Business Inspections in Ukraine: Your Rights During a State Audit

A visit from tax officers or a labour inspector is almost never convenient. But an inspection is not only about the obligations of a business. It is also a clearly defined procedure that the inspectors themselves must follow. If you know your rights and the limits of the inspectors' powers, most conflicts can either be prevented or resolved without losses. Below we explain how this works in practice.

Who may inspect a business, and on what grounds

Businesses in Ukraine are inspected by various authorities: the State Tax Service, the State Labour Service (Derzhpratsi), the State Service for Food Safety and Consumer Protection, fire safety authorities, the environmental inspectorate and others. Their work is governed by different laws, and it is important to understand this from the outset.

• Tax audits are governed by the Tax Code of Ukraine. It provides for desk audits, documentary audits (scheduled and unscheduled, on-site and off-site) and factual inspections.
• Most other types of state supervision fall under the Law "On the Basic Principles of State Supervision (Control) in the Sphere of Economic Activity". It sets general rules: grounds, time limits, notification and the rights of the parties.
• Derzhpratsi's control over compliance with labour law follows its own procedure approved by the Cabinet of Ministers. Inspection visits and remote inspections are conducted under separate rules that partly differ from the general ones.

So the first question to ask is which law the authority at your door is acting under. That determines the document requirements, the time limits and the ways to appeal.

Scheduled and unscheduled inspections: the difference

Scheduled inspections are carried out according to approved plans. The tax service publishes a schedule of documentary audits, and other authorities publish annual supervision plans. A business must be notified of a scheduled inspection in writing in advance, within the period set by law. This gives time to gather documents and prepare.

Unscheduled inspections are only possible on grounds expressly provided by law. For tax audits these include, among others, failure to respond to a tax authority's request, discovery of inaccurate data in reporting, reorganisation or liquidation, filing an amended return, and complaints about violations. For other authorities they include complaints from citizens or employees, the business's own application, failure to comply with earlier orders, government instructions and the like.

If the ground for an unscheduled inspection is not on the statutory list, or is not stated in the documents, this is a strong argument for refusing access or later challenging the results.

Documents the inspector must present

An official of a controlling authority cannot start an inspection simply by turning up at the door. For an on-site tax audit, the official must present:

1. a referral (napravlennia) for the audit with the authority's details, the head's signature and the authority's seal;
2. a copy of the order (nakaz) to conduct the audit, stating the ground, type, duration and the period under review;
3. the service ID of the person who has arrived to conduct the audit.

For other supervisory authorities the set is similar: a certificate (referral) for the supervisory measure and a service ID. A labour inspector on an inspection visit must also present a service ID and, in certain cases, documents confirming the ground for the visit.

Check that the names in the referral and the ID match, that your company's name and registration code are correct, and that the referral has not expired. Errors in these documents are not a formality: the law links them to the right to refuse the inspector access.

What a business may demand, and what it may refuse

During an inspection a business has a number of rights, which are best exercised calmly and consistently.

• Refuse access to the inspection if properly executed documents have not been presented or if the ground for the inspection does not comply with the law. It is better to put the refusal in writing, stating the reasons.
• Insist that the scope and duration of the inspection are respected. The inspector may not go beyond the issues set out in the order or continue the inspection longer than the law allows.
• Decline to provide documents unrelated to the subject of the inspection, and receive an inventory of documents that are seized or copied where the procedure provides for this.
• Be present during all actions of the inspectors, and involve a lawyer or advocate.
• Record the inspection using audio, photo and video equipment. For supervisory measures this right is expressly provided by law.
• Receive the inspection report (act or certificate) and file objections to it.

At the same time, an unjustified refusal of access has consequences. In the tax sphere, for example, it may become a ground for assessing tax liabilities by estimation, and in the labour sphere it may lead to a fine for refusing access. So a decision to refuse access should only be taken when the inspectors' violation is obvious, and preferably after consulting a lawyer.

Inspections under martial law

After martial law was introduced, the rules on inspections changed significantly. For a time there was a moratorium on most tax audits, and the Cabinet of Ministers, by a separate resolution, suspended scheduled and unscheduled state supervision measures, with a number of exceptions. Later some of these restrictions were lifted or amended: certain types of tax audits resumed, and other authorities gained additional grounds for control, in particular on the basis of complaints or in the interests of safety.

These rules have changed several times and continue to change. So when you receive a notice of inspection or see an inspector at the door, be sure to find out which rules apply on the current date and whether your situation falls under the restrictions in force. An inspection carried out in breach of a moratorium, or without a ground provided by the special wartime rules, may be found unlawful together with its results.

The inspection report, objections and appeals

The report and objections

The results of an inspection are recorded in a report (act) or a certificate. You should sign the report, but signing does not mean you agree with its findings. If you disagree, note this when signing and file written objections within the period set by law. For tax audits this period runs from the day you receive the report and is fairly short, so do not put it off.

In the objections, address each violation the inspector relies on, one by one, and attach documents supporting your position. This is not only a chance to persuade the authority. It also lays the foundation for any further dispute: what you state at this stage will considerably strengthen your position later.

Administrative appeal

A tax notice-decision or a resolution imposing a fine can be appealed to a higher authority. For tax decisions this means a complaint to the State Tax Service of Ukraine. While an administrative appeal is pending, the monetary obligation is, as a rule, not considered agreed, so it does not have to be paid until the complaint has been decided.

Court appeal

Decisions of controlling authorities are challenged in the administrative courts. You may go to court directly or after an administrative appeal. The time limits for filing depend on the type of decision and on whether a complaint to a higher authority was used. Missing a deadline often means losing the chance of a hearing on the merits, so calculating time limits is one of a lawyer's first tasks.

How to prepare in advance

The businesses that come through inspections best are those that prepared before the inspection began.

• Appoint a responsible person who meets the inspectors, checks their documents and records all actions.
• Prepare a short internal instruction for staff: what to do, whom to call, and what not to explain without a manager present.
• Keep primary documents, contracts, HR orders, employment contracts and timesheets in order.
• Regularly check inspection schedules and notices in the taxpayer's electronic account.
• Run internal audits of risk areas: how employees are engaged, counterparties with a doubtful reputation, cash settlements.
• Agree with a lawyer in advance so that they can join promptly on the day of an inspection.

Conclusion

An inspection is not a verdict for a business. The law gives entrepreneurs real tools for protection, from checking the inspectors' documents to filing objections to the report and appealing decisions administratively and in court. The key is to act in time and not miss deadlines. If an inspection has arrived or you have received a report you disagree with, we recommend consulting a lawyer. Learn more about our practice on the administrative law and procedure and business protection pages. The lawyers of Ablov and Partners in Odesa will help you assess the situation and choose a strategy.

This article is general information and does not constitute legal advice on a specific situation. Legislation, including the rules on inspections during martial law, changes over time, so please consult a specialist about your particular matter.