Court confirmed legality of the controlling authority’s application of fines for failure to include bad debts in income

The Appellate court supported the controlling authority’s position regarding legality of adopted tax notification-decision on the application of fine (financial sanctions) (penalties) to the plaintiff for failure to include bad debts in income and increased amount of monetary obligation to pay the corporate income tax created with participation of foreign investors.

The Appellate court noted that in order to assign amounts of monetary obligations under promissory notes transferred to the supplier of products to irrevocable financial assistance, there must be legal grounds defined in Sub-paragraph 14.1.257 Paragraph 14.1 Article 14 of the Tax Code of Ukraine.

The courts agree with audit conclusions of the controlling authority that deadline for repayment of the statute of limitations for the above specified operations with promissory notes has arrived on 22.07.2017, in connection with which audit report concluded that bad debts in the total amount of 3 050 000 UAH the plaintiff should have included in income for 2017 and reflected in tax and financial reporting.

The Appellate court testified that the trial court correctly concluded that actual write-off of bad debts should have taken place in 2017; therefore the plaintiff unlawfully understated income for 2017 and overstated income for the three quarters of 2022.

Panel of judges draws special attention to the fact that the plaintiff, before objecting to the Audit act, was provided with color copies of promissory notes on which there is no information about the endorsement or other markings. From the above specified, it can be seen that electronic copies of documents provided by the plaintiff do not deny existence of the established violation, guilt of committed violation and/or indicate presence of mitigating circumstances, or circumstances exempting from financial responsibility. Also, the case files contain Act on failure to provide security, failure to provide documents in full by the payer.

Sixth Appellate administrative court on 04.11.2024 in case № 320/41224/23 dismissed the plaintiff's appeal; decision of the Kyiv District administrative court as of 21.12.2023 was left unchanged.