"Reducing Tax Risks in Ukraine: Strategies and Recommendations"

Tax compliance in Ukraine can be a challenging task for businesses operating in the country. With the constantly changing tax laws, regulations, and enforcement practices, companies need to be aware of the potential tax risks and ensure they are taking steps to mitigate them.

Latin saying that relates to tax compliance and risk management is "Ignorantia legis neminem excusat," which means "ignorance of the law excuses no one." In other words, businesses cannot claim that they were unaware of a certain tax law or regulation and use it as an excuse for non-compliance. It is their responsibility to stay informed and up-to-date on the laws and regulations that apply to their operations in Ukraine. Failure to do so can result in penalties, fines, or legal consequences. Therefore, it is crucial for businesses to seek professional advice and guidance to ensure they are in compliance with the tax laws in Ukraine. Types of tax audits and their characteristics

Tax problems continue to plague businesses in Ukraine, according to the latest report from the Rada of the Business Ombudsman. The report reveals that registration of tax invoices before the transfer of risk payers and non-conforming court decisions accounted for two-thirds (68%) of payments made by businesses to the state during the third quarter of 2022.

The report highlights the difficulties faced by businesses in Ukraine as they navigate the complex and often unclear tax laws and regulations. In addition to the tax issues, businesses also faced fluctuations in unfair behavior, inaction, and procedural misconduct from law enforcement agencies, accounting for 4% of reported cases.

In response to the growing number of tax-related crimes and issues, the Rada has announced regular meetings of Expert Groups with the State Tax Service of Ukraine and the Office of the Prosecutor General of Ukraine.

The theme of tax compliance in Ukraine highlights the challenges businesses face in navigating the country's complex and ever-changing tax system. With frequent updates to tax laws and regulations, companies must remain vigilant in staying up-to-date with the latest requirements to avoid penalties, fines, and potential legal issues.

Compliance with Ukraine's tax laws requires businesses to maintain accurate financial records, submit timely tax returns, and pay their taxes on time. Failure to comply with these requirements can result in severe consequences, including fines, penalties, and legal action.

To ensure compliance with Ukraine's tax laws, businesses may need to seek the assistance of tax professionals who can help them navigate the complexities of the country's tax system. These professionals can provide guidance on tax planning, prepare tax returns, and help businesses stay up-to-date with changes to tax laws and regulations.

Moreover, businesses in Ukraine should also adopt robust internal control systems that can help identify and prevent potential tax compliance issues. These systems may include regular audits of financial records, internal training programs on tax compliance, and regular communication with tax professionals to ensure that the business is meeting all of its tax obligations.

In addition to seeking the assistance of tax professionals and implementing robust internal control systems, businesses can also benefit from incorporating risk management practices into their tax compliance strategies.

Risk management involves identifying potential risks and taking proactive measures to mitigate or avoid them. By applying risk management principles to their tax compliance strategies, businesses in Ukraine can reduce their exposure to legal and financial risks associated with non-compliance.

One effective risk management practice is conducting regular risk assessments to identify areas of the business that may be vulnerable to tax compliance issues.

Based on the results of the risk assessment, businesses can then develop risk mitigation plans that outline specific actions to address identified risks. These plans may include implementing new internal controls, developing new policies and procedures, or providing additional training to employees on tax compliance.

By incorporating risk management practices into their tax compliance strategies, businesses in Ukraine can proactively address potential issues before they become legal or financial liabilities. This can help ensure that the business is compliant with Ukraine's tax laws and regulations, reducing the risk of penalties, fines, and legal action.

We recommend conducting a regular tax compliance risk assessment using the suggested structure outlined below:

Define the scope: Define the scope of the risk assessment by reviewing the company's tax compliance policies and procedures, tax planning strategies, tax return preparation, and internal controls related to tax compliance.

Identify potential risk areas: Identify areas of the business that may be vulnerable to tax compliance issues, such as international tax compliance, transfer pricing, VAT and income tax, and employee withholding tax. Consider the company's current tax compliance procedures, past tax audit results, and industry-specific risks.

Evaluate the likelihood and impact of each risk: Assess the likelihood and potential impact of each identified risk. This may involve a qualitative assessment based on the company's history of tax compliance, the complexity of the relevant tax regulations, and the potential financial impact of non-compliance.

Develop a risk management plan: Develop a risk management plan to address each identified risk. This plan may include process improvements, changes to tax policies and procedures, training programs, or other corrective actions.

Assign responsibility and establish timelines: Assign responsibility for each risk management plan and establish timelines for implementation. Ensure that appropriate resources are allocated to each plan and that progress is regularly monitored.

Review and update the risk assessment: Regularly review and update the risk assessment to ensure that it remains relevant and effective. Consider changes in tax laws and regulations, changes in the company's operations, and the results of any past tax audits.

By following this structured approach, Tax Issues Audit can identify areas of its operations that may be vulnerable to tax compliance issues and develop an effective risk management plan to mitigate those risks. We also recommend working closely with tax professionals to ensure accurate tax reporting and compliance with tax laws and regulations.

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