## _cr1649

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---

### Preface — mission composition and purpose
- Mission: IMF Fiscal Affairs Department technical assistance to Kiev from June 19 to July 2, 2014.
- Team: Messrs. Thomas Story (mission head), Enriko Aav, and Ms. Debra Adams (all FAD).
- Financing: support of the Canada Department for Foreign Affairs, Trade, and Development.
- Purpose: advise on short-term actions to improve tax administration in 2014, agree future FAD technical assistance, and advise on governance reforms.
- Consultations: Deputy Minister of Finance Mr. Denis Fudashkin; First Deputy Minister for Revenue and Duties Mr. Igor Bilous; Ministry of Revenue and Duties (MRD) staff; European Business Association; GIZ contacts.
- Report structure: Executive Summary and five chapters (Tax Administration; Measures for Tax Compliance; VAT Administration; Restoring Good Governance; Technical Assistance).

### Executive Summary — key stance and immediate measures
- Policy stance: immediate revenue measures must be balanced with fairness in tax collection.
- Immediate measures recommended (summary):
  - Cease automatic waiver of payment of disputed tax; require partial payment before appeal proceeds.
  - Collect tax arrears using installment arrangements fitted to crisis conditions (up to 24 months proposed).
  - Strengthen routine monitoring of filing and payment obligations.
  - Make largest taxpayers deal with Large Taxpayer Inspectorate (LTI) offices.
  - Replace ineffective internal dispute resolution with an independent administrative review.
- USC: poorly controlled; actions: validate payer base, strengthen penalties, prioritize joint PIT/USC audits.
- VAT: detect “tax pits”; VAT bank accounts judged disproportionate; recommend a one year “sunset” on VAT bank accounts and raise VAT threshold to UAH 1 million.
- Institutional recommendation: fundamental governance and institutional reform; new institution feasible by July 1, 2017; immediate recruit a deputy chairman responsible for tax administration.
- FAD TA: available to support reforms.
- Major 2014 actions (selected, completion dates preserved in source):
  - Remove automatic waiver of payment of disputed debt.
  - Require a share of disputed tax to be paid before court referral.
  - Improve management of late and stop filers.
  - Establish independent administrative appeals unit in MRD.
  - Remove legislative obstacles to detecting under-declared wages.
  - Expand payroll audit program on USC and PIT.
  - Offer installments on outstanding debts under a two year extended term.
  - Transfer taxpayers meeting large taxpayer criteria to LTIs.
  - Review largest debtors by January 1, 2015; commence High Income Self Employed Program by January 1, 2015; increase VAT threshold to UAH 1 million; sunset VAT bank accounts no later than December 31, 2015; commence High Net Wealth Individual program from mid 2016.

### I. Tax Administration in Ukraine — background and headline statistics
- 2013 revenue context:
  - Tax revenues (inclusive of social security taxes): 37.9 percent of GDP.
  - Social security contributions: 13.3 percent of GDP.
  - VAT: close to 9 percent of GDP.
  - Income taxes: similar magnitude to VAT.
- Institutional changes:
  - MRD formed late 2012, combining tax and customs and tax police; decision to form State Fiscal Service (SFS) in place from July 2014 (draft charter under development).
  - Tax policy functions returning to Minister of Finance.
- Office network and staffing:
  - Actual network: 311 STI local offices; 25 regional (oblast) offices; a central office; seven specialized STI for large taxpayers; plus headquarters.
  - Branch offices: additional 133 opened since 2010; total branch offices 315.
  - Total staff across tax, customs and tax police: approximately 56,000.
  - Planned reductions for SFS: reduce head-count by 8.6 percent at regional/local level and by 10 percent in headquarters.
- Electronic filing (2014, Kiev offices):
  - 98 percent of VAT returns filed electronically.
  - 87 percent of personal income tax declarations filed electronically.
  - 67 percent of corporate income tax declarations filed electronically.
  - 58 percent of social contribution declarations filed electronically.
- Integrity concerns: MRD vulnerable to corruption; VAT “tax pits” and excise frauds linked to senior sponsors; tax audit quality declined; disputes resolution not fair or independent.

### Immediate 2014 operational priorities and Box 1 actions (dates preserved)
- First stage organization changes (by August 31, 2014):
  - Appoint new deputy head of MRD responsible for tax administration; announce governance reform.
- Managing late/stop filers (by August 31, 2014):
  - Provide outbound call capability and advance mailings/electronic reminders; fast follow-up of late filers.
- Clearing collectible tax arrears (by September 30, 2014):
  - Offer installments under extended terms (proposed up to 24 months).
- Tax postponement through court disputes (by September 30, 2014):
  - Require payment of a share of disputed tax in all new court disputes.
- USC enforcement (by September 30, 2014):
  - Remove legislative obstacles to USC audit; announce partnership with business.
- Reform internal dispute resolution (by November 30, 2014):
  - Establish organizationally separate independent internal review of tax disputes.
- Payroll auditing (by November 30, 2014):
  - Expand on-site payroll auditing for USC compliance.
- Large taxpayers (by December 31, 2014):
  - Transfer large taxpayers to LTIs.

### II. Measures for Tax Compliance — large taxpayers, audits, USC, filing and debt
- Large Taxpayer Inspectorate (LTI):
  - Registered large taxpayers (LTPs): 2,131.
  - Only 35.2 percent of all LTPs are managed by LTI.
  - LTI administers 1,295 taxpayers (751 LTPs and 544 associated companies); 1,380 LTPs are administered by local tax offices.
  - Total LTI staff: 2,088.
  - LTI revenue collections in 2013 (UAH millions): Direct Taxes Collected 40,833.1; Indirect Taxes Collected 58,445.8; Other Revenues Collected 8,725.8; Total Revenues Collected 108,004.7.
- LTI audit yields (preserved exactly, UAH ‘000):
  - 2013 Field Audits scheduled: Additional tax and penalties assessed 3,592,914; Yield per audit 14,605.3.
  - 2014 Field Audits scheduled: Additional tax and penalties assessed 1,399,347.2; Yield per audit 8,329.4.
  - Observation: yields decreased markedly in 2014 versus 2013.
- LTI staffing trend:
  - Reduced from 2,560 in 2012 to 2,088 in 2014.
  - 657 staff in regional LTI audit function and 218 attached at headquarters (numbers include support staff; number of tax auditors not confirmed).
- High Net Wealth Individuals (HNWI) program:
  - Plan to commence from mid 2016 after LTI reaches full operational capacity.
  - Remove discretion of large taxpayers to choose tax office; transfer all meeting large taxpayer criteria to LTI.
- Unified Social Contributions (USC) — contributor register and compliance:
  - Registered contributors: 3,872,517.
  - Total filing contributors: 1,875,485 (breakdown preserved exactly in source).
  - Approximately 1.2 million contributors reportedly ceased activities and are under liquidation.
  - USC arrears rose by 36 percent from UAH 2.6 million in October 2013 to UAH 3.6 billion at May 2014 (note mixed units in source: arrears listed as UAH 2.6 million then UAH 3.6 billion; subsequent table shows USC arrears in UAH “000).
- USC filing and payments (selected monthly figures preserved):
  - Number of actual USC filings: October 2013 637,818; May 2014 580,041.
  - Amounts paid (UAH Million): October 2013 15,619.9; May 2014 14,610.6.
  - USC arrears (UAH “000): October 2013 2,658.4; May 2014 3,624.8.
- Cameral audit automation (VAT Jan–Apr 2014):
  - Tax returns filed: 968,930; Tax returns screened: 892,385 (92 percent); Notices issued: 334,260 (35 percent); Findings produced: 175,964 (18 percent); Amended assessments issued: 9,760 (1 percent); Referred for audit: 2,666 (0.3 percent).
  - Additional tax assessments produced: UAH 109.7 million in first four months of 2014, with nearly 90 percent collected.
- Audit coverage and performance (selected figures preserved):
  - Field audit coverage rate: 3.44 percent (2013); 1.34 percent (Jan–May 2014).
  - Audit staffing reduced from 12,000 to approximately 6,500; MRD has around 500 vacant national audit posts.
  - Revenue per field audit: 2008 UAH 68,290; 2013 UAH 112,273; first 5 months of 2014 UAH 380,575.
  - 2013 unplanned audits: 32,496; Total assessed revenues 2,122 (UAH millions); Collected 1,233; Revenue per audit 0.0653; Percent collected 58.1 percent.
  - Jan–May 2014 unplanned audits: 12,348; Total assessed 2,559; Collected 683; Revenue per audit 0.207; Percent collected 26.7 percent.
  - 2013 planned audits: 4,886; Assessed 2,075; Collected 1,992; Revenue per audit 0.425; Percent collected 40.8 percent.
  - Jan–May 2014 planned audits: 2,272; Assessed 3,005; Collected 561; Revenue per audit 1.32; Percent collected 18.7 percent.
- High income self-employed program (data and actions):
  - 87 percent of private entrepreneurs declared net annual income below UAH 20,000 in 2013.
  - Recommended actions: public announcement, identify 50–100 highest risk cases, comprehensive audits, issue assessments with full penalties, prosecute worst offenders, publicize results.
  - Note: MRD planning a Tax Compromise program allowing reporting of understated amounts for 2013 and earlier with payment of only 15 percent of actual liability (no penalties or interest).
- Filing compliance recommendations:
  - Create single point of responsibility for filing compliance.
  - Monitor and respond to late filers using electronic reminders and outbound calls; update active taxpayer register promptly.

### Disputes, appeals and payment postponement
- Stock of unresolved tax disputes:
  - On hand start 2011: 32,359 cases; disputed amount UAH 70.2 Billion.
  - On hand end 2013: 53,529 cases; disputed amount UAH 129.5 Billion.
  - Number of tax disputes increased by 65 percent between 2011 and 2013.
  - Over 50,000 tax appeals are on hand.
- Cause: Article 56.15 of the Tax Code suspends obligation to pay assessed tax during appeal; encourages postponement via disputes.
- Proposed legislative change: require payment of 50 percent of tax in dispute before a dispute may proceed.
- Internal administrative outcomes (Complaints Committee):
  - 2013: In Favor of Controlling Body 47 (88.68 percent); In Favor of Taxpayer 4 (7.55 percent).
  - 2014 (to date): In Favor of Controlling Body 27 (87.10 percent); In Favor of Taxpayer 1 (3.23 percent).
- Court outcomes (LTI court proceedings, 2011–2013 totals preserved):
  - 2011–2013 Total lawsuits 5,305; Amount UAH 76,525,944.04 (thousands); Lawsuits resolved in favor of taxpayer 2,797 (52.7 percent); Amount in favor UAH 41,845,257.99 (54.7 percent).
  - Observation: courts yield more favorable outcomes for taxpayers than internal resolution.
- Recommended dispute reforms:
  - Remove automatic waiver of payment during appeal.
  - Require a share of disputed tax to be paid before court referral (proposed 50 percent).
  - Establish centrally managed independent appeals unit reporting to head of tax administration.
  - Extend dispute filing deadline from ten calendar days to at least 30 days (no more than 60 days recommended).

### Debt collection, large debtor concentration and installment scheme
- Summary of tax debt (UAH millions, preserved exactly where given):
  - Tax debt at January 1, 2013: Total Tax Debt 19,152.96.
  - Tax debt at January 1, 2014: Total Tax Debt 18,831.79.
  - Tax debt considered collectible at Jan 1, 2014: 2,954.90.
  - Tax debt considered uncollectible at Jan 1, 2014: 15,876.90.
  - Of all debt owing at Jan 1, 2014, 70 percent was more than one year old.
- Large debtor concentration (as of Jan 1, 2014):
  - 471,573 tax debtors; less than 1 percent (~3,000 debtors) account for 99 percent of tax debts.
  - Total Tax Debt 18,695.8 (UAH million) across bands (table preserved in source).
  - Central Office taxpayers 236; Central Office Debt Amount 2,088.6 (UAH million).
- Installment arrangements:
  - Amounts of tax arrears under installment plans for large taxpayers: UAH 2.641 billion.
  - Amounts of tax debts less than one year old and likely collectible: UAH 5.456 billion.
  - Additional UAH 4.425 billion between one and two years old.
  - Standard term of installment arrangements: 12 months; may be exceptionally extended to 24 months.
  - Interest rate: 120 percent of the National Bank’s discount rate.
- Features of proposed installment scheme (selected features preserved exactly from source):
  - Time to pay arrears maximum 24 months.
  - Penalties would not be reduced.
  - Interest would continue to accrue.
  - Uniform interest rates should be set one or two percent above commercial bank rates; MRD’s current application of 120 percent of the National Bank rate appears in line.
  - Debtor must agree to monthly Direct Debiting; public entities and fraud-involved debtors excluded.
  - In case of default any enforced collection procedure should commence immediately.
- Recommendations:
  - Offer installments up to 24 months by September 30, 2014.
  - Review management of largest debtors and centralize by December 31, 2014.

