PRAGNUM CHALLENGES TAX AUDIT FINDINGS FOR A NATURAL GAS PRODUCER

PRAGNUM represents an extraction company operating in the oil and gas sector in a UAH 373 million dispute with the State Tax Service of Ukraine arising from a scheduled tax audit. The dispute concerns the recognition and accounting treatment of a payable related to financial assistance provided to the company by its former shareholder.

The complexity of the matter stems not only from the terms and actual performance of the underlying agreement, but also from significant differences between the Ukrainian National Accounting Regulations (Standards) and International Financial Reporting Standards (IFRS), which the client was required to adopt under the Law of Ukraine “On Accounting and Financial Reporting in Ukraine.”

Unlike the more prescriptive National accounting standards, IFRS require the application of professional judgement and the selection of accounting methods that most accurately reflect the economic substance of transactions. However, the absence of detailed prescriptive rules may result in differing interpretations of IFRS by the State Tax Service and, consequently, require businesses to substantiate the correctness of their application.

In developing the defence strategy, the PRAGNUM team is analysing the specific terms and actual performance of the transaction, changes in the client’s ownership structure, its accounting policies, as well as the relevant criteria and exceptions under IFRS and other material factors.

PRAGNUM’s position is that, despite its complexity, the conversion of financial statements to IFRS is a structured analytical process governed by a clear methodology, rather than a matter left to arbitrary interpretation by the tax authorities.

PRAGNUM’s lawyers support businesses throughout all stages of tax audits and challenges against their findings.

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