Tax Audits Conducted in Breach of Procedure: Three Supreme Court Rulings

A tax audit may result in substantial additional tax assessments and penalties. However, even where the tax authority’s claims are well-founded, it remains obliged to comply with the procedure established by law. A properly issued audit order, timely notification of the taxpayer and protection of the taxpayer’s right to submit objections are legally significant in their own right. In certain circumstances, breaches of these requirements may lead to the cancellation of a tax assessment notice without the court examining whether the additional amounts assessed were justified.

The Supreme Court has published a systematic review of the case law of its Administrative Cassation Court concerning procedural violations in the initiation and conduct of tax audits. The review covers court decisions issued between 2018 and August 2026. Three issues addressed in the review are particularly relevant to businesses dealing with tax authorities: the legal grounds for initiating an audit, compliance with the notification procedure and protection of the taxpayer’s right to participate in the consideration of audit findings.

1. Can the tax authority initiate an audit without properly substantiating its grounds?

One common cause of tax disputes is the initiation of an unscheduled audit following a written request from the tax authority to which the taxpayer has either failed to respond or provided an incomplete response.

Under paragraph 73.3 of Article 73 of the Tax Code of Ukraine, a written request must comply with statutory requirements, including the requirement to specify the grounds on which it is issued. Where a request fails to meet those requirements, the taxpayer is relieved of the obligation to respond. At the same time, failure to provide explanations and supporting documents in response to a properly issued request may, where the statutory conditions are met, constitute grounds for an unscheduled documentary audit under subparagraphs 78.1.1 and 78.1.4 of paragraph 78.1 of Article 78 of the Tax Code.

The Supreme Court’s judgment of 19 August 2024 in case No. 420/5252/19 provides an instructive example. In that case, a company challenged the results of an audit initiated because it had not provided explanations and documents in response to a tax authority’s request. However, the request itself did not contain adequate justification, and there was no necessary substantive connection between its contents and the grounds stated in the audit order.

The Supreme Court held that failure to respond to an improperly issued request does not establish a lawful basis for initiating an unscheduled documentary audit. Accordingly, tax assessment notices issued as a result of such an audit are subject to cancellation. The Court also clarified that once an audit has actually been conducted, the order authorising it has already been implemented. Its subsequent cancellation is therefore not an appropriate and effective remedy. In that situation, the procedural defect in initiating the audit should instead be relied upon when challenging the decisions issued following the audit.

Practical implications for businesses. Upon receiving a request from the tax authority, a company should examine not only the list of documents requested but also the legal and factual grounds for the request. If an audit is subsequently initiated, the company should compare the grounds stated in the audit order with the contents of the earlier request and the response actually provided. However, the fact that an audit order refers only to a provision of the Tax Code does not necessarily make it unlawful. The Supreme Court permits a minimal description of the grounds for certain types of on-site factual audits. The lawfulness of an order must therefore be assessed in light of the particular statutory provision on which the audit is based.

2. An audit begins before the taxpayer has been properly notified: what are the legal consequences?

The second important issue concerns situations in which the tax authority orders an unscheduled desk-based documentary audit but begins it before the taxpayer has been properly served with a copy of the audit order and a notice specifying the audit’s start date and location.

Under paragraph 79.2 of Article 79 of the Tax Code, such an audit may be conducted only if the prescribed notification procedure has been followed. It is important to distinguish between a person’s actual awareness of the documents and their proper service in accordance with Article 42 of the Tax Code. In its judgment of 16 May 2025 in case No. 140/2750/24, the Supreme Court examined a dispute concerning an unscheduled desk-based documentary audit that resulted in the issuance of tax assessment notices.

The tax authority maintained that it had properly notified the company by sending the relevant documents by registered post.

However, the audit began on 27 August 2020, while the postal item was returned with a non-delivery mark on 28 August. Consequently, when the audit began, the tax authority had no confirmation that the taxpayer had been properly notified. The Supreme Court concluded that commencing an unscheduled desk-based documentary audit before proper service of the order and the relevant notice constitutes a material procedural violation.

Such a violation is an independent and sufficient ground for cancelling the tax assessment notices issued as a result of the audit. Compliance with electronic notification requirements is equally important. In particular, in its judgment of 23 October 2024 in case No. 380/11112/23, the Supreme Court emphasised the need to confirm proper service of documents through the taxpayer’s electronic account by means of the relevant delivery receipts.

Practical implications for businesses. When challenging audit findings, a taxpayer should establish the exact date on which the audit began and examine the evidence showing that the audit order and notification were properly served. If the documents were sent by post, the mailing address, postal records and circumstances of delivery are relevant. Where the taxpayer’s electronic account was used, evidence confirming delivery of the documents should be examined. Nevertheless, the mere fact that a taxpayer did not personally read a notification does not necessarily establish a procedural violation. What matters is whether the statutory rules governing service of documents were followed.

3. The tax authority fails to consider objections to an audit report: can additional tax assessments be cancelled?

The completion of an audit and preparation of the audit report do not mean that the taxpayer has lost the opportunity to influence the tax authority’s final decision.

Paragraph 86.7 of Article 86 of the Tax Code gives taxpayers the right to submit objections to an audit report, together with additional documents and explanations. These materials form an integral part of the audit file. As a general rule, objections may be submitted within ten working days, calculated from the day following receipt of the audit report.

The Supreme Court’s judgment of 11 May 2026 in case No. 560/15865/24 is particularly noteworthy.

A company received an audit report on 27 June 2024. On 11 July, the final day of the statutory period, it handed its objections to a postal operator. The tax authority received the item the following day but declined to consider the objections, taking the view that they had been submitted out of time.

The Supreme Court held that, where objections are submitted by post, their timeliness is determined by the date on which they are handed to the postal operator, rather than the date on which they are actually received by the tax authority. Failure to consider objections submitted within the statutory period, together with the documents attached to them, constitutes an independent ground for cancelling a tax assessment notice.

Another important conclusion was set out in the judgment of 8 January 2026 in case No. 160/8485/23. In that case, a company submitted objections to an audit report, but the tax authority failed to notify it properly of the date, time and place at which those objections would be considered. The Supreme Court emphasised that a breach of the prescribed procedure for considering objections deprives the taxpayer of the opportunity to exercise its right to participate in the decision-making process and constitutes an independent ground for cancelling tax assessment notices.

Practical implications for businesses. After receiving an audit report, a taxpayer should prepare reasoned objections within the prescribed period, attach documents supporting its position and retain evidence of submission. If the tax authority fails to consider the objections or does not ensure the taxpayer’s opportunity to participate in their consideration, those circumstances should be taken into account when developing the legal arguments for challenging the resulting decision.

At the same time, the general procedure for considering objections must be distinguished from the special procedure applicable to audits initiated under subparagraph 78.1.5 of paragraph 78.1 of Article 78 of the Tax Code in connection with objections to an earlier audit report. Separate rules govern the consideration of materials submitted in the latter situation.