Risk-Based Tax Control and the Blocking of VAT Invoices: the Case Law of the Supreme Court of Ukraine

A Single Sentence in the Tax Code

The entire legal machinery for blocking VAT invoices rests on a single sentence contained in the statute.

Paragraph 201.16 of Article 201 of the Tax Code of Ukraine provides that the registration of a VAT invoice or adjustment calculation in the Unified Register of VAT Invoices “may be suspended in the manner and on the grounds determined by the Cabinet of Ministers of Ukraine”.

That is all. Until 20 September 2019 this paragraph contained sub-paragraphs 201.16.1-201.16.4, in which the procedure was set out in the Code itself. They were subsequently removed by statute, and the entire power to determine the procedure was handed to the Government. Today that procedure consists of the Procedure for the Suspension of Registration (Resolution of the Cabinet of Ministers of Ukraine No. 1165 of 11.12.2019, current version in force since 27.09.2025) and the Procedure for Adopting Decisions (Order of the Ministry of Finance No. 520 of 12.12.2019).

At first glance the statistics read like a success story: the share of suspended invoices fell from 1.72% in August 2022 to 0.14-0.16% in the summer of 2026, and the list of risky taxpayers contracted from 24.9 thousand as at 01.01.2025 to approximately 13.2 thousand. There is, however, a detail that considerably undermines this optimistic picture. In March 2026, compared with March 2025, the number of blocked invoices fell by 57.6%, while the amount of VAT contained in them rose – from UAH 2.8 billion to UAH 2.9 billion. Invoices are blocked half as often, but at twice the cost.

The Four Filters an Invoice Passes Through

Monitoring is a sequence of checks, not a single switch. An invoice is first tested against the indicators of unconditional registration (paragraphs 3 and 3-1 of Procedure No. 1165). Resolution of the Cabinet of Ministers of Ukraine No. 1048 of 26.08.2025 raised almost every threshold here: the monthly volume of supply from UAH 500 thousand to UAH 1 million, and the volume under a single invoice from UAH 5 thousand to UAH 10 thousand. It is this change that produced the greater part of the statistical effect.

If no indicator applies, the taxpayer is then tested against the taxpayer risk criteria (Annex 1) and the indicators of a positive tax history (Annex 2), while the transaction itself is tested against the transaction risk criteria (Annex 3).

A single match is sufficient, and the criterion that most often applies is paragraph 1 of Annex 3 – the balance formula, under which the volume of supply under a given UKTZED code is measured against the volume of acquisition increased by a factor of 1.5. According to the State Tax Service, in August 2026 this accounted for 72% of all suspensions, with a further 20.7% attributable to an existing risky-taxpayer status. Four blockings out of five are therefore the arithmetic of product classification, or a status assigned earlier, rather than an assessment of the transaction.

The Receipt: the First Point at Which the Procedure Breaks Down

Paragraph 11 of Procedure No. 1165 requires three things of the receipt: the number and date of the invoice; the criterion on the basis of which registration was suspended, “with the calculated indicator for each criterion which the taxpayer meets”; and an invitation to submit explanations and copies of documents. The second requirement is the most interesting one – the authority must not merely name the criterion, but show the figure.

The Supreme Court’s approach was formulated as early as its judgment of 02.07.2019 in case No. 140/2160/18, which held that a general reference to a criterion without citing the specific sub-paragraph restricts the taxpayer’s right to be informed of the documents required by an exhaustive list, “and not of any documents at the authority’s own discretion”. In its judgment of 27.04.2023 in case No. 460/8040/20 the Supreme Court stated the consequence directly: the taxpayer “is placed in a state of legal uncertainty”, while for the authority the preconditions are created for the exercise of negative discretion. The same judgment contains a proposition worth citing in every claim: the mere assertion that documents are missing is not a sufficient ground for refusal, and an assessment must be given to those documents which were in fact submitted.

The Decision to Refuse: Only Two Grounds

Paragraph 10 of Procedure No. 520 sets out an exhaustive list of grounds: failure to submit, or partial submission of, explanations and copies of documents upon receipt of the Notification, and/or the submission of documents drawn up in breach of the law. That is all; there are no further grounds.

At the same time, paragraph 5 of Procedure No. 520 is framed as a right to “submit the following documents” – it is not an obligation to submit every item on the list irrespective of the nature of the transaction.

The fullest exposition of this logic is found in the Supreme Court’s judgment of 23.07.2026 in case No. 200/6694/25, which holds that reproducing in the decision the general wording of paragraph 10 of Procedure No. 520, without identifying the specific document not provided, does not constitute proper reasoning of an individual act, and that the dispatch of a Notification does not in itself relieve the authority of its duty to give reasons for the final decision, since the Notification is an “interim procedural document”. The Supreme Court further emphasised in that judgment that the State Tax Service may not, in the course of judicial proceedings, supplement the factual grounds of the act with new circumstances. This last proposition closes off the tax authority’s favourite technique – constructing its reasons after the fact, in the statement of defence.