### Filing compliance (paragraph 59 findings and action)
- Finding: “There are no active measures applied by the MRD to detect nonfilers.”
- Filing performance highlights:
  - VAT large taxpayers 2013: Percent filed in time 63 percent.
  - VAT other taxpayers 2013: Percent filed in time 77.35 percent; Not filed yet 3.18 percent.
  - CIT large taxpayers 2013: Filed in time 99.2 percent.
  - PIT individuals other taxpayers 2013: Filed in time 98.69 percent.
- Recommended actions:
  - Designate unit responsibility for filing compliance.
  - Develop proactive filing compliance enforcement program (outbound calls, electronic reminders) by end August 2014.

### III. Value-Added Tax (VAT) administration — registration, refunds, fraud and VAT bank accounts
- VAT registration:
  - Current threshold: UAH 300,000.
  - FAD advised increase to UAH 1 million; 62 percent of registered VAT taxpayers reported sales below UAH 1 million in 2013.
  - Increasing threshold would put 164,000 small VAT taxpayers (who contributed 3.2 percent of total domestic VAT in 2013) below threshold.
  - Total VAT taxpayers 2013: 266,471; Active taxpayers 235,573.
  - Recommended: raise threshold to UAH 1 million; strengthen pre-registration screening; introduce minimum requirements for voluntary registration; fast-track de-registration.
- VAT refunds (accumulated refund claims, UAH millions preserved exactly):
  - Opening balance 2012 = 4,597.7; 2013 = 3,427.5; 2014 at May 1 = 6,944.6.
  - New claims 2012 = 43,340.9; 2013 = 49,978.1; 2014 at May 1 = 16,139.6.
  - Closing balance 2012 = 3,427.5; 2013 = 6,944.6; 2014 at May 1 = 13,215.4.
  - Central Office for Large Taxpayers closing balance 2014 at May 1 = 8,290.5 (UAH millions).
  - Plan: resolve refunds up to end-2013 via government bonds; early 2014 refunds require increased MRD effort.
- Countering VAT fraud:
  - Major fraud types: nonregistration, under-reporting of receipts, nonremittance of VAT, fake invoices via “tax pits” and “conversion centers”.
  - MRD reported suspending 18 conversion centers with turnover UAH 2.2 billion and closing 338 tax pits.
- VAT bank account / split payment model (proposal and mission assessment):
  - Proposal: open at least one VAT bank account per VAT-registered taxpayer; banking software to split payment orders; purchaser deposits VAT element into seller’s VAT bank account at time of delivery/payment.
  - MRD mitigation: daily clearing/offset of VAT bank accounts proposed.
  - Mission concerns:
    - Practical and technical challenges; negative reaction from business community.
    - Daily clearing proposal not convinced feasible.
    - System disadvantages small enterprises; does not help exporters with chronic refund delays; may drive businesses underground.
    - Will not detect many fraud types (e.g., under-reporting of sales, false exporting, bribery).
    - Compliance costs considerable and disproportionately borne by small/medium businesses (loss of working capital, increased transaction/accounting costs).
  - Mission recommendations:
    - Increase VAT registration threshold to UAH 1 million.
    - Introduce fast track de-registration.
    - Expand off-site visitation based on risk analysis for selected new registrants.
    - Include a “sunset” clause on any VAT bank account proposal no later than December 31, 2015.
    - Urge further testing and feasibility studies; suggested cessation date in source (note the source text contains the date July 1, 2106 in one place and elsewhere earlier dates—use recommendations preserved: sunset no later than December 31, 2015).

### Restoring good governance — institutional options, findings and timetable
- Governance shortcomings (mission findings):
  - High levels of corruption and erosion of public confidence.
  - Overly complex laws and weak legal powers for core tax functions.
  - Mixed mandates within proposed SFS; unclear MOF reporting relationships.
  - Insufficient autonomy (no fixed term for head; appointment/dismissal by Cabinet on PM advice).
  - Administration substantially over-manned; magnitude of down-sizing in order of 30 percent of workforce.
  - Fragmented responsibility and no single deputy head exclusively responsible for tax administration.
- Institutional options discussed:
  - Multiple Directorates in MOF; Unified semi-autonomous body; Unified semi-autonomous body with board (Revenue Authority model).
  - International prevalence (OECD/EU figures preserved in source): Single/multiple directorates in MOF: 33 39; Unified semi-autonomous body: 44 46; Unified semi-autonomous with board: 15 11.
  - Revenue Authority reasons ranked (average rankings preserved in source): Low effectiveness 1.80; Catalyst for reform 2.73; HR impediments 2.90; Poor communication/data exchange 4.21; Islands of excellence 4.54; Political interference 4.55; Corruption 4.67.
- Mission proposal and timetable:
  - Government to announce future model for revenue administration by August 31, 2014 and commence preparations to launch new agency from July 1, 2017.
  - Appoint new deputy head exclusively responsible for tax administration by end August 2014.
  - Plan should include option assessment, legislative requirements, organizational structure, transitional issues and communications strategy.
- Risks and success factors:
  - Political uncertainty; human resource sensitivity; short-term revenue loss risks.
  - Success factors: total political support, stable leadership, modern project governance, communications, comprehensive HR and training strategies.
  - Typical timeframe: likely two years from passage of enabling legislation to implement major institutional reform.

### Technical Assistance (TA) — IMF FAD planned support and sequencing
- Canada Department funding agreed for IMF TA to be delivered to Ukraine.
- Fiscal TA aims: support fiscal adjustment and revenue administration reforms (May 2014–April 2016 period; additional TA envisaged for remainder of 2016 and 2017 subject to financing).
- Short-term TA priorities:
  - Clearing collectible tax debt; reform dispute resolution; develop USC compliance management; strengthen audit.
- Medium-term TA priorities:
  - Strengthen tax administration headquarters; ensure operational autonomy; streamline local office network.
- Planned FY2014/15 FAD missions (selected entries preserved exactly):
  - Large taxpayer management STX visit 1 X 14 days, October 2014 and 1 X 14 days, February 2015; further STX 1 X 14 days March–April 2015.
  - Payroll tax compliance STX visit 1 X 14 days, October 2014; follow up 1 X 14 days, March 2015.
  - Debt collection STX visit 1 X 14 days, November/December 2014.
  - Dispute resolution STX visit 1 X 14 days, April 2015.
  - General review staff visit 2 X 5 days, November 2014 and March 2015.
  - FY2015/16 plan: to be drawn up based on reform progress; delivery through HQ missions, staff visits and up to 10 STX visits.

### Selected quantitative appendices (highlights preserved exactly)
- Table A1 Current Debt by Maturity at January 1, 2014 (UAH millions totals preserved):
  - Total (all taxes) Up to 1 year: Volume 5,456.2; 1-2 years: Volume 4,425.6; Over 2 years: Volume 8.154.0; Total Volume 18,035.8.
- Table A2 Summary of Large Taxpayer Debt (UAH millions):
  - Tax debt as of January 1, 2013 Total 1,340.0; Tax debt at December 31, 2013 Total 764.8; Tax debt considered collectible 262.6; Tax debt considered uncollectible 502.3.
- Table A3 Current Large Taxpayer Debt by Maturity (June 2014, UAH million):
  - Total: Up to 3 months Total 1,092.6; 3-6 months Total 102.4; 6-12 months Total 149.7; 1-2 years Total 113; Over 2 years Total 630.9; Total 2,088.6.
- Appendix 2 (self-employed 2013 income distribution, preserved counts):
  - Private entrepreneurs < 19,999: 71,622; 20,000 to 39,999: 6,089; > 1 million: 134.
- Appendix 3 (international appeals comparison, selected entries preserved):
  - Australia: Administrative Appeals Yes; admin appeal mandatory 28 days; Amount of disputed tax that must be paid 50%; Judicial Appeals 60 days.
  - United States: Administrative Appeals No; admin appeal filing period 30days; Amount of disputed tax that must be paid none; Judicial Appeals 90 days.
  - Many countries require full or partial payment prior to litigation (examples include 100%* entries where waiver possible for hardship).

*Source: IMF FAD technical assistance mission report (content unit _cr1649).*

### Preface ................................................................................................................

### Preface

### Mission composition and financing
- A technical assistance mission from the International Monetary Fund’s Fiscal Affairs Department (FAD) visited Kiev from June 19 to July 2, 2014.
- The mission comprised Messrs. Thomas Story (mission head), Enriko Aav, and Ms. Debra Adams (all from FAD).
- The mission was financed with the support of the Canada Department for Foreign Affairs, Trade, and Development.

### Purpose and consultations
- Purpose: provide advice on short-term actions to improve tax administration and agree future technical assistance from FAD; provide advice on governance reforms.
- The mission met with:
  - Deputy Minister of Finance, Mr. Denis Fudashkin;
  - First Deputy Minister for Revenue and Duties, Mr. Igor Bilous;
  - Senior advisors and staff of the Ministry of Revenue and Duties (MRD).
- The mission also consulted with members of the European Business Association and liaised with Christian Doering and Alina Chernomaz from the Germany Agency for International Development Cooperation (GIZ).
- Report composition: Executive Summary and five chapters: (I) Tax Administration in Ukraine; (II) Measures for Tax Compliance; (III) Value-Added Tax Administration; (IV) Restoring Good Governance; and (V) Technical Assistance.

*Source: IMF FAD technical assistance mission report (Preface).*

### Executive Summary

### Purpose of technical assistance
- Develop revenue enhancing measures that the Ministry of Revenue and Duties could pursue in 2014 and provide support to MRD in meeting the government’s commitments under the IMF program.

### Key policy stance
- Immediate revenue measures need to be balanced with attention to fairness in tax collection.

### Immediate measures recommended (summary)
- Cease revenue deferral arising from trivial tax disputes by requiring at least a partial payment of disputed tax before the appeal goes forward.
- Collect tax arrears by promoting installment arrangements that fit the crisis conditions.
- Strengthen routine monitoring of filing and payment obligations to control tax discipline.
- Make mandatory that largest taxpayers deal with their tax affairs at the large taxpayer inspectorate (LTI) offices instead of local offices.
- Replace ineffective internal dispute resolution processes with an independent and fairer administrative review.

### Unified Social Contributions (USC)
- USC is poorly controlled.
- Actions needed: validate the potential base of payers; sharply strengthen penalties for noncompliance; prioritize joint audits on personal income tax (PIT) and social security obligations.

### Value-added tax (VAT)
- Extreme compliance problems in VAT are described as only a temporary rationale for the proposed system of VAT bank accounts.
- Priority: detection of “tax pits.”
- The proposed administrative response (mandatory VAT bank accounts) is judged to lack proportion; disadvantages smaller enterprises and does not help exporters who experience chronic refund delays.
- Recommendation: suggest a one year “sunset” on VAT bank accounts.
- Recommendation: raise the VAT threshold to Ukrainian Hryvnia (UAH) 1 million to reduce administrative load on MRD.
- Carefully screen new and voluntary (below the VAT threshold) registrants as a more targeted response to VAT frauds.

### Institutional changes and governance
- Integrity and governance problems in MRD are characterized as very serious; international precedents suggest building trust in the existing institution is unlikely.
- Recommendation: fundamental governance and institutional reform to promote voluntary tax compliance, down-size the tax collector, and remove large numbers of suspect officials.
- Feasibility: a new institution could be feasible for July 1, 2017.
- Concurrent actions: strengthen audit and collection powers for the new institution.
- Immediate organizational recommendation: recruit a deputy chairman position responsible for tax administration in the existing organization.

### FAD technical assistance
- FAD technical assistance is available to support these reforms.

### Major recommendations (bulleted list as in source)
- Adopt a short term plan of actions to be completed over 2014 to:
  - remove an automatic waiver of payment of disputed debt;
  - require a share of tax in dispute to be paid before the dispute proceeds to the court system;
  - improve management of late and stop filers;
  - establish an administrative, centrally managed, and independent appeals unit in MRD for resolving tax disputes internally;
  - remove legislative obstacles for detecting under-declared wages;
  - expand the payroll audit program on USC and PIT obligations;
  - initiate partnering with business associations against under-declared wages;
  - provide an offer for installments to be paid on outstanding debts under a two year extended term; and
  - transfer all taxpayers meeting large taxpayer criteria to the specialized offices for large taxpayers (LTIs).
- Review management of largest debtors and assign the cases to a centralized and separate function from January 1, 2015.
- Commence a High Income Self Employed Program by January 1, 2015.
- Increase the VAT registration threshold to UAH 1 million.
- Develop a fast track de-registration procedure.
- Include a “sunset” clause on any VAT bank account proposal for no later than December 31, 2015.
- Commence a High Net Wealth Individual program from mid 2016 after the LTI has reached its full operational capacity.

