Weekly analysis for 04 – 10 September 2024

The RISK of Ukraine violating the EU requirements on inadmissibility of removing the tax area from the scope of the Law “On Administrative Procedure”

Event

On August 1, the Law of Ukraine “On amendments to the Tax Code of Ukraine on peculiarities of tax administration for taxpayers with high level of voluntary compliance with tax legislation during martial law” № 3813-IX of June 18, 2024 (hereinafter – the Law 3813) entered into force. This Law was initiated by a group of Ukrainian MPs led by the Chairman of the Verkhovna Rada Committee on finance, taxation and customs policy D. Hetmantsev.

This Law 3813, among other (mostly positive) provisions, can be assessed as an attempt to remove the tax area from the scope of the Law of Ukraine “On Administrative Procedure” (LAP), as it provides for supplementing Article 3 of the Tax Code of Ukraine (TCU) with paragraph 3.3, as follows:

“The procedure for administering taxes, duties, customs payments, single mandatory state social insurance contribution (hereinafter referred to as the “single contribution”), and other payments in accordance with the legislation control over observance of which is assigned to the oversight authorities, is determined exclusively by tax legislation and legislation on the collection and accounting of the single contribution”.

Such amendments and the likelihood of their dogmatic interpretation as non-applicability of the LAP to the tax area will be deemed gross violation of Ukraine’s European integration commitments.

Furthermore, the activities of the tax service itself objectively require changes and the establishment of constructive relationships with business. First and foremost, the Ukrainian business and the State Tax Service need the LAP.

CPLR position

The mentioned amendment to the TCU threatens both the LAP’s proper implementation and Ukraine’s progress towards EU membership in general. By these actions, Ukraine undermines trust of the EU institutions in the sincerity and seriousness of its intentions to become an EU member and to fulfil its commitments.

The European Commission, in its opinions on Ukraine’s progress assessment towards EU membership, named the LAP as the key law for ensuring the right to good administration:

 «A key development in the service delivery area was the enactment of the Law on administrative procedure in May 2022, which is essential for developing the right to good administration. »

The EU urged Ukraine to refrain from adding new exceptions to the LAP. The tax area was highlighted separately:

«Certain institutions have recently asked to be exempted from the application of the law. Ukraine should refrain from introducing new exemptions from application of the law (e.g. Tax Service) as it would drastically reduce its overall impact».

It should be noted that no separate (direct) amendments were made to part 2 of Article 1 of the LAP, which regulates the issue of exemptions from the scope of relations under the LAP. Therefore, in practice, legal disputes may occur regarding the applicability/non-applicability of the LAP to the tax area. Administrative courts will have to address such disputes, and case law may vary.

It should also be taken into account that the criteria for assessing the public authorities’ decisions, actions, and failures to act under part 2 of Article 2 of the Code of Administrative Procedure of Ukraine are still fully applicable in respect of these relations.

Therefore, the CPLR calls on the Government to develop and submit to the Parliament amendments to the Tax Code to ensure its proper compliance with the LAP as soon as possible. The Verkhovna Rada of Ukraine, in turn, should adopt such a law as soon as possible. This is necessary not only for European integration, but also for improving the business environment in Ukraine, as well as ensuring compliance with Article 41 of the EU Charter of Fundamental Rights (the right to good administration).