Legislative Updates, Issue №11 (2026-W7) – Independent weekly legal analysis for businesses, investors, and policymakers
Key cases of the week in investment & business disputes in Ukraine
- RULING Supreme Court (Administrative Cassation Court), panel of judges
Date: 11 February 2026 Case No. 320/44258/23
Issue: Can a taxpayer be denied the right to deduct expenses solely because its counterparty violated its own tax obligations?
Court’s findings:
In disputes concerning the legality of reflecting financial indicators of business transactions in accounting and tax records—where the tax authority considers such transactions to be fictitious—the Supreme Court has established consistent case law.
In summary, tax consequences—namely, the right to claim a tax credit and recognize expenses—arise only where business transactions are real (actual) and carried out for the purpose of acquiring goods, works, or services for use in the taxpayer’s economic activity. Such transactions must involve actual movement of assets, changes in liabilities, or changes in equity.
Business transactions must correspond to their economic substance as reflected in the taxpayer’s contracts and must be supported by properly executed primary (source) documents.
An unjustified tax benefit may be evidenced by substantiated arguments of the tax authority, including circumstances such as:
- the impossibility of carrying out the transaction in light of time, location of assets, or lack of material resources necessary for production, performance of works, or services;
- the alleged producer not actually conducting business activity;
- absence of managerial or technical staff, fixed assets, production facilities, warehouses, or transport necessary to perform the transaction;
- accounting only those transactions directly linked to the tax benefit, while ignoring other necessary business operations;
- transactions involving goods that were not produced or could not have been produced in the declared volume;
- absence of proper accounting documentation.
Therefore, to confirm the actual performance of business transactions, a taxpayer must possess properly executed primary documents containing all mandatory details and signed by authorized persons. These documents, together with the factual circumstances of the case—including the parties’ real ability to perform the transactions considering time, location of assets, available material and labor resources—must clearly demonstrate the genuine nature of the transactions. This forms the legal basis for reflecting such transactions in tax accounting.
The Supreme Court has already developed a stable and consistent legal position on the application of these rules.
In particular, the Grand Chamber of the Supreme Court, in its judgment of 7 July 2022 (Case No. 160/3364/19), held that a taxpayer cannot be restricted from using a primary document for tax accounting purposes if the taxpayer did not itself enter false or inaccurate information into that document.
All negative consequences related to inaccurate data in a primary document must be borne exclusively by the person who entered such data. If inaccurate information about a participant in a transaction (including defects in legal status) was entered by another party, a bona fide taxpayer who relied on that document to confirm its tax accounting data should not suffer adverse consequences—provided that other elements of the transaction, including actual movement of assets, did take place.
At the same time, the taxpayer’s real ability to verify the accuracy of the information provided by its counterparty must be taken into account.
The Grand Chamber based this conclusion on Part 8 of Article 9 of the Law of Ukraine “On Accounting and Financial Reporting in Ukraine,” which provides that responsibility for untimely preparation of primary documents and for inaccuracies in them lies with the persons who prepared and signed those documents. The Court interpreted this provision as reflecting the principle of individual responsibility for entering inaccurate information into primary documents.
The Grand Chamber also emphasized that in tax disputes concerning the consequences of business transactions, the decisive factor is a comprehensive assessment of all circumstances and primary documents, which may either confirm or refute the reality of the transactions.
The following factors alone are not sufficient to prove that transactions were fictitious:
- a criminal conviction of the taxpayer’s counterparty;
- initiation of criminal proceedings against the counterparty;
- witness statements claiming non-involvement in the establishment or operation of a company;
- tax information regarding counterparties in the supply chain;
- minor formal defects in primary documentation (taken separately).
However, when assessed together with other circumstances, such factors may support or undermine the position of the tax authority.
Why this matters:
This decision reaffirms the Supreme Court’s established approach in this category of disputes and strengthens the position of bona fide taxpayers, providing them with effective legal grounds to defend their rights in disputes with tax authorities.