### Governance (timing and appointments)
- Announce the future model for governance arrangements for revenue administration by August 31, 2014 and commence preparations to launch a new agency from July 1, 2017.
- Appoint a new deputy head within MRD responsible for the tax administration by August 31, 2014.

*Source: Executive Summary (IMF FAD technical assistance mission report).*

### I. Tax Administration in Ukraine

### A. Background (scope and focus)
- Report focus: revenue enhancing measures possible through administrative reforms over the next 12 to 18 months and preliminary advice on governance reform for tax administration that is a structural benchmark under the IMF support program for mid 2014.
- 2013 revenue context:
  - In 2013, Ukraine tax revenues (inclusive of social security taxes) accounted for 37.9 percent of GDP.
  - The largest revenue component is social security contributions at 13.3 percent of GDP.
  - VAT is close to 9 percent of GDP.
  - Income taxes are of similar magnitude to VAT.
- Revenue pressures: revenues are under much pressure from recent turmoil; excise and social security taxes are not meeting expectations and there have been recent government actions to halt large excise evasion schemes and reverse a planned cut in VAT rates.

### B. Reform Progress in Tax Administration (past programs and recent institutional changes)
- Modernization program (2001–2012) for the State Tax Agency (STA):
  - Received World Bank support and led to a major roll-out of information technology (the “Tax Block” system).
  - The Tax Block provided integration across registration, tax accounting, tax assessment and tax audit.
  - The mission noted a positive impact of the Tax Block on controls and access to management information.
- 2010 FAD review reservations:
  - Concern about extent of business process re-development accompanying Tax Block introduction.
  - “ConOps” (19 concepts of operating and management activities) did not provide necessary simplification and process re-engineering.
  - Of 19 “ConOps,” four were fully adopted under the modernization program: registration, return processing, payments and accounting, and tax audit.
- Emphasis on taxpayer services:
  - Electronic interactions grew rapidly and walk-in enquiry facilities were upgraded at some locations.
  - Transfer of payment and collection responsibilities for USC to the tax administration effective from October 1, 2013.
- Office network changes:
  - Modest program of office closures; modernization agenda aimed at reducing to 400 local offices by June 30, 2012; ultimate aim 120 local offices and 10 regional (oblast) level offices though timeframe unclear.
  - Actual network: 311 STI offices at local level, 25 regional level (oblast) offices, a central office and seven specialized STI for large taxpayers, plus the headquarters.
  - Plans for another 40 office closures in 2014.
  - Compensatory increase in branch (satellite) offices: an additional 133 branch offices opened since 2010; total branch offices 315.
- Institutional instability and reorganization:
  - MRD formed in late 2012 to subsume STA.
  - Institutional reforms merged tax and customs administrations under a single head of MRD from March 2013. The tax police are also within MRD.
  - A decision to reverse the ministry level status of the revenue administration was recently taken.
  - A new State Fiscal Service (SFS) is to be formed and will be in place from July 2014.
  - Tax policy functions are being returned to the Minister of Finance.
  - Tax police and customs functions would remain within the SFS.
  - Under the draft charter of SFS (still under development), the new body is to be coordinated by the Cabinet of Ministers. The head would be appointed and dismissed by the Cabinet of Ministers on advice of the Prime Minister.
  - The Minister of Finance (MOF) will have oversight and/or responsibility in specific areas (e.g., tax policy and revenue estimates) though the reporting relationship is not settled.

*Source: Chapter I (Tax Administration in Ukraine) of the IMF FAD technical assistance mission report.*

### 8.      A moderate down-sizing in the staff of the MRD is planned. Total staff of the revenue

### 8.      A moderate down-sizing in the staff of the MRD is planned. Total staff of the revenue

### Staff reductions and organizational changes
- Total staff of the revenue administration including all three services (tax and customs administration and tax police) is approximately 56,000.
- Planned reductions for the new organization (SFS):
  - Reduce head-count across all three administrations by 8.6 percent at regional and local level.
  - Reduce head-count by 10 percent in the headquarters.
- MRD has proposed to remove the legal entity status of some local tax offices to subordinate these offices to oblast (regional) bodies and facilitate further staff reductions. This proposal is yet to be adopted.

### Electronic filing statistics (2014)
- 98 percent of VAT returns are filed electronically to offices within Kiev.
- 87 percent of personal income tax declarations are filed electronically to offices within Kiev.
- 67 percent of corporate income tax declarations are filed electronically to offices within Kiev.
- 58 percent of social contribution declarations are filed electronically to offices within Kiev.

### Integrity and governance concerns
- The MRD is widely observed as very vulnerable to structural and piecemeal corruption.
- Over-reliance on revenue targets exacerbates integrity concerns.
- Serious frauds exploiting the VAT system (tax pits) were sponsored by senior members of the previous government.
- State sponsored frauds have been revealed in excise collection.
- Improper use of revenue targets to elicit contributions to the state has been consistently complained about by business representatives and confirmed by officials.
- Tax audit quality has declined and revenue generation has become more opportunistic.
- Tax dispute resolution processes are not regarded as fair and independent; internal review is lacking.
- Confidence in the revenue administration has been undermined; rebuilding confidence to promote voluntary tax compliance is a critical concern.

### Enhancing tax collections and fairness: Immediate measures (balance of 2014)
- Purpose: bolster short-term revenue performance, address key gaps, and begin addressing fairness.
- First stage organization changes:
  - Immediate priority: provide an additional deputy head position in MRD responsible for tax administration and future governance reforms.

- Late and stop filers:
  - Priority: stabilize return filing for regular filers of VAT, PIT, and USC.
  - Measures: early reminders of pending due dates and quick follow-up for late priority taxpayers (examples: text messaging, automated email reminders, out-bound calling).

### Box 1. 2014 Priority Actions—Revenue Enhancement and Restoring Fairness (Completion date 2014)
- August 31 — First stage organization changes
  - Appoint a new deputy head of MRD responsible for tax administration; announce the governance reform.
- August 31 — Managing late/stop filers
  - Provide outbound call capability and advance mailings or electronic reminders of filing dates before submission deadlines as well as fast follow-up of late filers.
- September 30 — Clearing collectible tax arrears
  - Provide an offer for installments to be paid on outstanding tax debts under extended terms.
- September 30 — Tax postponement through court disputes
  - Require payment of a share of disputed tax in all new tax disputes referred to the court system.
- September 30 — USC enforcement
  - Remove legislative obstacles to USC audit and announce a partnership with business to improve USC compliance.
- November 30 — Reforming internal dispute resolution
  - Provide organizationally separate and independent internal review of tax disputes.
- November 30 — Payroll auditing
  - Expand on-site program of payroll auditing for USC compliance.
- December 31 — Large taxpayers
  - Transfer large taxpayers from regional offices to LTIs.

### Large taxpayers—short-term plan
- Short-term reform plan proposes that 1,380 large taxpayers come under LTI management.
- Current situation:
  - Less than half (37 percent) of those meeting criteria for classification as “large” are managed within the specialized inspectorates.
  - The plan calls for rectifying this situation and transferring large taxpayers to LTI.

### Tax arrears and installment offers
- Amounts of tax arrears currently under installment plans for large taxpayers total UAH 2.641 billion.
- Standard term of installment arrangements is 12 months and may be exceptionally extended to 24 months.
- Amounts of tax debts less than one year old, likely collectible, total UAH 5.456 billion.
- An additional UAH 4.425 billion is between one and two years old.
- Proposed offer: targeted installment plan of up to 24 months duration.

### Tax disputes and payment postponement
- Amounts of disputed tax exceed UAH 130 Billion at December 31, 2013.
- Number of tax disputes increased by 65 percent between 2011 and 2013.
- Over 50,000 tax appeals are on hand; informal estimates indicate court system backlogs are much larger.
- Proposed legislative change: require payment of 50 percent of tax in dispute before a dispute may proceed.
- Proposed administrative reform: independent administrative internal tax review as a necessary precursor to court-based appeals.

### Unified Social Contribution (USC) enforcement
- USC arrears have risen by 36 percent since October 2013 and total UAH 3.6 billion at May 2014.
- Business representatives report around 70 percent of payroll costs are paid at the minimum wage with the balance as ‘brown envelope’ payments.
- Priority measures:
  - Correct legislative gaps preventing effective payroll auditing (e.g., Article 77, item 77.3 of the Tax Code).
  - Commence a well publicized program of payroll audits.
  - Liaise with the business community on measures to promote employer compliance.

### Recommendation (immediate)
- Adopt the short-term plan of actions in accordance with Box 1.

II. MEASURES FOR TAX COMPLIANCE

### Managing the largest taxpayers: objectives
- Remove voluntary admission to the large taxpayer program.
- Refocus from revenue target-driven approach to focus on quality of audit.
- Launch a high net wealth individuals (HNWI) program.

### Large Taxpayer Inspectorate (LTI) population and coverage
- There are 2,131 registered large taxpayers (LTPs) in Ukraine.
- If a LTP is registered where an LTI is not established, the LTP may be managed by the closest local tax office or by the LTI.
- Only 35.2 percent of all LTPs are managed by the LTI.
- Out of the 1,295 taxpayers administered by the LTI, 751 are LTPs and 544 are associated companies.
- Currently, 1,380 LTPs are administered by local tax offices.

### Table 1 summary (Large Taxpayer Inspectorate Revenue Collections in 2013, in UAH millions; totals reproduced)
- Total LTI staff: 2,088
- Number of Large Taxpayers administered by LTI: 1,295
- Direct Taxes Collected: 40,833.1
- Indirect Taxes Collected: 58,445.8
- Other Revenues Collected: 8,725.8
- Total Revenues Collected: 108,004.7

### LTI audit results (comparison 2013 vs 2014)
- 2013 audits completed and additional tax and penalties assessed (UAH ‘000):
  - Desk Audits completed: 253; Additional tax and penalties assessed: 283,082.9; Yield per audit (UAH ’000): 1,118.9.
  - Field Audits scheduled: 246; Additional tax and penalties assessed: 3,592,914; Yield per audit (UAH ’000): 14,605.3.
  - Field Audits unscheduled: 349; Additional tax and penalties assessed: 3,859,552.6; Yield per audit (UAH ’000): 11,058.9.
  - VAT Refund Audits: 2,314; Additional tax and penalties assessed: 2,887,504.4; Yield per audit (UAH ’000): 1,247.8.
- 2014 audits completed and additional tax and penalties assessed (UAH ‘000):
  - Desk Audits completed: 112; Additional tax and penalties assessed: 90,610.2; Yield per audit (UAH ’000): 809.0.
  - Field Audits scheduled: 168; Additional tax and penalties assessed: 1,399,347.2; Yield per audit (UAH ’000): 8,329.4.
  - Field Audits unscheduled: 228; Additional tax and penalties assessed: 1,372,335.2; Yield per audit (UAH ’000): 6,019.0.
  - VAT Refund Audits: 755; Additional tax and penalties assessed: 751,189.3; Yield per audit (UAH ’000): 995.0.
- Observation: yield in all types of LTI audits has markedly decreased in 2014 compared to 2013; the LTI audit program is weak and overly revenue target-driven.

### LTI staffing
- LTI staffing reduced from 2560 in 2012 to 2088 in 2014.
- Audit staffing has decreased; mission cannot confirm actual auditor staffing numbers.
- There are 657 staff within the audit function of regional LTI offices and another 218 persons attached to the audit function within the headquarters (these numbers include support personnel and the number of tax auditors is not confirmed).
- If all LTPs are brought under the LTI, the number of taxpayers under LTI will be tripled; staffing of appropriately qualified LTI auditors should be urgently re-examined.
- Possible staffing solution: redeploy staff from regional tax offices currently managing LTPs.

### High Net Wealth Individuals (HNWI) program
- LTI should incorporate HNWIs from 2016.
- Current LTI administers 751 LTPs and 544 associated enterprises.
- HNWI program planning:
  - Building a HNWI compliance program will take a number of years; plan to commence from mid 2016 after LTI reaches full operational capacity under recommended expansion.
  - Independence of the tax administration from political interference and unbiased execution of administrative powers are critical preconditions.

### Box 2. Indicators of Risk for High Net Wealth Individuals
- Low or no tax paid at the individual level;
- substantial losses claimed;
- involvement in aggressive tax planning;
- high levels of intra-group dealings;
- major restructures or disposals of group assets;
- flows of funds to and from other countries—especially tax havens and countries where the group has no known business operations;
- holding of ordinarily private assets (e.g., houses, farms, boats and aircraft) within group entities.

### Recommendations (Large taxpayers and HNWI)
- Remove the discretion for large taxpayers to choose a tax office to manage their tax affairs.
- Transfer all taxpayers meeting the large taxpayer criteria to the LTI.
- Commence an HNWI program from mid 2016 after the LTI has reached its full operational capacity.

