Due diligence by the taxpayer or Instructions for preventing the chain tax fraud
Due diligence by the taxpayer or Instructions for preventing the chain tax fraud

Due diligence by the taxpayer or Instructions for preventing the chain tax fraud

Today, first and foremost, selecting the right business partner affects the taxpayer's right to VAT credit for the value added tax, and tax expenditures. So due diligence when choosing a contractor is a crucial step to reduce the risks associated with entrepreneurial activity.

It is known that the State fiscal service of Ukraine (SFS of Ukraine) uses automated systems of control, risk assessment. And if your counterparty-the seller "not good", the tax authorities will claim it to the end customer. Because he's, choosing a contractor, acting at his own risk. Practice shows that in the end suffers the real sector, because in fact there is a shifting responsibility to the end consumer, thereby "resets" the principle of personal responsibility of the taxpayer.

The principle of personal responsibility of the taxpayer is that the violation of an order of calculation and tax payment by the counterparty of the payer does not in the latter regard to any negative consequences.

You can still rassujdat of justice or the tion of norms or practice, so move on to the factual side of the issue, as this situation can lead to accusations by the fiscal authorities for tax fraud, i.e. tax evasion.

Tax evasion or tax fraud is the intentional violation of tax laws, which is punishable depending on the amount of damage to administrative or criminal sanctions. It can manifest itself in the violation of tax laws, double-entry bookkeeping, the concealment of income, smuggling, the concealment of assets.

    What is due diligence when choosing a contractor? How to prove, to tax then no claims have been made?

    To minimize business and tax risks prior to the implementation of the transaction, it is always wise to carefully check the information about the second party to the transaction, and the circumstances of the transaction. Nalogooblozenie in respect of a person who learned about the actual circumstances of the transaction (pointing to tax fraud), but in spite of this, involved in the transaction, which may entail committing a tax fraud, according to our practice and existing case law, there may be a suspicion in participation in a tax fraud. In order to avoid the above and developed these guidelines to help minimize risks.

    Because the guidelines are Advisory in nature, and the list of circumstances listed in the instructions is not exhaustive, its observance does not entail an unconditional right of the taxpayer, and does not exclude claims on the part of Fiscals. And as always – it all depends on the actual circumstances.

    It is also important to consider other unusual circumstances and it is recommended to trust your own instincts and experience as an entrepreneur. If you have any doubt remains, we recommend you to cancel the transaction and to consider the option of finding a more reliable partner.

When transactions are recommend you to ask yourself the following questions.


NB! Examine the second side of the transaction

- What is the history/General information about the second party to the transaction?

- Whether the second party to the transaction to sell the proposed product and/or service?

- Is most likely the cost of the transaction?

- How well-formed documents associated with the transaction?

Whether the second party to the transaction taxable?

We recommend you to check the tax data and the survey of economic activity of the counterparty to ensure that the integrity of the other side, and both sides will have the confidence that the second side of the bargain all right on tax issues.

Circumstances that may deviate from your normal business activities and in combination to specify to commit tax fraud:

1. The information obtained from publicly available databases on the side of the transaction (including Board members, management, owners), does not seem credible

When using various databases, including search engines on the Internet, displays information about the transaction or its legally legal representatives, which could raise questions about trust in the part of the parties to the transaction and the transaction. Such information may be publicly available databases, the topics covered in the various articles and forums, punishment of persons, and entered into force on negative judgments against such person. General information about the transaction should be checked when new partners to the transaction and/or in transactions with a high amount of taxation.

Circumstances that arouse suspicion, which became known from the obtained information can be the presence of tax debts, outstanding tax returns, the discrepancy between the scope of activities of the actual business activities, the absence of a functioning legal address outstanding reports for the periods, frequent change of Board members/shareholders/shareholders/owners, the appointment to the governing bodies of citizens of a foreign state, the absence of a (active) contact information and/or frequent change of address, email and phone number does not belong to the local operator.

2. When transaction a second party to the transaction fails to identify (don't ask name, contact information, right of representation)

A prudent businessman will find out the representatives of the second party of the transaction (for example, will be asked to present an identity document, the right of representation) and store the contact details of the parties to the transaction. In case of refusal to identify the parties to the transaction, the entrepreneur assumes the risk that later problems can arise in claims concerning the goods and/or services, and further certification of a transaction can be difficult.