2. RULING Supreme Court (Administrative Cassation Court), panel of judges
Date: 9 February 2026 Case No. 400/11909/23
Issue: Can minor defects in primary documents or the absence of product quality certificates serve as grounds for denying a taxpayer the right to deduct expenses?
Court’s findings:
- Assessing the arguments of the tax authority—upheld by the court of appeal—regarding the absence of certificates of conformity (quality) for n-hexane, the panel of judges noted that, according to the established case law of the Supreme Court, a certificate of conformity (quality) is not an accounting or tax document. It merely certifies the quality of goods, not the fact that a business transaction occurred. Therefore, the absence of such a certificate, in itself, cannot prove that no business transaction took place.
- The Court also rejected the tax authority’s references to certain defects in the taxpayer’s primary documents, including delivery notes. Formal deficiencies in primary documents must be assessed in conjunction with all other circumstances of the case. Priority should be given to the actual performance of the business transaction and its economic substance. Primary documents must be evaluated taking into account the specifics of each transaction—such as transportation and storage conditions, the nature of the services provided, and other relevant factors.
- The mere presence or absence of certain documents, as well as errors in their execution, does not in itself justify a conclusion that a business transaction did not occur, if other evidence confirms the actual movement of assets or changes in the taxpayer’s equity or liabilities resulting from its business activity.
Why this matters:
This decision strengthens the position of bona fide taxpayers by confirming that minor formal defects in primary documentation—or the absence of documents that are not primary accounting records—cannot automatically serve as grounds for denying tax deductions. It provides taxpayers with additional legal arguments to effectively defend their rights in disputes with tax authorities.
3. RULING Supreme Court (Administrative Cassation Court), panel of judges
Date: 11 February 2026 Case No. 300/7407/24
Issues:
- Does a tax authority have the right to conduct a controlled (test) purchase not using budget funds?
- Is a single tax (simplified system) taxpayer required to retain documents confirming the source and movement of goods?
Court’s findings
(А) Controlled purchase not funded by the state budget
The Court agreed with the conclusions of the appellate court that the claimant’s arguments regarding:
- the absence of evidence that the controlled settlement operation was conducted using budget funds; and
- failure to comply with the procedure for returning goods purchased during the controlled purchase,
do not, in themselves, refute the violations established in the inspection report (which serves as evidentiary basis).
The inspection established breaches of paragraphs 1 and 2 of Article 3 of Law No. 265/95, namely:
- failure to conduct a settlement transaction through a cash register (RRO);
- failure to print and issue a settlement document (receipt) to the buyer.
A similar legal position in comparable circumstances was expressed by the Supreme Court in its judgment of 10 April 2025 (Case No. 580/1158/23).
(В) Obligation to retain documents confirming origin of goods
The Court also referred to paragraph 44.6 of Article 44 of the Tax Code of Ukraine, which provides that:
If, before completion of an audit or within the deadlines set by paragraph 86.7 of Article 86 of the Tax Code, a taxpayer fails to provide the tax authority with documents confirming the indicators reflected in its tax reporting (regardless of the reasons, except where documents were seized by law enforcement authorities), such documents are deemed to have been absent at the time the reporting was prepared.
However, if the taxpayer submits such documents after completion of the audit but before the tax authority adopts its decision, they must be taken into account.
The Court reiterated that a taxpayer is required to maintain inventory records for each separate place of sale (business location) based on primary documents confirming:
- receipt of goods by the entrepreneur (FOP) or specific place of sale; and/or
- internal transfer of goods between the entrepreneur and its business locations.
Documents confirming internal transfer are an integral part of inventory accounting.
The Court emphasized that proper documents confirming accounting and origin of goods may include:
- invoices;
- transport documents;
- customs declarations;
- purchase acts;
- fiscal receipts;
- товарні чеки (sales receipts);
- other documents containing details sufficient to identify the supplier and recipient, date of transaction, name, quantity, and value of goods.
During the factual audit, the claimant was formally requested to provide:
- incoming documents for goods available in the store;
- bank account movement statements;
- employment contracts with hired employees.