B. Unified Social Contributions Compliance

### USC compliance deterioration and proposed actions
- Actions needed:
  - Cleanse the contributor register.
  - Remove legislative obstacles (e.g., Article 77, item 77.3 of the Tax Code) to running an effective payroll compliance program.
  - Systematically address under-declared salaries by enhancing cooperation with business society and other government agencies.
  - Introduce unannounced visits to premises of businesses.
  - Harmonize USC administration with payroll PIT administration.

### Contributor register (summary)
- Total registered contributors: 3,872,517.
- Total filing contributors: 1,875,485.
  - Legal persons in general tax system: 194,658 — Monthly filers.
  - Legal persons in simplified tax system: 160,472 — Monthly filers.
  - Private entrepreneurs in general tax system return on employees: 80,900 — Monthly filers.
  - Private entrepreneurs in general tax system annual return: 546,867 — Annual filers.
  - Private entrepreneurs in simplified tax system return on employees: 142,142 — Monthly filers.
  - Private entrepreneurs in simplified tax system annual return: 960,856 — Annual filers.
  - Self-employed professionals (monthly): 1,869.
  - Self-employed professionals annual return: 12,632.
- Approximately 1.2 million contributors still on the register have reportedly ceased activities and are under liquidation.
- A significant group of stop filers are contributors registered in Sebastopol and Crimea—regions annexed recently by Russia.
- Currently, the potential filing population cannot be accurately determined and the total number of contributors required to file may be substantially higher than presented in Table 3.

*Source: IMF staff report content unit _cr1649*

### 27.      The register needs to be urgently cleansed by removing invalid registrants. Because

### _cr1649 - 27.      The register needs to be urgently cleansed by removing invalid registrants. Because

### Register cleansing
- The register needs to be urgently cleansed by removing invalid registrants.
- First step: cross matching with other registers and databases (e.g., the PIT register, customs importer information, registers of motor vehicle owners) to detect truly active registrants.
- Follow-up: major campaign in writing and through personal visitations likely necessary.
- Rationale: Only with an up to date register can the tax administration control and effectively manage delinquent contributors.

### Unified social contribution (USC) payment and filing compliance
- Number of submitted USC returns and respective monthly payments fell sharply during the last eight months.
- USC arrears increased by 36 percent from UAH 2.6 million in October 2013 to UAH 3.6 million in May 2014.
- Table 4. Unified Social Contributions Filing and Payment (selected figures from source)
  - Number of actual USC filings:
    - October 2013: 637,818
    - November 2013: 637,885
    - December 2013: 633,567
    - January 2014: 623,695
    - February 2014: 622,446
    - March 2014: 588,180
    - April 2014: 584,310
    - May 2014: 580,041
  - Amounts paid (UAH Million):
    - October 2013: 15,619.9
    - November 2013: 15,903.9
    - December 2013: 18,939.5
    - January 2014: 13,816.5
    - February 2014: 14,853.2
    - March 2014: 15,129.3
    - April 2014: 16,007.3
    - May 2014: 14,610.6
  - USC arrears (UAH “000):
    - October 2013: 2,658.4
    - November 2013: 2,844.8
    - December 2013: 2,660.2
    - January 2014: 2,874.2
    - February 2014: 3,106.1
    - March 2014: 3,040.3
    - April 2014: 3,561.1
    - May 2014: 3,624.8
- Causes: partly political difficulties and civil disturbance; also weakening voluntary compliance.

### Legislative obstacles to payroll audits and USC enforcement
- Current payroll audits by MRD are largely desk reviews (formal comparison of declared payroll taxes with taxpayer accounts); limited in detecting undeclared labor or under-declared salaries.
- Advanced tax administrations regard unannounced visits as mandatory to detect undeclared labor; MRD believes law does not provide authority for such visits.
- Recommendation: change legislation quickly to grant tax administration proper authority for detecting undeclared labor.
- Information from third parties is poorly utilized: tax administration’s ability to use information from employees or third persons as evidence is strictly limited; law needs amendment to grant sufficient powers (e.g., powers at Article 77.3 of the Tax Code).
- Detection of undeclared labor should be coordinated with other agencies like the Inspection on Labor Affairs.
- Penalty regime for USC should be critically evaluated; authorities claim penalties are too weak and some provisions no longer available to enforce compliance; mission supports strengthening penalties, particularly for defaulting employers.

### Partnership with business to address payroll noncompliance
- Business representatives reported a “silent consensus” where businesses report minimum salaries and pay balance in cash ("brown envelopes") while tax administration does not enforce—this must be changed.
- MRD has a small program to detect under-payment of USC or unregistered labor but needs substantial scaling up.
- Partnership building steps:
  - Initiate dialogue with different business associations and representatives of industry groups.
  - Agree on a common plan of activities to bring industry operators out of the shadow economy.
  - Start dialogue on the basis of a “fresh start” for USC compliance and develop mutual action plans.

### Harmonization with personal income tax (PIT)
- USC should be fully aligned with PIT administration.
- Authorities intend to pursue harmonization of USC and PIT base and of filing and payment rules across the taxes to allow a common declaration.
- Tax base for PIT is closely related to base for USC; harmonization should be pursued as a medium term priority.
- Recommendation summary (USC):
  - Cleanse the contributor register.
  - Remove legislative obstacles (for example auditor access rules and inadequate penalties) for detecting under-declared wages and rapidly expand the payroll audit program.
  - Initiate partnering with business associations to improve under-declared wages.
  - Harmonize administration of USC with payroll PIT in the medium term.

### Tax audit — cameral audit program and automation
- Extensive automation of the cameral audit program introduced in 2013; automated review of a very high proportion of all filed tax returns.
- Program is mandatory under the Tax Code; automated desk verification cross-matches returns with declared transactions, the Annex V invoice registry, customs records and other MRD IT system data.
- System functions:
  - Performs arithmetic checks, automatically generates electronic notices of detected errors, and generates an electronic desk audit report.
  - If taxpayer does not submit amended return, an automated assessment of additional tax and charges is generated.
  - Highest risk returns where issues cannot be resolved are referred for audit.
- Cameral audit outcomes (VAT, January to April 2014; Table 5):
  - Tax returns filed: 968,930
  - Tax returns screened: 892,385 (92 percent)
  - Notices issued seeking amended returns: 334,260 (35 percent)
  - Findings produced (tax risks present): 175,964 (18 percent)
  - Amended assessments issued: 9,760 (1 percent)
  - Referred for audit: 2,666 (0.3 percent)
- Program produced additional tax assessments of UAH 109.7 million in first four months of 2014, with nearly 90 percent collected.
- Concern: program responds to every tax risk identified on every filed return rather than adopting a “whole of taxpayer” or segment-based risk approach; mismatched invoices become immediate investigations rather than risk elements in broader risk scoring.

### Audit coverage, performance, and risk assessment
- Audit coverage rate dropped dramatically since 2008:
  - Field audit coverage rate in 2008: 15.8 percent (2009 FAD mission).
  - Outside large taxpayers program, coverage rate fell to 3.44 percent in 2013 (planned and unplanned audits).
  - Audit staffing reduced from 12,000 to approximately 6,500 staff; MRD has around 500 vacant posts in national audit function.
- Revenue per field audit:
  - 2008: UAH 68,290
  - 2013: UAH 112,273 (planned and unplanned)
  - First 5 months of 2014: UAH 380,575 (planned and unplanned)
- Summary of Audit Performance (Table 6; selected figures)
  - 2013 — Unplanned audits: 32,496; Total assessment of revenues, including fines and charges: 2,122 (UAH millions); Collected revenues: 1,233; Revenue per audit: 0.0653; Percentage of assessed revenue collected: 58.1 percent.
  - January to May 2014 — Unplanned audits: 12,348; Total assessment of revenues, including fines and charges: 2,559; Collected revenues: 683; Revenue per audit: 0.207; Percentage of assessed revenue collected: 26.7 percent.
  - 2013 — Planned audits: 4,886; Total assessment of revenues, including fines and charges: 2,075; Collected revenues: 1,992; Revenue per audit: 0.425; Percentage of assessed revenue collected: 40.8 percent.
  - January to May 2014 — Planned audits: 2,272; Total assessment of revenues, including fines and charges: 3,005; Collected revenues: 561; Revenue per audit: 1.32; Percentage of assessed revenue collected: 18.7 percent.
  - Audit coverage (1,084,900 active taxpayers, June 20, 2014): 3.44 percent (2013) and 1.34 percent (January to May 2014).
- Risk assessment approaches are fragmented due to:
  - Lack of a centralized risk assessment function.
  - Legal obligations requiring audits to be conducted at instigation of third parties.
  - Multiple dispersed processes: cameral audit sift, automatic unplanned audits under Tax Code, central office for large taxpayers, central audit function for planned audits.
- Unplanned audits generated by Article 78.1 of the Tax Code include both risk-reflecting grounds and low-yield reviews triggered by courts, crime investigators, or prosecutors; these mandatory audits can crowd out higher-yield unplanned audit work.
- Need to rebalance audit program: reduce dominance of unplanned, non-risk-based audits and increase planned, risk-based audits; align coverage targets across segments and sectors.

### High income self-employed program
- 2013 return data for private entrepreneurs shows clustering of declared net annual income below UAH 20,000 (approximately US$1,800).
  - 87 percent of all private entrepreneurs declared net income below UAH 20,000.
  - 91 percent of barristers and all forensic experts declared net income below UAH 20,000.
- High income self-employed professionals lack tax withholding and reporting arrangements and may be involved in tax minimization schemes.
- Recommended targeted program:
  - High profile audit campaign aimed as a deterrent.
  - Task force of auditors, legal experts and financial analysts to identify highest risk cases.
  - Actions (from Box 3):
    - Make a public announcement of intention to crack down on evasion by high income individuals to encourage voluntary disclosure.
    - Identify the 50–100 highest risk cases using asset data, media/internet searches, tax return data.
    - Conduct comprehensive audits ensuring all avenues for secreting income are explored and evidence is properly managed.
    - Issue assessments with full penalties as soon as a strong business case is established and engage debt collection to enforce collection.
    - Prosecute the worst offenders under appropriate criminal offences.
    - Allocate best available legal representatives to defend assessments in any appeals.
    - Widely publicize results to deter others and promote confidence in tax administration integrity.
  - Note: MRD planning a Tax Compromise program allowing taxpayers to report understated amounts for tax years 2013 and earlier with payment of only 15 percent of actual liability; no penalties or interest will be applied.

### Audit-related recommendations (selected)
- Evaluate the cameral audit program performance and revise the approach by June 30, 2015.
- Centralize all risk assessment under one function and reduce obligations to undertake (non risk-based) audits required by third parties by December 31, 2015.
- Rebalance the audit program by reducing unplanned audit activities while increasing planned risk-based audits.
- Commence a high income self employed program by January 1, 2015.

*Source: Ministry of Revenue and Duties; IMF mission text in the supplied content.*

### 44.      There is a major escalation of appeals volume. The number of unresolved tax disputes

### _cr1649 - 44.      There is a major escalation of appeals volume. The number of unresolved tax disputes

### Escalation of appeals volume
- Unresolved tax disputes increased from 32,359 cases in the beginning of 2011 with disputed amounts of tax totaling UAH 70.2 Billion, to 53,529 cases by the end of 2013 with disputed amount of tax of UAH 129.5 Billion.
- The number of objections received annually increased from 15,290 in 2011 to 21,120 in 2013.
- Table 7 (Stock of Internal Appeals) highlights:
  - Appeals for LTI taxpayers:
    - On hand at start of year 2011: 2,425 cases; Amount UAH 15,522.59 million
    - On hand at start of year 2012: 3,162 cases; Amount UAH 20,874.57 million
    - On hand at start of year 2013: 3,234 cases; Amount UAH 32,861.17 million
    - Received during 2011: 1,069 cases; Amount UAH 11,061.15 million
    - Received during 2012: 1,022 cases; Amount UAH 23,498.06 million
    - Received during 2013: 1,267 cases; Amount UAH 21,596.21 million
    - Finalized during 2011: 332 cases; Amount UAH 5,709.17 million
    - Finalized during 2012: 950 cases; Amount UAH 11,511.46 million
    - Finalized during 2013: 1,013 cases; Amount UAH 11,005.93 million
    - On hand at end of year 2011: 3,162 cases; Amount UAH 20,874.57 million
    - On hand at end of year 2012: 3,234 cases; Amount UAH 32,861.17 million
    - On hand at end of year 2013: 3,488 cases; Amount UAH 43,451.45 million
  - Appeals for non-LTI taxpayers:
    - On hand at start of year 2011: 29,834 cases; Amount UAH 54,718.48 million
    - On hand at start of year 2012: 33,518 cases; Amount UAH 49,861.49 million
    - On hand at start of year 2013: 40,689 cases; Amount UAH 73,824.40 million
    - Received during 2011: 14,221 cases; Amount UAH 36,824.82 million
    - Received during 2012: 15,740 cases; Amount UAH 38,921.15 million
    - Received during 2013: 19,853 cases; Amount UAH 26,423.18 million
    - Finalized during 2011: 12,399 cases; Amount UAH 12,876.38 million
    - Finalized during 2012: 7,088 cases; Amount UAH 9,474.66 million
    - Finalized during 2013: 10,500 cases; Amount UAH 11,150.50 million
    - On hand at end of year 2011: 31,656 cases; Amount UAH 78,666.92 million
    - On hand at end of year 2012: 42,170 cases; Amount UAH 79,307.98 million
    - On hand at end of year 2013: 50,041 cases; Amount UAH 89,097.08 million

### Causes: automatic waiver of payment during appeal
- Article 56.15 of the tax code suspends obligation to pay assessed tax during the appeal process.
- This suspension encourages taxpayers to dispute assessments to postpone payment and gain time to prepare court appeals.
- Business representatives report disputing tax assessments is a usual practice to postpone payment.
- Most developed countries require full, or in some cases partial, payment of disputed tax (Appendix 3 and Box 4 examples).

