Authors:
Kristina Shapovalova, Partner
Vladyslav Holubokov, Associate
At the start of the major war, the state was unable to issue official clarifications on tax changes in a timely manner. The taxation of certain transactions was determined at the taxpayer’s own discretion. Current returns were brought into line, but previous periods were left unaddressed.
The situation has changed: the limitation periods, which were suspended during the pandemic and at the start of the war, have been reinstated. It is now time to address past errors.
If there are any uncorrected errors in returns submitted before 1 August 2023, these can be rectified without fines or penalties until 1 August 2026. After this date, this opportunity will be lost.
General approach
If an error in previous periods is identified independently, a revised calculation must be submitted. In this case, the amount of the error must be paid, plus a penalty of 3% or 5%, depending on whether the corrections are made to the incorrect return or to the current one. In addition, from the 91st day, interest is payable at a rate of 100% per annum of the NBU’s discount rate in force on each such day.
In other words, when correcting errors independently, the following would have had to be paid: the amount of underpayment, the fine and the interest.
However, for the period from 1 August 2023 until the termination or lifting of martial law, no fines or penalty interest will be charged for self-corrected underpayments of personal income tax and the military levy. This is provided for both directly by tax legislation and by clarifications from the tax authorities.
The time limit for corrections is three years (1,095 days). Initially due to the pandemic, and subsequently due to martial law, the time limits were suspended from 18 March 2020 until 1 August 2023. Afterwards, the clock started ticking again. Consequently, corrections to tax returns whose filing deadline fell within the suspension period may be submitted by 1 August 2026.
Audits
It is important to note that the suspension of time limits for scheduled and unscheduled documentary audits was also temporary – it lasted until 1 January 2025. As of today, the tax authorities may conduct an audit for the periods during which the time limits were suspended.
It is not possible to make corrections independently during an audit – this is prohibited by law.
Corrections trigger a desk audit and must therefore be made in a timely manner, be arithmetically consistent and supported by source documents.
Separate rules for the Single Social Contribution (SSC)
The SSC is governed by a separate law, which does not set similar limitation periods; consequently, errors can be corrected at any time.
There is no provision for full exemption from penalties here; a penalty of 0.1 per cent will have to be paid for each day of delay. In addition, the tax authority will impose a fine of 10 per cent for each reporting period, up to a maximum of 50 per cent of the amount – this approach is also reflected in individual tax consultations.
However, there is a grace period for the Unified Social Tax (UST): from 24 February 2022 to 1 August 2023, no penalties or interest will be charged on the UST, and any interest previously charged will be written off. Any amounts falling outside this period remain payable.
Practical conclusions
Given that the deadlines for audits by the regulatory authorities have been extended, errors not rectified during the period 2020–2023 may result in significant additional tax assessments. However, if adjustments to personal income tax and the military levy are made by 1 August 2026, only the amount of underpayment will be due, without any fines or interest.
The Unified Social Tax (UST) can be rectified at a later date, but the accruing interest, in addition to any fine imposed during an audit, provides sufficient incentive to rectify this aspect at the same time, rather than waiting for a specific moment.