The claimant submitted: a commission agreement dated 30 January 2024; a goods acceptance act dated 1 February 2024; an inventory accounting form for January–February 2024.
However, the taxpayer failed to provide:
- incoming documents for goods available in the store;
- bank account movement statements;
- invoices, transport waybills, accompanying documents confirming receipt of goods;
- contracts confirming origin of goods;
- cash documents, accounting registers, cash books, and other supporting documentation.
The taxpayer did not deny or refute the fact that the requested primary documents were not provided during the audit.
Why this matters
The Supreme Court supported the position of the tax authority, confirming:
- the right of the tax authority to conduct a controlled purchase even if it is not funded from the state budget;
- the obligation of taxpayers—including those under the simplified taxation system—to maintain and retain documents confirming the receipt, origin, and movement of goods.
This decision reinforces the evidentiary standards applicable during tax audits and highlights the practical risks for entrepreneurs who fail to properly document inventory and transactions.
Business & Market Legal Developments in Ukraine
1. IMF Eases Requirements
Undoubtedly, the most important news for Ukrainian businesses last week was that the International Monetary Fund lifted its prior actions for Ukraine’s new USD 8.1 billion lending program. The cancelled requirements included:
- VAT obligations for individual entrepreneurs (FOPs);
- customs duties on parcels;
- taxation of digital platforms;
- the military levy.
This was announced by Ukraine’s Prime Minister Yuliia Svyrydenko during a press briefing. According to her, the change in conditions became possible following the visit of IMF Managing Director Kristalina Georgieva to Kyiv.
This is being described as the first case in the history of cooperation between Ukraine and the IMF where prior actions were removed rather than converted into structural benchmarks. Typically, the opposite occurred—benchmarks were turned into prior actions due to non-fulfillment.
“There are currently no prior actions required to launch the program. We expect the Ukraine issue to be considered at the next IMF Executive Board meeting at the end of February,” Svyrydenko stated.
At the same time, the IMF’s decision does not mean that the relevant measures are permanently cancelled. Under the agreement, all four conditions must still be implemented after the IMF Executive Board approves the new program.
2. VAT for Individual Entrepreneurs Postponed
Following the IMF’s decision, the Cabinet of Ministers will not submit in February the draft law introducing mandatory VAT registration for individual entrepreneurs with annual turnover exceeding UAH 1 million.
Prime Minister Yuliia Svyrydenko confirmed this on 13 February.
3. State Tax Service Reminds Businesses of Financial Discipline in Foreign Trade
State Tax Service of Ukraine has reminded businesses of the importance of complying with financial and currency regulations in foreign economic activity.
The absence of tax notifications-decisions regarding violations of payment deadlines in export-import operations over the past 12 months is one of the conditions for obtaining the status of a taxpayer with a high level of compliance.
Compliance with currency legislation in foreign trade operations is a key factor in building a positive tax history.
Key rules for maintaining currency discipline:
1. Timely receipt of foreign currency proceeds from exports
Export settlements for goods and services must be completed within statutory deadlines.
2.Timely receipt of goods and/or services under import operations
In case of advance payments for imports, goods must be delivered and services rendered and properly documented within the established timeframes.
3. Submission of a full set of supporting documents to the servicing bank
Contracts, invoices, acts of acceptance, customs declarations, and other supporting documents are mandatory for currency control purposes and must be submitted promptly, as currency supervision is carried out by banks.
4. Prompt response to bank requests
Timely provision of information and documentation helps avoid the issuance of violation notices related to payment deadlines.
5. Risk-based approach to tax control and audits
Bank notifications regarding violations of currency legislation serve as one of the tax risk criteria and may trigger additional tax control measures or inspections.
Why this matters for business
Compliance with currency discipline in foreign trade:
- reduces the number of notifications from the banking system;
- minimizes administrative burden on businesses and regulators;
- contributes to building a positive tax history;
- is essential for obtaining and maintaining the status of a high-compliance taxpayer.
Together, these developments signal both regulatory flexibility at the macro-financial level and continued scrutiny at the operational compliance level for Ukrainian businesses.