### Administrative and judicial outcomes
- Internal administrative disputes (LTI) resolved by Complaints Committee (Table 8):
  - 2013: 53 total cases — In Favor of Controlling Body: 47 (88.68 percent of Total); In Favor of Taxpayer: 4 (7.55 percent of Total); Partial Satisfaction: 2 (3.77 percent of Total)
  - 2014: 31 total cases — In Favor of Controlling Body: 27 (87.10 percent of Total); In Favor of Taxpayer: 1 (3.23 percent of Total); Partial Satisfaction: 3 (9.68 percent of Total)
  - Total 2013–2014: 84 cases — In Favor of Controlling Body: 74 (88.10 percent); In Favor of Taxpayer: 5 (5.95 percent); Partial Satisfaction: 5 (5.95 percent)
- MRD later advised that considering all taxpayers for January to June 2014, 20 percent of decisions were in favor of the taxpayer.
- Court outcomes (LTI court proceedings, Table 9):
  - 2011: Total lawsuits 1,566; Amount UAH 16,679,876.54 (thousands of UAH); Lawsuits resolved in favor of taxpayer: 763 (48.7 percent); Amount in favor: UAH 8,158,615.73 (48.9 percent)
  - 2012: Total lawsuits 1,726; Amount UAH 22,846,657.92 (thousands of UAH); Lawsuits resolved in favor of taxpayer: 996 (57.7 percent); Amount in favor: UAH 13,662,100.70 (59.8 percent)
  - 2013: Total lawsuits 2,013; Amount UAH 36,999,409.58 (thousands of UAH); Lawsuits resolved in favor of taxpayer: 1,038 (51.5 percent); Amount in favor: UAH 20,024,541.56 (54.1 percent)
  - Total 2011–2013: Total lawsuits 5,305; Amount UAH 76,525,944.04 (thousands of UAH); Lawsuits resolved in favor of taxpayer: 2,797 (52.7 percent); Amount in favor: UAH 41,845,257.99 (54.7 percent)
- Observation: court escalation yields more favorable outcomes for taxpayers than internal administrative resolution.

### Need for an independent internal appeals unit
- Recommendation to establish an independent internal appeals unit reporting directly to the head of the tax administration to mitigate perceived corruption risks.
- Internal review decisions would not be final and remain subject to court appeal.
- Box 5: Features of an Independent Internal Appeals Unit:
  - Centrally managed and independent of the audit group.
  - Appeals must be in writing and set out full grounds (fact and law).
  - Appeals considered by a single, technically qualified and experienced officer.
  - Appeals officer may interview taxpayer and auditor.
  - Appeals officer recommends; head or deputy head makes final adjudication binding on tax administration.
  - Decision and grounds provided to taxpayer in writing.
  - Goal: resolve 50 to 90 percent of disputes administratively without litigation.

### Appeal deadlines
- Current deadline to dispute a tax assessment: ten calendar days.
- Assessment: ten calendar days is too short to prepare documentation and evidence.
- Good international practice: offer considerably longer period; recommendation to extend to at least 30 days and no more than 60 days.

### Recommendations on dispute payment and appeals
- Remove an automatic waiver of payment of disputed debt.
- Require a share of tax in dispute to be paid before the dispute proceeds to the court system.
- Establish a centrally managed, and independent appeals unit in MRD for resolving tax disputes under administrative procedure.
- Expand the timeframe for filing an appeal to at least 30 days.

### Debt collection — summary and key statistics
- Table 10 (Summary of Tax Debt, in UAH million):
  - Tax debt as of January 1, 2013: Total Tax Debt 19,152.96; Of Which: CIT 4,020.55; PIT 869.12; VAT 9,839.16; Other taxes 4,424.13
  - New debt (2013): 11,799.80
  - Tax debt written off (2013): 4,953.22; Of Which: CIT 1,221.48; PIT 152.58; VAT 2,372.14; Other taxes 1,207.02
  - Tax debt at January 1, 2014: Total Tax Debt 18,831.79; Of Which: CIT 4,322.40; PIT 807.00; VAT 9,695.15; Other taxes 4,007.24
  - Tax debt considered collectible: 2,954.90
  - Tax debt considered uncollectible: 15,876.90
  - By inference, debt collected during 2013 equaled UAH 26 million.
- Of all debt owing at January 1, 2014, 70 percent was more than one year old.
- Central office for large taxpayers reduced overall debt levels during 2013 from opening stock UAH 1,340 million to closing stock UAH 764.8 Million at December 31, 2013.

### Large debtor concentration and management (Table 11)
- Of 471,573 tax debtors, less than 1 percent (around 3,000 debtors) account for 99 percent of tax debts; large cases need prioritization and active management.
- Tax Debt by level at January 1, 2014 (UAH million; Taxpayers; Tax Debt Amount; Of Which Large Taxpayers at Central Office; Of Which Large Taxpayer Debt Amount):
  - More than UAH100 mn: 13 taxpayers; Tax Debt Amount 2,216.2; Of Which Central Office taxpayers 5; Of Which Large Taxpayer Debt Amount 802.4
  - UAH75–100 mn: 7 taxpayers; Tax Debt Amount 599.1; Central Office 2; Debt Amount 159.7
  - UAH50–75 mn: 12 taxpayers; Tax Debt Amount 740.4; Central Office 9; Debt Amount 472.9
  - UAH25–50 mn: 35 taxpayers; Tax Debt Amount 1,215.6; Central Office 2; Debt Amount 91.6
  - UAH10–25 mn: 163 taxpayers; Tax Debt Amount 2,446.7; Central Office 16; Debt Amount 267.2
  - UAH1–10 mn: 2,618 taxpayers; Tax Debt Amount 7,181.1; Central Office 68; Debt Amount 261.7
  - UAH0.5–1 mn: 2,039 taxpayers; Tax Debt Amount 1,427.3; Central Office 27; Debt Amount 19.6
  - UAH0.1–0.5 mn: 8,190 taxpayers; Tax Debt Amount 1,855.1; Central Office 51; Debt Amount 12.1
  - Less than UAH0.1 mn: 458,496 taxpayers; Tax Debt Amount 1,014.3; Central Office 56; Debt Amount 1.4
  - Total: 471,573 taxpayers; Total Tax Debt 18,695.8; Central Office taxpayers 236; Central Office Debt Amount 2,088.6

### Installment arrangements and recommendations
- Amounts of tax debts less than one year old and collectible total UAH 5.456 billion, including UAH 1,344.7 million from large taxpayers under central office control.
- An additional UAH 4.425 billion is between one and two years old.
- Central large taxpayer office reported total tax debt UAH 2.641 billion under current installment arrangements.
- Standard term of installment arrangements: 12 months; may be exceptionally extended to 24 months; interest rate set at 120 percent of the National Bank’s discount rate.
- Some eligibility criteria in place: requirement to submit financial statements, interest imposed, monitoring of defaulting debtors, exclusions where taxpayer faces bankruptcy (Article 100 of the Tax Code and MRD Order No.574, of October 10, 2013).
- Box 6: Features of an Installment Scheme (selected features preserved exactly):
  - The debtor must have filed all required returns and analytical reports.
  - Different treatment should be provided to different debtors based upon the amount of their debts
  - For the high number of debtors with debts up to UAH 0.1 million, a financial statement disclosure would not be required under a streamlined installment procedure.
  - For debtors with debts greater than UAH 0.1 million and up to UAH 1 million, the debtor should provide to the authorities sufficient information to justify the payment arrangement and also provide a financial road map that would facilitate seizure and enforced collection action.
  - For large debtors with debts with greater than UAH 1 million, comprehensive financial information should be certified by trusted third parties. Provision of security would be required to cover the amount of the outstanding debt including interest. For any large debtor who are due refunds during the term of the installments arrangement offsets of those refunds should be included as a condition of the arrangement.
  - Debtors with a debt that is less than six months old would be excluded from this arrangement.
  - The time in which debtors must pay the arrears would be a maximum of 24 months.
  - Penalties would not be reduced.
  - Interest would continue to accrue on the outstanding balance and for the duration of the phased payment arrangement.
  - Uniform interest rates should be set one or two percent above commercial bank rates and those rates should be regularly updated. MRD’s current application of 120 percent of the National Bank rate appears in line with this feature.
  - All collection costs related to the installment arrangement are at the expense of the debtor and must be paid by the debtor at the time they are incurred.
  - The Statute of limitation of the concerned debts should be legally suspended for the duration of the phased payment arrangement.
  - A debtor must agree to monthly Direct Debiting of installment payments in order to qualify for this arrangement. The Direct Debit payments should cover all monthly payments (both installment and current contributions).
  - Public entities, debtors that have been involved in fraud cases, and those who are insolvent or for whom an insolvency procedure has been launched should be excluded from the procedure
  - In case of default any enforced collection procedure should commence immediately.
  - Several levels of delegation limits should be provided to facilitate the management of these installment arrangements but only the highest authority of the administration should have the authority to handle the largest debts.
  - A Case Decision Escalation Framework should be introduced to ensure that the initiative is fully transparent and to ensure that speedy and appropriate treatment of cases can be closely monitored.
- Recommendations on installments and debtor management:
  - Provide an offer for installments to be paid on outstanding debts under an extended two year term by September 30, 2014.
  - Review management of largest debtors and assign the cases to a centralized and separate function by December 31, 2014.
- Policy suggestion: relax tighter requirements on installment terms and offer a proactive installment offer, including a targeted installment plan up to 24 months.

### Filing compliance
- Tax return filing performance:
  - More than 30 percent of VAT returns from large taxpayers and almost 20 percent from other taxpayers were submitted late in 2013; the same trend continues in 2014.
  - Only 89 percent of PIT returns were submitted on time in 2013.
  - MRD lacks a single point of responsibility for filing compliance and does not know which taxpayers (except VAT registered persons) are expected to file returns.
  - Mission could not obtain comprehensive or reliable data on return filing compliance for the registered population.
- Table 12 (selected figures):
  - VAT, Large taxpayers, 2013:
    - Expected to be filed: 12,313
    - Filed in time: 7,748
    - Filed with a delay of up to 3 months: 4,555
    - Filed with a delay of more than 3 months: 0
    - Not filed yet: 10
    - Percent filed in time: 63
    - Percent filed with delay up to 3 months: 37
    - Percent not filed yet: 0.08
  - VAT, Large taxpayers, 2014 (by the end of March):
    - Expected to be filed: 3,057
    - Filed in time: 2,058
    - Filed with a delay of up to 3 months: 991
    - Filed with a delay of more than 3 months: 0
    - Not filed yet: 8
    - Percent filed in time: 67
    - Percent filed with delay up to 3 months: 32
    - Percent not filed yet: 0.26
  - VAT, Other taxpayers, 2013:
    - Expected to be filed: 2,828,022
    - Filed in time: 2,187,420
    - Filed with a delay of up to 3 months: 547,849
    - Filed with a delay of more than 3 months: 2,771
    - Not filed yet: 89,982
    - Percent filed in time: 77.35
    - Percent filed with delay up to 3 months: 19.37
    - Percent filed with delay more than 3 months: 0.10
    - Percent not filed yet: 3.18
  - VAT, Other taxpayers, 2014 (by the end of March):
    - Expected to be filed: 715,466
    - Filed in time: 560,014
    - Filed with a delay of up to 3 months: 115,549
    - Filed with a delay of more than 3 months: 62
    - Not filed yet: 39,841
    - Percent filed in time: 78.27
    - Percent filed with delay up to 3 months: 16.15
    - Percent filed with delay more than 3 months: 0.01
    - Percent not filed yet: 5.57
  - CIT (selected): 2013 Large taxpayers — Filed in time: 1,402; Percent filed in time: 99.2
  - PIT (Individuals, selected): Other taxpayers, 2013 — Filed in time: 511,726; Filed with a delay of up to 3 months: 6,537; Percent filed in time: 98.69; Percent filed with delay up to 3 months: 1.26; Filed with delay more than 3 months: 14,410 (quantity shown elsewhere in table)
- Recommended filing-compliance actions:
  - Create a single point of responsibility for filing compliance management in MRD.
  - Monitor late filers and respond immediately (e-mail, text message, automatic early reminders).
  - For priority taxpayers, use outbound calls or visits to determine reasons for nonfiling and offer support/options.
  - Update active taxpayers register promptly when taxpayers cease activity.

