practice (the decision of the Second Administrative Court of Appeal of 29 December 2023 in case No. 480/3254/23; the decision of the Third Administrative Court of Appeal dated 15 October 2024 in case No. 280/1525/23; the decision of the Second Administrative Court of Appeal dated 25 September 2024 in case No. 520/1443/24; the ruling of the Zaporizhzhia District Administrative Court dated 12 September 2023 in case No. 280/7325/23 and other court decisions).

In certain cases (decisions of appeal courts), the courts decided to dismiss the tax service’s claims, while in others (court rulings), the courts left the claims pending and subsequently returned them to the tax authorities.

In this case, taxpayers need to carefully monitor the grounds for filing claims by tax authorities in court and, if there are relevant grounds, respond appropriately.

Our recommendations for the first steps in such cases are as follows:

• carefully examine the circumstances of the case regarding the time of the tax debt’s occurrence and the defendant’s presence in territories that meet the criteria of subparagraph 69.40 of paragraph 69 of subsection 10 of section XX of the Tax Code of Ukraine;
• if the criteria for the territorial affiliation of the defendant meet the criteria listed in subparagraph 69.40 of paragraph 69 of subsection 10 of section XX of the Tax Code of Ukraine, prepare the necessary evidence and written explanations, and submit them to the relevant court to protect the client’s interests.
• discuss the consequences of this method of protection with the client – refusal to satisfy the claim or return of the statement of claim will not deprive the tax authority of the right to file a corresponding claim after the occurrence of circumstances that make it impossible to do so now. For example, if the taxpayer’s tax address is located in the territory of Ukraine temporarily occupied by the Russian Federation, the tax authority will not be able to file a statement of claim until the last day of the month in which the temporary occupation ended, and if the taxpayer changes its location to another territory of Ukraine, until the date of state registration of the change of location.

Disputes Regarding Liability for the Actions of Counterparties

There is an established position that a taxpayer is not liable for the actions of a counterparty. The relevant legal position is highlighted in the decision of the Grand Chamber of the Supreme Court of 07 July 2022 in case No. 160/3364/19:    

“the provisions of tax legislation do not make the reliability of a taxpayer’s tax accounting data dependent on compliance with tax discipline by its counterparties if that taxpayer (purchaser) incurred actual expenses in connection with the purchase of goods (works, services) intended for use in its economic activity. Violation by certain suppliers of goods (works, services) in the supply chain of the requirements of tax legislation or rules for conducting economic activities cannot be grounds for concluding that the buyer of goods (works, services) has violated the requirements of the law regarding the formation of expenses and tax credit, therefore the taxpayer (the purchaser of goods (works, services)) should not bear negative consequences, in particular in the form of deprivation of the right to form expenses or tax credits, for the possible unlawful activities of its counterparty, provided that the court has not established facts indicating the taxpayer’s awareness of such behaviour by the counterparty and the coordination of actions between them”.  

That is, if the subject of the dispute is the authenticity of primary documents and confirmation of business transactions, it must be taken into account that the burden of proving the legality of its decision, action or inaction lies with the defendant (i.e., the taxpayer).

If the controlling authority provides evidence which, together with other evidence in the case, indicates that the documents on the basis of which the taxpayer declared a tax credit and formed expenses taken into account when determining the object of taxation contain information that does not correspond to reality, the taxpayer must refute these arguments.

In relations with business counterparties, it is necessary to:

• collect evidence of contract execution on your part in accordance with the requirements of the concluded contract;
• maintain appropriate accounting and tax records in accordance with the requirements of current accounting and tax legislation;
• confirm your expenses incurred in the course of economic activity with appropriate and sufficient evidence;
• collect evidence that will confirm your lack of knowledge about your counterparty’s illegal actions;
• submit relevant evidence to the case file.

The above legal position is also set out in the Supreme Court’s decisions of the of 08 July 2025 in case No. 200/2320/22, of 02 July 2025 in case No. 380/5471/24, of 30 June 2025 in case No. 280/886/23.

Case Study

Disputes over the actions of counterparties are the most common. Ilyashev & Partners Law Firm regularly defends clients in appealing tax assessment notices in such cases.

Thus, Ilyashev & Partners Law Firm successfully represented a Ukrainian manufacturer of energy-efficient equipment in a dispute with the State Tax Service of Ukraine. The firm secured the invalidation and cancellation of tax assessment notices totaling over UAH 8.3 million.

Based on the results of a tax audit, the manufacturer of energy-efficient equipment was accused, inter alia, of the fact that the said counterparties did not have enough personnel to carry out the relevant financial and business transactions, not confirming the facts of the purchase of goods by the counterparties that were subsequently sold by the company, lack of production equipment, warehouse and office premises, equipment necessary for carrying out financial and business activities, etc.

Ilyashev & Partners Law Firm was involved in the case at the stage of cassation appeal in the Supreme Court and succeeded in proving that the tax authority’s conclusions were unfounded and refuted by the primary accounting documents, which fully confirm the lawfulness of the company’s tax benefits formation for the period audited.

Ilyashev & Partners’ attorneys provided irrefutable evidence of the company’s legitimate business transactions with its counterparties. They also provided evidence of the absence of abuses on the part of the Ukrainian manufacturer related to the payment of value-added tax accrued throughout the supply chain. Thanks to the work carried out during the new consideration of the case in the court of first instance, the court cancelled the tax assessment notices.

Conclusions and Advice for Taxpayers in Disputes with the Tax Authorities

Courts continue to side with taxpayers in tax disputes, and the Supreme Court is working to generalise judicial practice and develop uniform approaches to the application of substantive law.

At the same time, despite the provisions of current legislation, the initiative to form the evidence base mostly comes from the taxpayer.

Advice for businesses in disputes with the tax authorities

• Do not ignore the advice of a tax lawyer/attorney.
• Keep accurate and clear tax and accounting records.
• Comply with the terms of the contract, collect and store evidence of compliance with the terms of the contract.
• Conduct an audit, including a legal audit, of your counterparty to determine whether it has any problems with law enforcement (tax) authorities.

Practice shows that the most important thing is to choose a defence strategy in a timely manner, prepare evidence and have a reliable legal advisor who knows how to work with the tax authorities.