Blocked Tax Invoices: How to Unblock and Challenge a Refusal

Registration of your tax invoice has been suspended, the buyer has not received the input VAT credit, and the money for the supply is effectively frozen along with the document. In this article I explain why the blocking system triggers, how to complete the taxpayer data table correctly, which package of documents to file for unblocking, and in what order to challenge a refusal — both administratively and in court.

Why registration is suspended: the SMKOR system and Resolution No. 1165

Every tax invoice (in Ukrainian, podatkova nakladna, or PN) and every adjustment calculation (RK) that a taxpayer submits to the Unified Register passes through an automated check in the risk-assessment criteria monitoring system (SMKOR). The procedure for that check is set out in Cabinet of Ministers of Ukraine Resolution No. 1165 of 11 December 2019. If a document falls under the riskiness criteria, its registration is suspended, and the taxpayer receives a notification stating the criterion that triggered and listing the documents worth submitting.

The mechanism rests on several groups of indicators:

• Signs of unconditional registration — for small volumes or certain transaction characteristics, the invoice is not monitored at all and registers automatically.
• Indicators of a positive tax history — conscientious taxpayers with stable operations are cleared more easily by the system.
• Taxpayer riskiness criteria — characteristics of the business entity itself.
• Transaction riskiness criteria — characteristics of the specific supply.

It is those last two groups that cause most blockings. It is important to understand: suspension of registration is neither an accusation nor an additional assessment. It is a preventive filter, and the taxpayer’s task is to show, on the documents, that the transaction is real and that the entity itself bears no signs of fictitiousness.

Taxpayer riskiness: the most dangerous status

A separate case deserving attention is when the commission classifies an enterprise as a risky taxpayer. This is the hardest scenario, because effectively all of that entity’s tax invoices begin to be blocked — not a single transaction.

The grounds split into two parts. The first is formal indicators (for example, registration on lost or invalid documents, ties to persons named in criminal proceedings, absence at the registered location, and so on). The second, and most contentious, is a commission decision based on available tax information that, in the authority’s view, points to risky activity. It is this second ground that is challenged most often, because it rests not on a fact but on an assessment.

The consequences of the status are tangible: supply is paralysed, counterparties do not receive their input VAT credit and cut ties, and the business loses turnover. Reaction must therefore be immediate — file explanations and documents with the commission to rebut the classification and press for removal from the list.

The taxpayer data table: your main “shield”

The taxpayer data table is a preventive instrument that is often underrated. In it, the taxpayer declares in advance the logic of its activity: which goods, by UKTZED code (the Ukrainian classification of goods for foreign economic activity), or services, by DKPP code (the state classifier of products and services), it purchases (input items) and which it supplies (output items), broken down by types of economic activity (KVED).

Once the table is accepted by the commission and taken into account, the system “understands” the enterprise’s usual supply profile and stops suspending transactions that are typical for it. This removes a large share of blockings before they even arise.

How to complete it correctly

• Internal “input–output” logic. Purchase codes must be consistent with supply codes. If you supply finished furniture, the input items should logically show timber, fittings and lacquer — not goods unrelated to production.
• Correspondence to real KVED codes. The activities in the table must match those stated in the registration data and actually carried out.
• Completeness. An incomplete table that “forgets” part of the product range leaves those transactions outside the “white list” — and they keep getting blocked.
• Substantiation. The table should be backed by documentary evidence of the activity profile: contracts, specifications, technical documents.

In my expert practice, it is precisely an illogical or overly “broad” table — one in which the taxpayer tries to declare every conceivable code — that arouses the commission’s suspicion and gets rejected. The table must mirror real activity, not serve as a universal “just in case” list.

The package of documents and explanations for unblocking

If a tax invoice is already blocked, the taxpayer submits to the controlling authority written explanations and copies of documents confirming the reality of the transaction. There is no universal list — the set depends on the nature of the supply — but it usually includes:

• contracts with the counterparty, together with specifications and annexes;
• delivery notes and consignment (transport) notes, acts of completed works or services rendered;
• documents on the origin of the goods (earlier tax invoices from suppliers, warehouse records, stock balances);
• bank statements confirming payment, payment instructions;
• documents on transportation, storage, production capacity and personnel.