*Source: Ministry of Revenue and Duties (as presented in the IMF mission report content).*

### 59.      The MRD has to start tackling filing compliance systematically. There are no active

### _cr1649 - 59.      The MRD has to start tackling filing compliance systematically. There are no active

### Filing compliance (paragraph 59 and recommendation)
- Finding: "There are no active measures applied by the MRD to detect nonfilers. The administration accepts returns submitted by taxpayers and considers those taxpayers as active."
- Finding: MRD applies excessive resources to verify all returns under the cameral audit program and asks a large proportion of taxpayers to change or explain their reported values, which:
  - Is burdensome for compliant taxpayers.
  - May motivate many compliant taxpayers to cease tax reporting.
- Recommendation: Refocus efforts towards filing enforcement to increase the number of active taxpayers reporting their tax obligations on time.
- Recommendation specifics (from Recommendations list):
  - Improve management of late and stop filers through:
    - designating unit responsibility for filing compliance; and
    - developing a proactive filing compliance enforcement program that includes outbound call capability and electronic reminders of filing dates by end August 2014.

### Value-Added Tax (VAT) administration — overview (paragraph 60)
- Section highlights three key areas: VAT registration (Section III. A.); VAT refunds (Section III. B.); and countering VAT fraud (Section III. C.).

### VAT registration (paragraphs 61–70)
- Policy context:
  - Current VAT registration threshold: UAH 300,000.
  - FAD tax policy advice in 2013 recommended increasing the threshold to UAH 1 million and aligning it to the threshold to qualify for the Simplified Tax System.
  - Based on 2013 data (Table 13), 62 percent of registered VAT taxpayers reported sales below UAH 1 million.
  - Increasing the threshold would put 164,000 small VAT taxpayers who contributed just 3.2 percent of total domestic VAT paid in 2013 below the threshold.
  - Voluntary registration would remain open for those below the new threshold.
  - After adjusting for VAT deregistration, the overall register only grew 3.25 percent in 2013.
  - During 2013 new VAT registrations were equivalent to 13 percent of the active register.
- Table 13 (summary points):
  - Total VAT taxpayers in 2013: 266,471 (100 percent).
  - Total VAT turnover volume in 2013: 4,013,852 (100 percent).
  - Total VAT paid in 2013: 84,225 (100 percent).
  - Largest single category by quantity: 0-0.5 UAH (134,452 taxpayers, 50.5 percent).
  - Top turnover category "Over 1,000 UAH (million)": 505 taxpayers (0.2 percent) with turnover volume 2,003,472.2 (49.9 percent) and VAT paid 42,368.8 (50.4 percent).
- Table 14 (registration activity in 2013):
  - Total registered taxpayers: 266,471; Active taxpayers: 235,573; New registrations: 31,472; Cancelled registrations: 23,803.
  - Large taxpayers: Registered 1,030; Active 1,027; New 1; Cancelled 9.
  - Other taxpayers: Registered 265,441; Active 234,546; New 31,471; Cancelled 23,794.
- Key procedural findings:
  - Reliance on external parties to screen business registration applications, particularly the State Registrar at the Ministry of Justice.
  - De-registration process remains complex and lengthy.
  - MRD proposals in 2011 to include registration audit and restrictions on voluntary registration were rejected.
- Recommended strengthened registration procedures:
  - Steps to carefully screen the quality of VAT registration applicants.
  - Introduce minimum requirements for granting and continuation of voluntary VAT registration.
  - Regular refreshing of register details.
  - Simplification and shortening of the de-registration process.
- Risk-focused registration improvements:
  - Collect more information at pre-registration to identify risky businesses.
  - Use a two-step approach: basic risk analysis on registration form; supplementary questionnaire for risky applicants.
  - Where suspicion of fraud exists, consider precautionary measures and require securities as a pre-condition for registration.
  - Cross-check registration applications against other data sources (e.g., State Registrar, social contributions register, customs declarations); desire for on-line, real-time identity checks with police information.
  - Update registration data ex officio based on State Registrar changes (e.g., new location or change of directors).
  - On-site visits to verify economic activity should be based on risk analysis and supported by central office guidelines.
  - Post-registration monitoring programs for risky traders are lacking; recommended early and ongoing post-registration on-site visits and monitoring of intermediaries, brokers, main dealers, exporters and freight forwarders in high risk sectors.
- Deregistration concerns:
  - Deregistration procedures are too slow to stop VAT fraud early; MRD deregistered nearly 24,000 businesses in 2013 but the process can be lengthy and incomplete.
  - Modern administrations can deregister or deactivate businesses that fail to file VAT returns for a period (e.g., one year or more), or where audits or site visits show no business activity or false particulars.
  - Legal competence to cancel VAT registration in cases of suspicion of missing trader fraud is desirable.
  - Keeping the VAT register free of inactive taxpayers reduces opportunities to re-activate or replace de-registered missing traders.
- Priority: Expansion of the register should continue using third party information including income tax and customs, market surveys and a robust information technology system; strengthen cooperation with customs.

### VAT refunds (paragraphs 71–73 and Table 15)
- Progress and commitments:
  - MRD has made progress on commitments under the Stand-By Arrangement, notably issuing government bonds and publishing VAT refund data.
  - Progress slower on plans to relax criteria for automated refunds without pre-refund documentary checks or audit and on revamping taxpayer wage-related criteria, which require Tax Code amendments.
  - Appendix 4 provides a progress report (not reproduced here).
- Accumulated refund claims (Table 15, in UAH millions) — figures preserved exactly:
  - Opening balance: 2012 = 4,597.7; 2013 = 3,427.5; 2014 at May 1 = 6,944.6.
  - New claims: 2012 = 43,340.9; 2013 = 49,978.1; 2014 at May 1 = 16,139.6.
  - Closing balance: 2012 = 3,427.5; 2013 = 6,944.6; 2014 at May 1 = 13,215.4.
  - Central Office for Large Taxpayers (of which):
    - Opening balance: 2012 = 2,749.5; 2013 = 2,177.7; 2014 at May 1 = 3,621.0.
    - New claims: 2012 = 28,363.1; 2013 = 30,705.9; 2014 at May 1 = 10,478.6.
    - Closing balance: 2012 = 2,177.0; 2013 = 3,621.0; 2014 at May 1 = 8,290.5.
- Findings:
  - The closing balance of accumulated refunds at end-2013 had doubled over the value at the close of 2012.
  - By May 1, 2014, the figure had almost doubled again.
  - 2013 opening balance was 25 percent lower than that for 2012 and new refund claims in 2013 grew only 15 percent over 2012, indicating processing delays.
  - Plan to resolve refunds accumulated up to end-2013 through issuance of government bonds will assist with older amounts but not address refunds accumulated during early 2014; these require increased MRD effort.
- Historical trends: Appendix 5 contains detailed historical trends (not reproduced here).

### Countering VAT fraud (paragraphs 74–77)
- Finding: VAT fraud remains a major concern with common evasion types including:
  - nonregistration of businesses;
  - under-reporting of gross receipts;
  - nonremittance of VAT collected to the authorities;
  - pervasive use of fake invoices generated by fictitious companies through the "tax pit and conversion center" schemes.
- Note on tax pits and conversion centers:
  - "The tax pits and conversion centers are wide-spread, systematic and in many instances state-sponsored mechanisms that create fictitious businesses that generate fraudulent invoices. They are often operating in the agricultural sector. The proceeds are funneled to those running the fictitious firms."
  - MRD announced that 18 conversion centers with a turnover of UAH 2.2 billion have been suspended and 338 tax pits closed with some now under criminal proceedings.
- MRD responses shaping enforcement:
  - Introduction of additional documentary filing requirements (the Annex V system), massive automated cross-checking and mandatory cameral audit program—responses concentrated on businesses already within the VAT system.
- Proposed VAT bank account / split payment model (Appendix 6 referenced):
  - Objectives:
    - (1) reduce fraud related to false claims for input VAT credits and refunds;
    - (2) speed up processing of VAT refund claims.
  - Under the system: authorities open at least one VAT bank account for each VAT-registered taxpayer, held with the National Bank or State Treasury.
  - Likely requirement: all VAT transactions to be carried out using bank accounts or plastic card payments to avoid excess cash transactions.
  - Practical operation:
    - Purchaser must deposit VAT payments into seller’s VAT bank account at time of delivery or payment—may require change to current time of supply rules in Ukraine.
    - Banking software will split payment orders so the VAT element is sent directly to supplier’s VAT bank account.
    - Each VAT bank account will contain output VAT and input VAT transactions; transactions intended to be cross-matched.
  - MRD assurance: legitimate credits will not be denied to a purchaser who has followed the procedures and paid VAT into a seller’s VAT bank account.
  - International context: similar system operated in Bulgaria (dismantled upon EU accession) and is in operation in Azerbaijan; concerns exist about deviation from voluntary compliance principles.

*Source: Ministry of Finance/Ministry of Revenue and Duties content reproduced in the provided IMF chapter PDF.*

### 78.      The VAT bank account proposal needs more detailed analysis as honest taxpayers

### _cr1649 - 78.      The VAT bank account proposal needs more detailed analysis as honest taxpayers

### VAT bank account proposal — assessment and challenges
- The proposal raises significant technical and practical challenges and has prompted generally negative reactions from the business community and tax practitioners concerned about cash flow, compliance costs and commercial issues.
- MRD proposal to mitigate working-capital concerns: a daily clearing or offset of the VAT bank accounts where output and input VAT are offset and any balance returned to the taxpayer.
  - The mission is not convinced that the daily clearing/offset proposal is feasible.
- Risk of driving some businesses further underground: the system may cause entities that currently interact to some extent with legitimate businesses to avoid all interactions with legitimate businesses.
- The proposed system will not allow exporters or taxpayers who maintain a credit balance to access the funds in their VAT bank accounts on a daily basis in the same way as regular VAT payers; their daily cashflow position therefore remains unchanged.
- The basic VAT refund process will remain unchanged:
  - Benefit for exporters: at submission of VAT refund claims, any input VAT that can be automatically matched with the VAT bank account of their sellers will be eligible for immediate refund; this matching will be fully automated and should not result in delay to refund processing.
  - Any input VAT that cannot be automatically matched to another taxpayer’s VAT bank account will continue to result in further checks, effectively retaining the current mode under which genuine claims for input VAT credit are delayed or denied if the corresponding party has failed to comply with filing or payment obligations.

### Compliance costs and distributional impacts
- Compliance costs from the VAT bank account and Annex V invoice matching systems are considerable and disproportionately higher for small to medium-sized businesses.
- Likely system compliance costs include:
  - Loss of working capital—daily clearing will not assist exporters or taxpayers in a net refund position.
  - Set-up costs of transition, including software and administration costs to adapt to the new systems.
  - Ongoing administration costs:
    - Under the VAT bank account system, businesses may need to make two payments (instead of one) for goods or a service; the number of VAT invoices, payment orders, and bank account deposits and withdrawals could be doubled.
    - Because mutual offsets between sellers and purchasers are not likely to be allowed, unnecessary additional transactions will result.
    - Additional account-keeping fees and transaction costs accrue.
    - Ongoing administration costs associated with Annex V invoice cross-checking, including the need to supply transaction details with monthly returns—automation has reduced this burden but it remains.

- Policy implication: the discussion on increasing the VAT registration threshold (see section A) should be part of any VAT reform package.

### Fraud detection and audit effectiveness
- The VAT bank account system and invoice cross-checking will not detect many types of VAT fraud, including:
  - Under-reporting of sales, false exporting, transactions occurring outside the VAT account system, bribing of tax officials, and false invoicing.
- Bank account controls and invoice cross-checking are a poor substitute for effective audit programs.
  - Effective audit programs should be based on selective cross-checking, intelligence gathering and risk assessments, and proper tax fraud investigation.
  - Audits must be supported by sufficient legal powers to obtain information from taxpayers, banks, and other parties.

