The tax office has assessed a penalty: what should I do?

In tax disputes, it's quite common for a taxpayer to receive a tax notice-decision or other document from the tax authority with assessed penalties. For many entrepreneurs and individuals, this comes as a surprise, as penalties can be assessed even when the underlying tax liability has already been paid or when the taxpayer was not properly notified of the tax debt. Therefore, it's important to understand the legal nature of penalties, the grounds for their assessment, and the mechanisms for protecting your rights.

What is a penalty in tax law?

A penalty is a financial sanction assessed on the amount of tax debt for each day of late payment. According to the Tax Code of Ukraine, a penalty is one of the ways to ensure that taxpayers fulfill their tax obligations to the budget.

Penalties begin to accrue when the agreed monetary obligation is not paid within the statutory deadline. The agreed tax liability is defined as the tax amount that the taxpayer independently determined in the tax return or that was determined by the regulatory authority and was not appealed in the prescribed manner.

The penalty amount is calculated based on 120 percent of the annual key rate of the National Bank of Ukraine, in effect for each day of delay.

In what cases can the tax office charge a penalty?

Most often, penalties are charged in the following cases:

1. First, in the case of late payment of a tax that was self-declared by the taxpayer. If the tax is declared in the tax return but not paid by the due date, a tax debt arises automatically, and penalties begin to accrue the following day.
2. Second, in the case of a tax liability determined by a regulatory authority following an audit. If the taxpayer received a tax notice decision and failed to pay a certain amount by the deadline established by the Tax Code, the tax debt also becomes grounds for the accrual of a penalty.
3. Third, a penalty may arise when errors are corrected in tax reporting. If the taxpayer independently discovers an understatement of the tax liability for previous periods, they are obligated to pay not only the tax amount and the fine, but also the penalty.

A penalty may also be assessed in the event of a late return of budgetary compensation or in cases where the taxpayer has violated the terms of an installment plan or deferral of tax debt.

What should I do if the tax office has assessed a penalty?

First, it's necessary to determine the basis for its accrual. To do this, review the taxpayer's tax card, tax notices-decisions, and other documents that may have been the basis for the tax debt.

In practice, it's quite common for penalties to be assessed erroneously. For example, if a payment was made on time but reflected late in the tax authority's system, or if the tax authority incorrectly determined the date the tax debt arose.

In such situations, the taxpayer has the right to apply to the tax authority with a request to reconcile settlements with the budget. If the penalty was assessed based on a tax notice-decision, it's advisable to consider appealing it.

Time limits for appealing assessed penalties

If a penalty is assessed based on a tax notice decision, the taxpayer has the right to appeal it administratively or in court.

An administrative appeal is filed by filing a complaint with the highest tax authority within 10 business days of receiving the tax notice-decision.

If the taxpayer chooses judicial redress, a claim in an administrative court may be filed within six months from the date the taxpayer learned or should have learned of the violation of their rights.

It is important to understand that filing a complaint or lawsuit may terminate the tax debt collection process, if this is provided for by procedural law.

Typical errors made by tax authorities when calculating penalties

In legal practice, cases of improperly assessing penalties are quite common. The most common errors include incorrectly determining the date of the tax debt, assessing penalties during the administrative or judicial appeal of a tax notice-decision, and double assessing penalties on the same liability amount.

Furthermore, tax authorities sometimes assess penalties even in cases where the tax liability has not been agreed upon or when the statute of limitations for collection has already expired.

In such situations, a correct legal position and adequate evidence may serve as grounds for canceling the assessed penalty.

Practical advice for taxpayers

As a lawyer who specializes in tax disputes, I can recommend several basic rules that will help avoid problems with the accrual of penalties.

• First, it's essential to regularly check the status of budget payments in the taxpayer's online account. This allows for the prompt identification of potential errors or tax arrears.
• Second, it's important to keep all payment documents and proof of tax payment, as they are key evidence in tax disputes.
• Third, if you receive a tax notice/decision or a demand for payment of a debt, you should not delay in legally assessing the situation. Often, it's the missed appeal deadlines that complicate the protection of the taxpayer's rights.

While assessing penalties is a legal mechanism to ensure timely tax payment, in practice, tax authorities often make errors in calculating them. Therefore, each instance of assessing penalties requires a detailed analysis of the grounds, the accuracy of the calculation, and the regulatory authority's compliance with the requirements of the Tax Code of Ukraine.

In the event of a dispute, timely legal assistance and the right defense strategy can not only reduce the amount of financial penalties but also completely cancel the unlawfully assessed penalty.

If you need legal assistance from a tax attorney, fill out the form on our website and our lawyer will contact you shortly.