In its most recent letters and in the course of its meetings with the representatives of business companies, the State Customs Service of Ukraine (hereinafter – the "SCS of Ukraine") announced its intention to strengthen cooperation with the State Tax Service of Ukraine by increasing tax payments and duties to the state treasury. Such cooperation means that customs authorities will receive information on foreign-economic transactions performed by taxpayers, in particular, payment royalties, insurance expenses, etc., which impact the customs value of goods.

In view of the aforementioned, the SCS of Ukraine appealed to the taxpayers with a letter that recommended taxpayers declare unintentional mistakes related to VAT amounts, and other taxes and duties, which were not remitted to the state treasury on time and voluntarily pay them before April 1, 2012 together with 3% of self reported penalties.

Upon termination of the aforementioned term, customs authorities would assume the right to conduct wide-range customs audits of taxpayers.

In case mistakes are detected in VAT amounts, other taxes and duties, which led to failure of their remittance to the state treasury, customs authorities will accrue tax liabilities and levy penalties from 25% to 50%.

According to the representatives of the SCS of Ukraine, if the taxpayer is unable to report the amount of unpaid taxes by April 1, 2012, the taxpayer should notify customs authorities about his intention to correct the mistakes and provide a payment date for the defined amount. If the taxpayer provides customs authorities with timely notification, customs authorities will refrain from auditing the taxpayer.

In order to correct unintentional mistakes and voluntarily pay unpaid taxes, the company should proceed with the following steps:

·           Prepare and submit a letter to the customs authorities at the place of taxpayer's registration (letter to be sent in the name of the Head of Department on Prevention of Smuggling, Risk Analysis and Anti-Corruption (Risk Analysis and Audit Service) and inform customs authorities about the intention to declare voluntary mistakes and indicate the scheduled date for payment of the defined amounts;

·           Prepare a list of customs declarations (and their numbers) and send this list to customs authorities; and

·           Pay the defined tax amounts and prepare modified adjustment sheets for customs declarations.

Customs authorities will pay special attention to the following issues:

(i) Accuracy of determination of customs value,

(ii) Accuracy of execution of the medicines' import procedure,

(iii) Lawfulness of implementation of temporary import regime, and

(iv) Accuracy of the definition of UKTZED code.

Following the recommendations of the SCS of Ukraine we advise taxpayers to take the following into consideration:

• The risk of criminal prosecution for errors that exceed UAH536,500 (USD67,063);
• Absence of legitimate grounds to relieve taxpayers from auditing as a result of voluntary declaration of mistakes;
• Absence of established procedures on reporting of VAT amounts paid as a result of voluntary declaration of mistakes, as VAT credit.

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