On-Site Tax Audits of Online Sales: When the Tax Authority Exceeds Its Powers

In recent years, on-site tax audits have become one of the most common instruments used by tax authorities to control individuals who sell goods online. The focus of the tax service is on online stores, social media pages, and marketplace accounts whose activities, in the opinion of supervisory bodies, show signs of entrepreneurship but are carried out without registering as an individual entrepreneur.

At the same time, practice shows that a significant number of such audits are conducted with serious procedural violations, and their results not only can but should be challenged.

An on-site audit is a special form of tax control. It is conducted without prior notice to the taxpayer and is aimed at verifying compliance with legislation on cash circulation, settlement transactions, licensing requirements, employment relations, and the conduct of business activities. The legal grounds and procedure for such audits are clearly defined by the Tax Code of Ukraine, and any deviation from this procedure has legal significance.

However, the key problem remains the equation by tax authorities of any online sale with entrepreneurial activity. The mere existence of a website, a product catalog, or the acceptance of online orders does not in itself prove that business activity is being carried out. To reach such a conclusion, a combination of factors is required, including the systematic nature of actions, their independent character, an intention to generate profit, and the actual receipt of income.

It is precisely at this stage that tax authorities most often make mistakes.

Typical Violations During On-Site Audits

In practice, situations are quite common where on-site audits are conducted without proper legal grounds or with an excess of authority. Among the most typical violations are the improper execution of the audit order issued by the head of the tax authority, the inspection of issues that fall outside the scope of an on-site audit, and the use of inadmissible or purely formal evidence.

Quite often, the tax authority fails to prove either the systematic nature of the activity or the actual receipt of income. Conclusions are based on assumptions, screenshots of social media pages, or isolated transactions without analyzing their legal nature. Under such circumstances, the audit effectively loses its evidentiary value, yet this does not prevent supervisory bodies from assessing additional tax liabilities and imposing penalties.

Challenging Audit Results: Administrative and Judicial Remedies

The results of an on-site tax audit may be challenged both through administrative procedures and in court. Administrative appeals involve filing a complaint with a higher tax authority; however, in practice, this route rarely produces the desired outcome.

Judicial review is a far more effective means of protection. In court proceedings, not only the substance of the audit findings is examined, but first and foremost the lawfulness of the appointment and conduct of the audit itself. If the court establishes that the requirements of the Tax Code were violated, tax notices and assessment decisions are generally declared unlawful regardless of the amounts assessed.

A decisive role in such disputes is played by the correct legal qualification of the person’s actions, a detailed analysis of financial transactions, and a review of the procedural conduct of the tax authority.

Case Law and the Importance of Professional Legal Defense

Judicial practice in disputes concerning online sales without registration as an individual entrepreneur is gradually developing in favor of taxpayers. Courts increasingly emphasize that it is necessary to prove the entrepreneurial nature of the activity, rather than relying solely on the formal fact of selling goods.

In such cases, a comprehensive approach is crucial—from analyzing the evidentiary base to identifying procedural violations committed by the tax authority. Professional legal support not only helps minimize risks but, in many cases, allows for the complete cancellation of unlawful additional tax assessments, penalties, and financial sanctions.

Conclusion

An on-site tax audit of online sales conducted without registering as an individual entrepreneur is far from always lawful or justified. In most cases, tax authorities commit significant procedural and evidentiary violations, which opens the door to effective judicial protection.

A well-reasoned legal position, careful analysis of the actions of supervisory bodies, and timely engagement of a professional lawyer remain the key factors in protecting the rights of individuals involved in tax disputes related to online commerce.