Tax Disputes: How Businesses Should Defend Themselves in 2026

Tax disputes in Ukraine have long ceased to be merely technical disagreements between taxpayers and tax authorities regarding individual tax assessment notices. Statistics from 2025 and the first indicators of 2026 suggest a different reality: tax disputes have become one of the most significant financial risks facing businesses, and their outcomes increasingly depend not on formal documentation alone, but on the quality of legal strategy. According to the State Tax Service (STS), Ukrainian courts handled 71,800 cases against tax authorities in 2025, involving a total amount of UAH 489.1 billion. Of these, only 19,600 cases worth UAH 178 billion were resolved. The overwhelming majority concerned challenges to tax assessment notices: 30,100 cases involving UAH 439.8 billion, representing more than 90% of the total value of tax litigation. These figures demonstrate two important realities. First, tax disputes are systemic in nature. Second, a significant portion of the most financially significant cases remain unresolved and carry over into subsequent years, creating long-term legal and financial pressure for businesses.

Administrative Appeals: Useful but Limited

The pre-trial dispute resolution mechanism deserves particular attention. In 2025, the central office of the STS reviewed nearly 50,000 complaints and overturned more than 20,000 decisions issued by lower-level tax authorities. At first glance, this may appear to confirm the effectiveness of administrative appeals. However, the financial impact of those reversals was relatively modest: canceled assessments amounted to approximately UAH 10.5 billion. By comparison, taxpayers were simultaneously challenging tax assessment notices worth UAH 439.8 billion in court. In other words, the value of court disputes exceeded the value of canceled administrative decisions by more than forty times.

This suggests that administrative appeals tend to be effective primarily in cases involving obvious procedural mistakes, relatively small amounts, or partial reductions of penalties. When disputes involve substantial assessments, complex business transactions, transfer pricing, cross-border operations, or allegations of non-genuine transactions, litigation remains the primary mechanism for protection. Once again, the largest category involved challenges to tax assessment notices—25,800 cases totaling UAH 398.9 billion. At the same time, the STS is acting in an increasingly systematic manner.

Judicial Practice: What Really Matters

One of the most significant trends in recent years has been the growing importance of procedural safeguards. The Supreme Court has consistently emphasized that violations of audit procedures may themselves be sufficient grounds for invalidating audit results.

In its landmark decision of February 21, 2020, in case No. 826/17123/18, the Grand Chamber of the Supreme Court held that courts must first examine arguments concerning the legality of the audit's appointment and conduct before analyzing the substantive tax issues.

The same approach appears in subsequent case law. In case No. 520/8836/18, the Supreme Court highlighted the taxpayer’s right to participate in the consideration of objections to an audit report. In case No. 810/1420/16, the Court concluded that an audit conducted without proper legal grounds cannot produce valid legal consequences.

This development changes the logic of tax defense. Businesses must evaluate not only the substance of their transactions but also every procedural step taken by the tax authority: the audit order, legal grounds for initiating the audit, procedural deadlines, service of documents, consideration of objections, and respect for procedural rights.

A second important trend is the gradual rejection of a purely formal approach to evaluating business transactions. Tax authorities frequently rely on allegations of “non-genuine transactions,” “risky counterparties,” deficiencies in primary documentation, or lack of business purpose. However, the Supreme Court has repeatedly emphasized that formal documentary deficiencies alone do not prove that a transaction never occurred.

In decisions issued on May 23, 2023 (case No. 360/1283/20), and June 19, 2023 (case No. 810/1577/17), the Court held that violations committed by a counterparty cannot automatically demonstrate bad faith on the part of the taxpayer. The decisive factors remain the actual movement of assets, changes in the taxpayer’s financial position, and the genuine economic substance of the transaction.

A third trend involves the increasing evidentiary burden placed on tax authorities. The STS can no longer rely solely on references to internal databases, risk indicators, or analytical conclusions. Courts now require proof of specific violations, a causal connection between alleged conduct and tax consequences, and properly substantiated evidence.

For taxpayers, this means that success does not depend on proving absolute perfection in all aspects of business activity. Rather, it depends on effectively challenging the tax authority’s narrative and demonstrating the actual economic reality of the transaction.

A separate category of disputes involves transfer pricing, transactions with non-residents, and the application of international tax treaties. Throughout 2025, the Supreme Court issued several important decisions shaping these areas.

For example, in case No. 420/22108/21, the Court confirmed the taxpayer’s right to use the Comparable Uncontrolled Price (CUP) method based on internal comparable transactions, provided comparability can be adequately demonstrated. In case No. 120/8569/24, the Court addressed the valuation date applicable to forward contracts. In case No. 280/4264/21, it examined taxation issues concerning foreign representative offices operating in Ukraine.

The Court also considered beneficial ownership and treaty benefits in cases No. 500/1744/24, No. 320/10615/24, No. 160/28164/24, No. 420/11672/24, and No. 120/10439/24. These decisions demonstrate that merely referencing an international corporate structure is no longer sufficient. Taxpayers must establish the actual role of the non-resident entity, the economic rationale of the transaction, functional analysis, financial substance, and consistency between the overall structure and the claimed tax treatment.

Conclusions

Tax disputes in Ukraine have entered a new stage of development. They are becoming more expensive, more complex, and more time-consuming. The State Tax Service is acting more systematically, while judicial practice increasingly determines the ultimate fate of tax assessments. Under these conditions, competitive advantage belongs not to businesses that react to tax claims after they arise, but to those that prepare in advance, document the economic reality of their transactions, monitor compliance with audit procedures, and develop a legal strategy before any tax assessment notice is issued.