Author: Anastasia Holovatyuk, Lawyer at F&P
A tax debt is not just a line in a taxpayer’s card. It is a mechanism that triggers a chain of consequences: a tax claim, a pledge of assets, seizure of funds on accounts, a travel ban for the director, and in some cases, criminal proceedings under Article 212 of the Criminal Code. At the same time, the rules of the game have changed under martial law: some of the collection mechanisms have been suspended, some work differently, and some new opportunities have opened up for taxpayers.
How tax debt arises and why it is important to understand it formally
A tax debt is the amount of an agreed monetary obligation that has not been paid within the established period (subpara. 14.1.175 of the Tax Code). The key word is “agreed”. While the TND is under appeal (administrative or judicial), the obligation is not agreed upon and no tax debt arises. This is fundamentally important: if you have appealed the TND in time, the STS has no right to include this amount in the debt.
The debt arises either after the deadline for appealing or after the court decision confirming the TND comes into force. From that moment, the countdown begins: 10 business days for voluntary payment, after which the STS has the right to apply collection measures.
Tax claim and pledge: how it works
The first step of the State Tax Service is to send a tax demand. This is a formal document that sets out the amount of the debt and the period for its repayment (at least 30 calendar days). Simultaneously with the sending of the demand, the right of tax lien arises: The STS automatically receives a priority right to the payer’s assets (Article 89 of the Tax Code).
All of the taxpayer’s assets – real estate, equipment, transportation, inventory, and funds on accounts – are pledged. This is not a theoretical right: The State Tax Service registers the lien in the State Register of Encumbrances on Movable Property and can restrict the disposal of assets.
The tax claim is appealed separately. If you disagree with the amount of the debt or believe that the obligation is not agreed upon, file a lawsuit. There is a court practice when claims are canceled due to a violation of the procedure or because the debt was formed on the basis of a canceled TND.
Installment plans and deferrals: terms and conditions
The TCU provides for the possibility of installment or deferral of tax debt (Article 100 of the TCU). Installment means payment in installments according to a schedule. Deferral is the postponement of the payment date to a later date.
To obtain it, you need to: submit an application to the State Tax Service, provide an economic justification (why you cannot pay immediately), a repayment schedule, and collateral (pledge or surety). The STS makes a decision within 30 days.
Reality: The State Tax Service rarely approves installment plans for large amounts without good reason. However, during martial law, the chances are higher – especially if the company has suffered from hostilities, lost assets or sales markets. Subsection 10 of Section XX of the Tax Code contains certain provisions that mitigate the conditions for taxpayers during martial law.
Write-off of bad debt
A separate mechanism is the write-off of bad tax debt (Article 101 of the Tax Code). A debt may be recognized as uncollectible if: the payer is liquidated (and there is no property to repay); the statute of limitations has expired (1095 days); the debt arose as a result of force majeure.
During martial law, an additional ground appeared: the debt incurred by taxpayers located in the territories of active hostilities or temporarily occupied territories. However, the write-off procedure is not automatic. You need to submit an application, justify it, and prove it. And often the State Tax Service refuses, and this refusal can also be appealed.
Personal risks of the director
This is something that directors often don’t think about until it’s too late.
Article 212 of the Criminal Code is tax evasion. Criminal liability arises if the intentional tax evasion is committed in a significant amount (over 3,000 NMDG, i.e. UAH 51,000). A fine, community service, restriction or imprisonment are possible, depending on the amount and circumstances. The key word is “intentional”. If the debt arose due to objective reasons (war, loss of markets, mistake) and not due to an evasion scheme, this is a different situation.
Subsidiary liability. If a company is driven to bankruptcy due to the actions or inaction of a director, he or she may be held vicariously liable for the company’s debts. This is the subject of a separate article.
If your company has a tax debt or you have received a tax claim, don’t delay: analyze the situation, evaluate your options (appeal, installment plan, write-off) and act. We will help you choose the best strategy.
Do you have a similar situation? Send us your documents and we will analyze your prospects for free.
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