3. On the Internet there is no active home page where you can see the activities of the parties to the transaction

Internet inquiries regarding the parties to the transaction do not give any other results, in addition to the records in the registers. Although the home page is not a mandatory attribute, its presence indicates the interest of the buyer to advertising of own activities and finding potential customers through advertising. Especially reasonable to pay attention to the above circumstance in respect of large transactions and transactions which are for the first time.

4. Party to the transaction is unable to provide information regarding the proposed services and/or goods and is not aware of the scope of activities

Legal representatives of the parties to the transaction do not know about the field and about the products/services. In addition, not meeting the requirements arising from legislation and other regulatory acts in the relevant field (e.g., registration, permits, petitions, notifications, licenses in the relevant field of activities; certificates for special products, etc.).

5. The company has no place of activities required for the sale of goods and/or services (e.g., warehouse, shop, industrial building, interior, etc.)

If the counterparty offering the product/service in large quantity for sale which you must have a specific place of business and employees (e.g., warehouse, shop, industrial building, interior, etc.), the suspicions can also cause of the fact that the place of business of the parties to the transaction is only Inbox, and the legal address of other commercial enterprises. Suspicion can also cause the fact is, if the conclusion of the agreement and/or demonstration/transfer of goods is made outside the place of business of the enterprise (for example, gas stations, Parking lots, vacant lots).

6. This large quantity which is not credible given the size and experience of the enterprise

If the counterparty provides the goods in big quantity or large scale industry/service, in terms of the transaction and/or the availability of the goods/services suspicion can cause the circumstances that the service provider may lack the necessary skills, experience, knowledge and tools.

7. The cost of the offered goods and/or services is surprisingly high/low

You should pay attention to the cost of the offered goods and/or services: if it is much above or below market value, and there is no logical economic justification for such difference in price, this may indicate tax fraud in the supply chain.

8. Party to the transaction said, to whom and at what price to resell the product and/or service


9. The parties to the transaction there is no valid VAT number

In the absence of current numbers the seller may not add to the cost of the transaction to VAT and the buyer is not entitled to credit VAT. It should be noted that tax invoice is the only document confirming the transaction, and the basis of the tax credit, and should be guided by the actual financial condition of the transaction.

10. Documents associated with the transaction is insufficient or missing

At the conclusion of transactions for the first time and/or large-scale/high-priced transactions are not concluded treaties, or they are General in nature. Also not compiled other possible documents confirming the transaction (the acts of acceptance-transfer of goods/services, transport documentation, certificates of the goods, terms of delivery and warranty, price proposals and other documents emanating from the sphere of activity).

The compilation of all of the above documents is not in itself mandatory, however, if the relevant documents are filled or saved, there is the risk that in the event of a possible dispute in the future will not be able to prove the circumstances connected with the transactions. Therefore, it is wise to collect and keep documents on transactions that raise reasonable suspicions or have a large amount of taxation.

11. Commodity accompanying documents incorrectly filled

Correct filling of accompanying documents relating to transactions, is one way of identifying the product and also can serve as a basis for the claims in terms of the quality of the product. For example, bills of lading and accompanying documents, CMR, product certificates and invoices are correctly listed dates, points of departure and destination, numbers of vehicles, sender, recipient and the data carrier, as well as the product description. Also note that the transport documents are an important procedure to confirm the import, export and transport.

12. In structured documents provide a very General description of the contents of the goods and/or services (e.g. just "construction service", "business-business", "materials", etc.).

If the documents (bill, regulations, contracts, etc.) is a General description of the services and/or goods (e.g., just "construction service", "business-business", "materials", etc.), in respect of transactions that are displayed in a similar way, there may be a risk that in the future it will be impossible to identify the actual content, the volume and value of the transaction and/or product.

13. Financing for the transaction is unusual

If the transaction is financed by loan, and basic information about the lender does not inspire confidence, and the terms of the loan are unusual (non-existent interest rates, lack of collateral, a longer repayment period), there may be grounds for suspicion in reality giving/receiving of the loan.

14. The terms of payment of the purchased goods and/or services are exclusive (for example, a request for payment of large sums of advance payment; making payments to persons who are not connected with the transaction)

Special attention should be paid to situations in which the counterparty wishes to receive payment for goods and/or services in cash in a large amount and/or payments(prepayments) transfers are made to persons associated with the transaction. Taking such conditions in the future may be difficult to prove the payment transaction.

None of the individual circumstances listed above does not automatically entail a claim to involvement in commercial or tax fraud. If on the basis of the above points there is a suspicion in the part of the parties to the transaction, we recommend you to check the reliability of the parties to the transaction and/or the transaction to make additional inquiries.