The foundation of this approach is the Supreme Court’s position in case No. 500/2237/20 (judgment of 07.12.2022), according to which the subject matter of the dispute is exclusively the lawfulness of the suspension and of the refusal, and not the reality of the transactions, a substantive assessment of which is possible only following a tax audit.

The Line Beyond Which the Court Will Not Protect

It would be a mistake to read the Supreme Court’s case law in simplified terms and to assume that the tax authorities have little prospect of success in such cases.

In its judgment of 30.01.2026 in case No. 260/224/24 the Supreme Court spoke unambiguously: where a taxpayer, having been duly notified, did not exercise the right to submit additional explanations and documents, or exercised it only in part, the adverse consequences fall upon that taxpayer, and the authority has lawful grounds to refuse without assessing the substance of the reality of the transaction – provided that the authority itself has complied with the requirements as to the content and form of the Notification.

The dividing line therefore runs not between “strong” and “weak” documents, but between two patterns of conduct:

• the taxpayer responded, but the commission’s decision is unreasoned – the refusal is unlawful;
• the taxpayer ignored the Notification – the refusal is lawful.

Hence the time limits: 365 calendar days to submit explanations, 5 working days to respond to a Notification, and 10 working days to lodge an administrative complaint. A complaint is considered within 10 calendar days (or 30, if the taxpayer has stated an intention to participate), and if the decision is not sent within that period the complaint is deemed to have been granted in full in the taxpayer’s favour.

Risky Status – a Separate Front

The most “open-ended” criterion is set out in paragraph 8 of Annex 1 to Procedure No. 1165 – the existence, within the supervisory authorities, of tax information determining the riskiness of a business transaction.

It is precisely for this reason that paragraph 6 of Procedure No. 1165 imposes heightened requirements on the decision: the type of transaction, the period in which it was carried out, the UKTZED code, the tax number of the taxpayer involved in the risky transaction, and the date on which that taxpayer was added to the list. The same applies to the 180-day rule: a transaction under an invoice registered more than 180 days before the decision cannot serve as a ground for assigning the status.

The reviewability of such a decision is no longer open to debate, since in its judgment of 23.06.2022 in case No. 640/6130/20 the Supreme Court recognised it as an individual act within the meaning of paragraph 19 of part one of Article 4 of the Code of Administrative Procedure of Ukraine. Likewise, in its judgment of 05.01.2021 in case No. 640/11321/20 the Supreme Court identified the typical defect – the specific risky transactions were not identified, and instead the content of paragraph 8 of the Criteria was merely reproduced. And the Supreme Court’s judgment of 31.03.2023 in case No. 340/3519/20 established the rule that evidence obtained after the decision was adopted is not to be taken into account.

What Exactly to Ask the Court For

A typical error in the relief sought is to confine it to setting the decision aside. The Supreme Court consistently rejects the tax authority’s argument as to interference with discretion: in its judgments of 18.04.2024 in case No. 160/18840/22 and of 12.02.2025 in case No. 160/34198/23, an order compelling registration of the invoice was recognised as an appropriate remedy. In case No. 200/6694/25 this is developed by reference to part three of Article 245 of the Code of Administrative Procedure of Ukraine: once an unlawful refusal has been set aside, the authority “does not have several equally lawful courses of conduct”.

A separate word on the date. There is no provision in the Tax Code of Ukraine which of itself would require an invoice to be registered “as of the date of actual submission”. What operates here is the second sub-paragraph of paragraph 20 of the Procedure for Maintaining the Unified Register of VAT Invoices, approved by Resolution of the Cabinet of Ministers of Ukraine No. 1246 of 29.12.2010, under which the date of entry into the Register is deemed to be the day specified in the court’s judgment, or the day on which that judgment becomes final. The required date must therefore be expressly built into the relief sought in the statement of claim.

The Practical Minimum

1. Read the receipt as a document: if there is no criterion accompanied by a calculated indicator, that is already a self-standing ground for challenge.
2. Always respond to a Notification, even where the list of documents requested appears absurd, since disagreement with the list does not relieve the taxpayer of the obligation to reply within the 5-day period.
3. Submit the taxpayer data table proactively: a table that has been taken into account is itself an indicator of unconditional registration under sub-paragraph 4 of paragraph 3 of Procedure No. 1165 – provided there is no decision in force on risky status.
4. Litigate the risky status separately, because for as long as the taxpayer remains on the list the blockings will recur irrespective of the quality of the documents relating to any particular transaction.
5. Formulate the relief sought in full: set the decision aside, compel registration, and specify the date.

A risk-based approach is not in itself a flaw – it is the standard of tax administration in the European Union. The problem lies in the model chosen by the State: automated selection built on the arithmetic of product classification, which displaces any assessment of the transaction, while the burden of proof is de facto shifted onto the taxpayer. The Supreme Court does not legitimise that displacement and demands specificity from the supervisory authority at every step – but at the same time it demands the same of the taxpayer.

This material is of an informational nature and does not constitute legal advice in any particular matter. The prospects of a dispute depend on the content of the receipt, the completeness of the documents submitted, the conduct of the taxpayer and the factual circumstances of the transaction. For the analysis of any individual situation, we recommend seeking a bespoke consultation.