Tax Audits with Procedural Violations: 5 Court Positions Businesses Should Know

A tax audit does not begin with the analysis of accounting records, nor does it end with the preparation of an audit report. Before a tax authority can draw conclusions about violations and assess additional tax liabilities, it must itself comply with the procedure established by law. In certain cases, mistakes at this stage may call into question not only the audit itself but also the tax assessment notices issued on the basis of its findings. The Supreme Court has published a review of the case law of the Administrative Cassation Court concerning procedural violations in the appointment and conduct of tax audits. The case law demonstrates an important trend for businesses: procedural requirements governing tax control are not a mere formality. At the same time, businesses should not assume that every technical error made by the State Tax Service automatically invalidates the results of an audit.

An Unlawful Audit May Render the Audit Report Inadmissible as Evidence

Resolution of the Administrative Cassation Court of the Supreme Court dated 22 September 2020 in Case No. 520/8836/18/ This case established one of the fundamental approaches to the consequences of procedural violations. A sole proprietor challenged a tax assessment notice increasing their VAT liability. Among the arguments raised was that the audit order did not specify a proper legal basis for the audit and that the audit as actually conducted did not correspond to the type specified in the order.

The tax authority ordered an unscheduled documentary on-site audit but in fact conducted it at its own premises. The Supreme Court noted that an on-site audit must be conducted at the taxpayer’s location, whereas conducting it at the tax authority’s premises indicates that the audit was in fact off-site. However, the most important aspect of the decision concerned the consequences of an unlawful audit. The Supreme Court proceeded from the principle that a tax authority, as a public authority, must act on the basis of, within the limits of, and in the manner prescribed by law. Failure to comply with the statutory grounds for conducting an unscheduled documentary audit renders that audit unlawful.

If an audit is unlawful, the audit report prepared on its basis cannot be regarded as admissible evidence because it was obtained in violation of the procedure established by law.

Lack of Detail in an Audit Order Does Not Always Make the Audit Unlawful

Resolution of the Administrative Cassation Court of the Supreme Court dated 26 March 2024 in Case No. 420/9909/23

This position is important from the opposite perspective: it demonstrates the limits of challenging an audit on the basis of an allegedly insufficiently specific order. A company challenged an order for an actual audit because it did not provide a detailed description of the factual circumstances of the alleged violation. The audit was ordered under subparagraph 80.2.2 of paragraph 80.2 of Article 80 of the Tax Code of Ukraine. The courts of first instance and appeal agreed with the taxpayer. The Supreme Court did not.

The Administrative Cassation Court held that where the relevant provision of the Tax Code effectively contains one specific factual ground for conducting an audit, citing that provision in the audit order may constitute the minimum sufficient amount of information. The tax authority is not always required to describe in detail, already in the audit order, the information it has received, list the provisions allegedly violated by the taxpayer, or provide evidence of the suspected violation. Therefore, the formal argument that “the order does not describe all the facts, so the audit is unlawful” does not always work.

The specific provision of the Tax Code relied upon by the State Tax Service must be examined. If it contains only one factual ground and makes it possible to clearly understand the reason for the audit, a reference to the relevant provision may, in certain circumstances, be sufficient. At the same time, merely citing a statutory provision does not relieve the tax authority of the obligation to actually have the grounds required by law. Therefore, a court dispute concerns not only the wording of the audit order but also whether there were reasonable grounds for issuing it. This position demonstrates why it may be risky to build an entire strategy for challenging an audit solely on formal deficiencies in the audit order.

Starting an Audit Before Proper Notification May Lead to Cancellation of Tax Assessments

Resolution of the Administrative Cassation Court of the Supreme Court dated 16 May 2025 in Case No. 140/2750/24

Another fundamental safeguard concerns the moment when an unscheduled documentary off-site audit may begin. The tax authority sent the company an audit order and notification by registered mail.

However, the correspondence was not delivered and was subsequently returned with the relevant postal notation. The State Tax Service commenced the audit on 27 August 2020, while the postal item was returned on 28 August. Therefore, at the time the audit actually began, the tax authority had no confirmation that the taxpayer had been properly notified. The Supreme Court emphasized that an unscheduled documentary off-site audit may commence only after the taxpayer has been served with a copy of the audit order and written notification of the start date and place of the audit in accordance with the procedure established by the Tax Code. The mere fact that the documents were sent is insufficient if, at the time the audit begins, the necessary legal prerequisites have not yet been met.

The Court found that commencing the audit before proper service of the relevant documents constituted a material procedural violation and an independent and sufficient ground for cancelling the tax assessment notices. The practical significance of this conclusion extends far beyond this particular case. After receiving a tax assessment notice following an off-site audit, a business should reconstruct the timeline day by day: when the audit order was issued, when the notification was sent, where it was sent, when the documents were deemed served, and when the audit actually began. Sometimes, the chronology itself becomes a key piece of evidence in a tax dispute.

Failure to Publish the Audit Schedule May Render a Scheduled Audit Unlawful

Resolution of the Administrative Cassation Court of the Supreme Court dated 4 March 2026 in Case No. 520/13487/24

This is one of the most notable recent positions included in the review. The dispute concerned a scheduled documentary audit conducted during the period of special legal regulation associated with martial law. The legislation specified the categories of taxpayers that could be included in the audit schedule, while the updated schedule had to be published on the official website of the State Tax Service no later than the last day of the month in which it was approved.

The Supreme Court emphasized that when reviewing tax assessment notices, courts must first examine whether the procedure for appointing and conducting the audit was lawful, including whether the requirements for publishing the audit schedule were complied with.

If the tax authority failed to comply with the statutory publication requirements, this constitutes a violation of the procedure for appointing the audit. The consequences may be fundamental: the audit may be unlawful and its results may have no legal effect, including the tax assessment notices issued on their basis. In such circumstances, the court does not first need to determine whether the company actually understated its tax liabilities. For businesses, this leads to a straightforward practical rule: upon receiving notification of a scheduled audit, it is not enough to review only the audit order.

The Tax Authority Cannot Simply Ignore Objections to an Audit Report

Resolution of the Administrative Cassation Court of the Supreme Court dated 24 December 2024 in Case No. 640/20970/22

After receiving an audit report, a taxpayer still has an opportunity to influence the outcome of the audit procedure. The Supreme Court directly links the procedure for considering objections with the taxpayer’s right to be heard. In this case, the company sent its objections to the audit report by post on the last, tenth working day of the statutory period. The tax authority concluded that the deadline had been missed, refused to consider the objections, and issued a tax assessment notice.

The Supreme Court found this approach incorrect. If the taxpayer hands the objections to a postal operator within the final day of the applicable period, they are deemed to have been submitted on time. Accordingly, the State Tax Service was required to consider them, together with the attached documents, before issuing the tax assessment notice. The Administrative Cassation Court regarded the unjustified refusal to consider timely objections as a material violation of the taxpayer’s right to be heard and as an independent ground for cancelling the tax assessment notice. This is an important practical conclusion.

An audit report is not yet the tax authority’s final decision. Objections to it should not be treated merely as a formal intermediate step before future litigation. At this stage, a taxpayer may submit explanations, arguments, and documents that the tax authority is required to consider.

Accordingly, not only the substance of the objections matters, but also evidence confirming that they were submitted on time and received by the State Tax Service.