Consideration proceeds as follows:

Stage	Who acts	Approximate term
Filing explanations and documents	Taxpayer	up to 365 calendar days from the tax-liability date in the PN/RK
Review and decision	Regional-level commission (Main Directorate of the State Tax Service)	5 business days after receiving the documents
Outcome	Commission	registration of the invoice or refusal

The key deadline you cannot miss is 365 calendar days following the date on which the tax liability reflected in the suspended PN/RK arose. Missing this deadline effectively closes the path to unblocking that specific document. The regional-level commission reviews the materials within 5 business days and decides either to register the invoice or to refuse.

Challenging a refusal: administrative and judicial

A refusal by the commission is not the end. The law provides two consecutive (not mutually exclusive) routes of appeal.

Administrative appeal to the State Tax Service

First, it is sensible to use the administrative procedure — filing a complaint against the refusal with the State Tax Service of Ukraine (DPS). It is considered by the central-level commission within the terms set by the Tax Code of Ukraine (PKU), Article 56, and by Procedure No. 1165. As a general rule the complaint is filed within a short statutory window (typically 10 business days from when the decision takes effect), so delay is not an option. The advantage of this route is its speed and cost — it is free, and the central commission sometimes overturns the regional refusal without any recourse to the courts.

Judicial challenge under the KAS

If the administrative appeal brings no result (or the taxpayer opts straight for court), the refusal is challenged before an administrative court under the rules of the Code of Administrative Procedure of Ukraine (KAS). Here a construction crucial for the taxpayer applies: the duty to prove the lawfulness of a decision rests on the subject of authority — that is, on the tax authority, not the taxpayer. Case law in the administrative courts on tax-invoice blocking is largely favourable to taxpayers where the reality of the transaction is confirmed by documents and the refusal is reasoned only formally, without stating a concrete ground.

A decision classifying an entity as a risky taxpayer is challenged separately — and it, too, can be overturned both administratively and in court.

The role of economic calculations and examination

Blocking of a tax invoice is, above all, a dispute about the reality of a business transaction and the correctness of the VAT amounts — and these are economic questions, not purely legal ones. This is where a forensic economic examination, or a pre-trial expert study, becomes useful.

A forensic economic expert (working within the specialisms covering the study of accounting and tax records, the economic activity of enterprises, and financial-credit transactions) can demonstrate, on the documents:

• the substance of the transaction — that the goods or service genuinely existed and their movement is reflected in the accounts, rather than existing “on paper”;
• the link between input and output flows — that what was purchased was used in the supply, with no breaks in the chain;
• the correctness of the VAT amounts — the tax liabilities and the input VAT credit, according to the primary documents.

In my expert work, such a conclusion often becomes a weighty piece of evidence in court: it shifts the discussion from general suspicion to verified figures and primary records. It is important to remember the boundary: the expert does not assess the lawfulness of the commission’s decision — that is the exclusive competence of the court; the expert answers the economic question of whether the transaction and the amounts are confirmed.

Typical mistakes

Over years of practice I see taxpayers lose a case not because their position on the merits is weak, but because of procedural slips. The most common are:

• An incomplete or illogical data table — purchase codes that do not match supply codes, part of the product range omitted, activities that do not correspond to reality.
• Missing the 365-day deadline for filing explanations and documents — once it lapses, unblocking that particular invoice is practically impossible.
• “Bare” explanations without primary records — a letter stating “the transaction is real,” unaccompanied by contracts, invoices and proof of payment, is not accepted by the commission.
• Ignoring the administrative appeal — going straight to court and forfeiting the fast, free chance to overturn the refusal at the DPS level.
• Passivity toward the riskiness status — when all invoices are blocked, every day of delay costs turnover; you must act immediately.
• Backdating documents — this does not strengthen the position but destroys it, because inconsistencies are easily exposed on cross-checking.

If registration of your tax invoices has been suspended, or your enterprise has been classified as risky, do not rely on formal explanations alone — the reality of the transactions and the VAT amounts need professional economic substantiation. I will be glad to help prepare the calculations and expert conclusion that strengthen your position before the commission and in court.