### Assessment, feasibility, and recommended monitoring
- The mission considers the new system not fully formed and urges testing of implementation feasibility—particularly the “daily” refunding proposal, which lacks sufficient detail on how it could be achieved.
- The mission urges further evaluation before deciding to proceed and regards close monitoring of the impact on business as essential.
- The mission recommends the scheme should be totally ceased after the existing compliance problems highlighted by the “tax pits” settle down; the suggested cessation date is July 1, 2106.

### Specific recommendations regarding VAT
- Increase the VAT registration threshold to UAH 1 million.
- Introduce a fast track de-registration procedure to support control of VAT fraud.
- Expand the off-site visitation program, based upon risk analysis, for selected new VAT registrants.
- Include a “sunset” clause on any VAT bank account proposal for no later than December 31, 2015.

### Restoring good governance — revenue administration governance themes
- Governance in revenue administration involves legal framework and mandate, assessed by independence and autonomy, transparency and reporting relationships, and frameworks for integrity and risk management.
- Increasing autonomy and independence is generally accompanied by higher accountability through regular reporting, oversight committees/boards, internal and external audit, and budgetary controls.
- Revenue administration requires a certain level of independence from the political level; many countries appoint an apolitical head for fixed terms to provide independence, impartiality and consistency.
- The head of revenue administration remains accountable to the Minister (of Finance) but political level normally does not intervene in specific cases or day-to-day management.

### Institutional options for revenue administration (models)
- Common arrangements:
  - Multiple Directorates in the MOF: revenue functions are the responsibility of multiple organizational units within the MOF.
  - Unified semi-autonomous body: a single semi-autonomous body whose head reports to a government minister.
  - Unified semi-autonomous body with board (Revenue Authority model): head reports to minister and an oversight board comprised of external officials.
- Prevalence in OECD/EU (as presented):
  - Single or multiple directorates in the MOF: 33 39 (OECD, EU)
  - Unified semi-autonomous body: 44 46 (OECD, EU)
  - Unified semi-autonomous body with board: 15 11 (OECD, EU)
- Moving from multiple directorates to unified body with board generally increases independence and autonomy; within EU countries the unified semi-autonomous body is dominant, while the revenue authority model is least prevalent.

### Revenue Authorities — rationale and evidence
- Rationale for establishing a Revenue Authority:
  - As a single-purpose agency, focus resources on tax administration.
  - As an autonomous organization, manage affairs free of day-to-day political interference.
  - Freed from civil service constraints, ability to recruit, retain and motivate staff for higher performance.
- Ranked reasons for adopting a Revenue Authority (Average Ranking):
  - Low effectiveness of tax administration and poor levels of compliance: 1.80
  - Need for a catalyst to launch broader revenue administration reform: 2.73
  - Impediments caused by poor civil service human resources policies: 2.90
  - Poor communication and data exchange among existing revenue departments: 4.21
  - Desire to create “islands of excellence” within the public sector: 4.54
  - Perceptions of political/ministerial interference: 4.55
  - High levels of corruption: 4.67
- Empirical evaluations have not established firm causal links between adopting the RA model and improved performance; success depends on complementary supports such as good MOF relationships, strong leadership, and human resource policies. Many countries perceive the revenue authority concept as a catalyst for reform.

### Governance characteristics of the proposed SFS in Ukraine
- The proposed SFS retains some characteristics of a unified semi-autonomous body and incorporates the tax and customs administrations and the tax police.
- The proposed charter for SFS includes a management board of senior officials as a coordinating mechanism across the three arms of SFS; the charter envisages other persons participating in the Board, but the mandate is not a means for exercising higher levels of accountability in accordance with the revenue authority model.

*Source: _cr1649 - 78.      The VAT bank account proposal needs more detailed analysis as honest taxpayers*

### 97.      Ukraine currently does not have appropriate governance for revenue

### 97.      Ukraine currently does not have appropriate governance for revenue

### Governance shortcomings (mission findings)
- General conclusion: Ukraine lacks appropriate governance for revenue administration to allow effective compliance with revenue laws and achievement of fiscal objectives.
- Status of SFS charter: Draft charter for SFS is yet to be approved by the Council of Ministers; governance for SFS still under consideration.
- Structural governance shortcomings identified:
  - High levels of corruption:
    - Public confidence severely eroded by publicly exposed tax frauds that misappropriated government revenues and involved previous political leadership and management of the revenue administration.
    - Feedback indicated past managerial and operative positions were commonly procured through payment of substantial sums; collusion across the revenue administration to conceal illicit activities considered endemic.
  - Overly complex laws and regulations (decrees):
    - Legal frameworks regarded as unclear; court interpretation inconsistent.
    - Powers of the tax administration for core business processes (assessment, collection, accounting, payment, audit, appeals, etc.) are generally weak or incomplete (e.g., enforcement of tax debts).
  - Mixed mandates:
    - Proposed SFS mandate includes functional areas that should be secondary or supportive to MOF (e.g., formulation of tax and customs policy, drafting revenue legislation, revenue forecasting based on macroeconomic projections).
    - Activities requiring clarification that are not normally associated with national tax administration (e.g., control of timeliness of foreign exchange settlements).
    - Level of reporting to the MOF is unclear.
  - Insufficient autonomy:
    - Insufficient autonomy in internal structure, performance standards, tenure of the head of SFS, and human resource management.
    - Revenue administration accepts ad hoc revenue targets as dominant performance standard.
    - Internal structure changes require MOF approval.
    - Insufficient flexibility in hiring, dismissal and remuneration policies.
    - Head of SFS has no fixed term; appointed and dismissed by the Cabinet of Ministers on advice of the Prime Minister.
  - Substantially over-manned administration:
    - Business processes need major streamlining.
    - FAD (2010) mission noted total staffing, including oblast offices and office network size, appeared substantially out of proportion to number of taxpayers.
    - A major down-sizing would be necessary but existing laws constrain workforce adjustment.
    - Local tax offices need legal status modified to be subordinated to oblast level bodies to facilitate office closures.
    - Magnitude of down-sizing is in the order of 30 percent of the workforce.
  - Fragmented tax administration responsibility:
    - No official (Deputy Head) singularly responsible for tax administration organization headed by a nonpolitical appointee.
    - Current structure: deputy heads responsible for tax police and customs but not tax administration; a coordinating head is across all three administrations.
  - Unclear authority over field operations:
    - Lack of clarity about SFS headquarters authority over territorial offices.
    - Level of discretion of regional heads to allocate resources, which may not accord with headquarters directives, needs confirmation.

### Implications (mission view)
- Fiscal commitments related to tax revenues and tax compliance unlikely to be optimized if governance remains unchanged.
- Public confidence in proposed SFS unlikely to be restored under existing arrangements.
- A substantial down-sizing cannot be effected under current arrangements.
- Existing arrangements proposed for new SFS cannot provide basis for the ‘quantum leap’ necessary; general business consensus that existing revenue collection apparatus should be dismantled.
- Proposal: government agree in principle to implement a new governance framework for revenue administration.

### Decisions required (timetable and contents)
- By the end of August 2014, the government should table its plan for revenue administration and decide on governance arrangements: either strengthen a semi-autonomous agency (SFS) or introduce a revenue authority.
- Implementation timetable target: launch of the new organization by July 1, 2017.
- Plan should include:
  - An assessment of options considered and rationale for the option selected.
  - A summary of potential legislative requirements.
  - A proposed organization structure.
  - Discussion of transitional issues, including preliminary projections for initial down-sizing and the approach to staffing of the new revenue administration.
  - A communications strategy.
- Immediate appointment required:
  - Authorities should appoint a new deputy head exclusively responsible for tax administration as a first step; appointment by end August 2014.
- Recommendations (explicit):
  - Announce the future model for governance arrangements for revenue administration by August 31, 2014 and commence preparations to launch a new agency from July 1, 2017.
  - Appoint a new deputy head within SFS responsible for the tax administration by end August 2014.

### Risks and success factors for institutional reform
- Political and implementation risks:
  - Uncertain political support; risks of delays due to low administrative capacity.
  - Highly sensitive human resource management decisions: major retrenchment and migration of re-hired staff to a new agency.
  - Likely adverse short term revenue consequences from productivity loss during transition; potential loss of key personnel.
  - Information technology and office accommodation implications with substantial lead times.
- Factors associated with achievable reforms (international experience):
  - Total political support—a strong commitment to reform and early provision of necessary resources.
  - Stable leadership of the organization.
  - Modern project governance with management framework, project steering committee, dedicated work teams and close monitoring by senior management.
  - Effective communications with all stakeholders, including accounting and professional and staff associations, business chambers and lobby groups.
  - Comprehensive human resource and training strategies.
- Timeframe:
  - Likely two years from passage of enabling legislation to implement institutional reform of this magnitude.
  - Implementation periods vary across countries; aim for a maximum of two years from approval of enabling legislation.

### Reform project phases
- Two main phases to proceed simultaneously:
  1. Legislation phase: policy choices (degree of autonomy, governance framework, accountability, scope), legislative drafting, transitional provisions including initial staffing.
  2. Operational readiness phase: organizational structure, position descriptions and accountability statements, human resources policies, and other management policies and practices.

### Technical assistance (TA) overview
- MRD will need technical assistance to implement planned reforms.
- Department of Foreign Affairs, Trade and Development of Canada agreed to fund a TA program for Ukraine to be delivered by the IMF.
- High-level aim: help restore macroeconomic stability and lay foundation for robust and equitable growth in Ukraine.
- Proposed fiscal TA aims: reinforce fiscal adjustment reform efforts, achieve fiscal sustainability, and align budget institutions and practices with international standards.
- Fiscal TA components: expenditure management reforms, tax policy advice, reforms to tax administration.
- Proposed fiscal TA coverage: May 2014–April 2016 period; additional TA for remainder of 2016 and 2017 envisaged but financing to be identified.

### TA priorities and sequencing
- Short-term (immediate operational priorities):
  - Clearing collectible tax debt.
  - Reforming the dispute resolution system.
  - Developing USC compliance management and strengthening audit.
- Medium-term (institutional/organizational barriers):
  - Strengthen tax administration headquarters.
  - Ensure sufficient autonomy in operational decision making.
  - Streamline local office delivery networks.
  - Depends on reform “traction” materializing in 2014/15.
- TA modalities and delivery:
  - Initial diagnostic mission followed by short-term expert (STX) support and staff visits during 2014/15.
  - In year two (2015/16), a follow-up FAD mission to assess reforms; subject to satisfactory progress, a resident advisor may be assigned.
  - Resident advisor would coordinate with other partners and support complex institutional reforms.
  - STX and staff visits to continue in year two covering core tax operational areas and structural reform advice.
- Coordination with partners:
  - TA to be integrated into IMF-supported program for Ukraine and coordinated with other TA providers to avoid duplication and enhance synergies.
  - World Bank and GIZ currently providing support to MRD; coordination and frequent interaction required.
  - Current World Bank support: transfer pricing and tax policy issues.
  - GIZ support: study visits to Germany, technical advice on transfer pricing, indicated interest in supporting future organizational restructuring.
  - United States Treasury Office of Technical Assistance (OTA) expressed interest in future support and possible funding for a resident advisor.

### Planned IMF TA resources (FY2014/15) — priorities and timing (Table 16 summary)
- Large taxpayer management:
  - Support to bring all large taxpayers under the LTI — STX visit, 1 X 14 days, October 2014.
  - Support to bring all large taxpayers under the LTI — STX visit, 1 X 14 days, February 2015.
  - Support to improve large taxpayer audit methodologies and quality — STX visit, 1 X 14 days, March–April 2015.
- Payroll tax compliance:
  - Advice on strengthening compliance management of the Unified Social Contributions and other payroll taxes (registration, filing, audit) — STX visit, 1 X 14 days, October 2014.
  - Follow up visit on strengthening compliance management of the Unified Social Contributions and other payroll taxes — STX visit, 1 X 14 days, March 2015.
- Debt collection:
  - Support to improve debt collection management—large debtor program and review of operation of installment scheme — STX visit, 1 X 14 days, November/December 2014.
- Dispute resolution:
  - Support to improve the internal dispute resolution system — STX visit, 1 X 14 days, April 2015.
- General review and ongoing advice:
  - Staff visit, 2 X 5 days, November 2014 and March 2015.
- FY2015/16 plan:
  - To be drawn up based on reform progress; support broader restructuring, governance reforms, improving USC compliance management, and development of a High Net Wealth Individuals program.
  - Delivery through headquarters missions, staff visits and up to 10 STX visits.

### Selected tax debt data (Appendix 1)
- Table A1. Current Debt by Maturity at January 1, 2014 (In UAH millions) — totals by tax type and maturity:
  - CIT:
    - Up to 1 year: Quantity 14,340; Volume 1,633.3
    - 1-2 years: Quantity 14,201; Volume 1032.1
    - Over 2 years: Quantity 17,682; Volume 1,789.5
    - Total: Quantity 46,263; Volume 4,454.9
  - PIT:
    - Up to 1 year: Quantity 18,977; Volume 150.4
    - 1-2 years: Quantity 14,377; Volume 205.8
    - Over 2 years: Quantity 12,945; Volume 377.3
    - Total: Quantity 46,299; Volume 733.5
  - VAT:
    - Up to 1 year: Quantity 18,268; Volume 2,650.3
    - 1-2 years: Quantity 13,958; Volume 2,119.6
    - Over 2 years: Quantity 18,207; Volume 4,054.3
    - Total: Quantity 50,433; Volume 8,824.3
  - Total (all taxes):
    - Up to 1 year: Quantity 204,500; Volume 5,456.2
    - 1-2 years: Quantity 147,309; Volume 4,425.6
    - Over 2 years: Quantity 132,826; Volume 8.154.0
    - Total: Quantity 484,635; Volume 18,035.8
  - Source: Ministry of Revenue and Duties.

- Table A2. Summary of Large Taxpayer Debt (In UAH millions):
  - Tax debt as of January 1, 2013: Total 1,340.0; Of which CIT 223.0; PIT 0.5; VAT 824.8; Other taxes 291.6.
  - New debt: 229.1; Of which CIT 76.4; PIT 0; VAT 148.0; Other 4.7.
  - Amounts collected: 1,846.4; Of which CIT 825.4; PIT 0.1; VAT 699.1; Other 321.8.
  - Tax debt written off: 143.9; Of which CIT 82.1; PIT 0; VAT 57.6; Other 3.9.
  - Tax debt at December 31, 2013: 764.8; Of which CIT 235.0; PIT 0.5; VAT 460.7; Other 68.5.
  - Tax debt considered collectible: 262.6; Of which CIT 74.6; PIT 0; VAT 153.1; Other 35.0.
  - Tax debt considered uncollectible: 502.3; Of which CIT 160.4; PIT 0.5; VAT 307.7; Other 33.7.
  - Source: Ministry of Revenue and Duties, Central Office for large taxpayers.

- Table A3. Current Large Taxpayer Debt by Maturity (Provided June 2014) (UAH million):
  - Up to 3 months: CIT 336.2; PIT 0.0; VAT 615.9; Other 140.5; Total 1092.6.
  - 3-6 months: CIT 88.2; PIT 0.0; VAT 11.9; Other 2.3; Total 102.4.
  - 6-12 months: CIT 43.3; PIT 0.0; VAT 102.1; Other 4.3; Total 149.7.
  - 1-2 years: CIT 83.9; PIT 0.0; VAT 18.6; Other 10.5; Total 113.
  - Over 2 years: CIT 153.7; PIT 0.5; VAT 390.2; Other 86.5; Total 630.9.
  - Total: CIT 705.3; PIT 0.5; VAT 1,138.7; Other 244.1; Total 2,088.6.
  - Source: Ministry of Revenue and Duties.

### Analysis of self-employed individuals (Appendix 2)
- Declared Net Annual Income (UAH) for 2013 — counts by income band and category (excerpted totals):
  - Total private entrepreneurs: 82,281.
  - Total independent professional practitioners: 10,494.
  - Total declarations in which Section IV Line 06 <>0: 5,112.
  - Notaries: 4,078.
  - Barristers: 5.
  - Forensic experts: 197.
- Income band examples (counts by band for private entrepreneurs; selected bands shown exactly as in source):
  - < 19,999: 71,622.
  - 20,000 to 39,999: 6,089.
  - 40,000 to 59,999: 1,486.
  - 60,000 to 79,999: 654.
  - 80,000 to 99,999: 379.
  - 100,000 to 149,999: 580.
  - 150,000 to 199,999: 278.
  - 200,000 to 249,999: 146.
  - 250,000 to 299,999: 114.
  - 300,000 to 399,999: 147.
  - 400,000 to 599,999: 154.
  - 600,000 to 799,000: 61.
  - 800,000 to 999,000: 51.
  - > 1 million: 134.
- Source: Ministry of Revenue and Duties.

*Source: IMF staff report content unit _cr1649 - 97.      Ukraine currently does not have appropriate governance for revenue.*

### Appendix 3. International Comparison of Appeal Processes

### Appendix 3. International Comparison of Appeal Processes

### Country-by-country appeal process summary
- Australia — Administrative Appeals: Yes; Is admin appeal mandatory prior to litigation?: 28 days; Amount of disputed tax that must be paid: 50%; Judicial Appeals: 60 days; Can taxpayer request admin appeal and also litigate?: Yes
- Belgium — Administrative Appeals: Yes; Is admin appeal mandatory prior to litigation?: 180 days; Amount of disputed tax that must be paid: 100%*; Judicial Appeals: 90 days; Can taxpayer request admin appeal and also litigate?: Yes
- Bulgaria — Administrative Appeals: Yes; Is admin appeal mandatory prior to litigation?: 14 days; Amount of disputed tax that must be paid: unavailable; Judicial Appeals: 30 days; Can taxpayer request admin appeal and also litigate?: Yes
- Cyprus — Administrative Appeals: Yes; Is admin appeal mandatory prior to litigation?: 30 days; Amount of disputed tax that must be paid: unavailable; Judicial Appeals: 45 days; Can taxpayer request admin appeal and also litigate?: Yes
- Denmark — Administrative Appeals: Yes; Is admin appeal mandatory prior to litigation?: 90 days; Amount of disputed tax that must be paid: 100%*; Judicial Appeals: 90 days; Can taxpayer request admin appeal and also litigate?: Yes
- Estonia — Administrative Appeals: No; Is admin appeal mandatory prior to litigation?: 30 days; Amount of disputed tax that must be paid: 100%*; Judicial Appeals: unavailable; Can taxpayer request admin appeal and also litigate?: Yes
- Finland — Administrative Appeals: Yes; Is admin appeal mandatory prior to litigation?: 5 years; Amount of disputed tax that must be paid: unavailable; Judicial Appeals: 5 years; Can taxpayer request admin appeal and also litigate?: Yes
- France — Administrative Appeals: Yes; Is admin appeal mandatory prior to litigation?: 60 - 180; Amount of disputed tax that must be paid: 100%*; Judicial Appeals: 60 days; Can taxpayer request admin appeal and also litigate?: Yes
- Germany — Administrative Appeals: Yes; Is admin appeal mandatory prior to litigation?: 30 days; Amount of disputed tax that must be paid: 100%*; Judicial Appeals: 30 days; Can taxpayer request admin appeal and also litigate?: Yes
- Greece — Administrative Appeals: No; Is admin appeal mandatory prior to litigation?: 60 days; Amount of disputed tax that must be paid: 25%*; Judicial Appeals: 60 days; Can taxpayer request admin appeal and also litigate?: Yes
- Hungary — Administrative Appeals: Yes; Is admin appeal mandatory prior to litigation?: 30 days; Amount of disputed tax that must be paid: unavailable; Judicial Appeals: 30 days; Can taxpayer request admin appeal and also litigate?: Yes
- Ireland — Administrative Appeals: Yes; Is admin appeal mandatory prior to litigation?: 30 days; Amount of disputed tax that must be paid: 75-80%; Judicial Appeals: 30 days; Can taxpayer request admin appeal and also litigate?: Yes
- Italy — Administrative Appeals: Na; Is admin appeal mandatory prior to litigation?: NA; Amount of disputed tax that must be paid: unavailable; Judicial Appeals: 60 days; Can taxpayer request admin appeal and also litigate?: No
- Latvia — Administrative Appeals: Yes; Is admin appeal mandatory prior to litigation?: 30 days; Amount of disputed tax that must be paid: unavailable; Judicial Appeals: 30 days; Can taxpayer request admin appeal and also litigate?: Yes
- Lithuania — Administrative Appeals: Yes; Is admin appeal mandatory prior to litigation?: unknown; Amount of disputed tax that must be paid: unavailable; Judicial Appeals: 20 days; Can taxpayer request admin appeal and also litigate?: Yes
- Luxembourg — Administrative Appeals: Yes; Is admin appeal mandatory prior to litigation?: 90 days; Amount of disputed tax that must be paid: 100%*; Judicial Appeals: 90 days; Can taxpayer request admin appeal and also litigate?: Yes
- Malta — Administrative Appeals: Yes; Is admin appeal mandatory prior to litigation?: 30 days; Amount of disputed tax that must be paid: unavailable; Judicial Appeals: 30 days; Can taxpayer request admin appeal and also litigate?: Yes
- Netherlands — Administrative Appeals: Unavailable; Is admin appeal mandatory prior to litigation?: 45 days; Amount of disputed tax that must be paid: none; Judicial Appeals: 45 days; Can taxpayer request admin appeal and also litigate?: Yes
- Norway — Administrative Appeals: Yes; Is admin appeal mandatory prior to litigation?: 21 days; Amount of disputed tax that must be paid: unavailable; Judicial Appeals: 180 days; Can taxpayer request admin appeal and also litigate?: Yes
- Poland — Administrative Appeals: Yes; Is admin appeal mandatory prior to litigation?: 14 days; Amount of disputed tax that must be paid: 100%*; Judicial Appeals: 30 days; Can taxpayer request admin appeal and also litigate?: Yes
- Romania — Administrative Appeals: Na; Is admin appeal mandatory prior to litigation?: 30 days; Amount of disputed tax that must be paid: unavailable; Judicial Appeals: 180 days; Can taxpayer request admin appeal and also litigate?: No
- Slovak Rep. — Administrative Appeals: Na; Is admin appeal mandatory prior to litigation?: 15 days; Amount of disputed tax that must be paid: unavailable; Judicial Appeals: No appeal; Can taxpayer request admin appeal and also litigate?: No
- Spain — Administrative Appeals: Yes; Is admin appeal mandatory prior to litigation?: 30 days; Amount of disputed tax that must be paid: 100%*; Judicial Appeals: 60 days; Can taxpayer request admin appeal and also litigate?: Yes
- Sweden — Administrative Appeals: No; Is admin appeal mandatory prior to litigation?: 5 years; Amount of disputed tax that must be paid: unavailable; Judicial Appeals: 5 years; Can taxpayer request admin appeal and also litigate?: Yes
- Switzerland — Administrative Appeals: Yes; Is admin appeal mandatory prior to litigation?: 30 days; Amount of disputed tax that must be paid: unavailable; Judicial Appeals: 30 days; Can taxpayer request admin appeal and also litigate?: Yes
- Turkey — Administrative Appeals: Yes; Is admin appeal mandatory prior to litigation?: before/after; Amount of disputed tax that must be paid: unavailable; Judicial Appeals: 30 days; Can taxpayer request admin appeal and also litigate?: Yes
- United (Kingdom) — Administrative Appeals: No; Is admin appeal mandatory prior to litigation?: 30 days; Amount of disputed tax that must be paid: 100%*; Judicial Appeals: 30 days; Can taxpayer request admin appeal and also litigate?: Yes
- United States — Administrative Appeals: No; Is admin appeal mandatory prior to litigation?: 30days; Amount of disputed tax that must be paid: none; Judicial Appeals: 90 days; Can taxpayer request admin appeal and also litigate?: Yes

### Cross-cutting observations and procedural features
- Mandatory administrative appeal prior to litigation:
  - Several countries require an administrative appeal prior to litigation (examples: Australia, Belgium, Denmark, France, Germany, Ireland, Luxembourg, Poland, Spain).
  - Several countries do not require an administrative appeal (examples: Estonia, Greece, Sweden, United Kingdom, United States).
- Filing periods (administrative appeal) observed in the table (exact values preserved) include: 28 days; 180 days; 14 days; 30 days; 90 days; 5 years; 60 - 180; unknown; 21 days; 15 days; before/after; 30days; NA; Unavailable.
- Amount of disputed tax that must be paid prior to judicial appeal (as stated in table):
  - Explicit percentages preserved: 50%; 100%*; 25%*; 75-80%; none; unknown; unavailable.
  - Several entries are listed as unavailable, unknown, none, NA, or with an asterisk indicating conditional waiver (see note below).
- Judicial appeal filing periods (exact values preserved) include: 60 days; 90 days; 30 days; 45 days; 5 years; 180 days; No appeal; 20 days; 60 days; 90 days.
- Ability to pursue both administrative appeal and litigation: nearly all listed countries permit the taxpayer to request an administrative appeal and also litigate (entries marked Yes), with exceptions explicitly indicated (Italy: No; Romania: No; Slovak Rep.: No).

### Note on payment requirement asterisk
- Entries marked with 100%* or similar asterisk reflect that "While the law requires full payment of the disputed amount, all or part may be waived by the tax agency in cases of proven financial hardship (bankruptcy; receivership etc). Security over assets may be sought in these situations."

*Sources: IMF; and OECD.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr1649.pdf_