Economic Examination to Challenge a Tax Notice-Decision (PPR)

A tax notice-decision for a substantial sum often reads like a verdict — yet behind it sit concrete figures that can be verified. A forensic economic examination gives a business the tool to show the court that the controlling authority’s calculations are wrong and the tax base was determined incorrectly. In this article I explain how an expert study works in a dispute against the tax service and where the limits of what it can do actually lie.

The tax notice-decision and the audit report: where the dispute begins

A dispute with the tax authorities almost always starts with a documentary audit. On its results the State Tax Service (DPS) draws up an audit report — an “act” (or, where no violations are found, a certificate instead) — recording what it treats as breaches: understatement of the object of taxation, overstatement of the input VAT credit, “goodless” or “unreal” transactions, unconfirmed expenses. On the basis of that report the authority issues a tax notice-decision (PPR): the document that fixes the amount of the additionally assessed monetary liability, penalties and late-payment interest.

It is worth grasping at once that an audit report is not a verdict and carries no pre-established evidentiary weight. It is the position of one side, set out by that side’s own officials. Its conclusions rest on calculations, and any calculation can be reproduced, checked and — where grounds exist — refuted. This is exactly where the work of an economic examination begins.

Why a tax dispute is, above all, a dispute about numbers

In the vast majority of cases challenging a PPR the parties argue not about the law but about the facts: what the tax base truly amounts to, whether the authority correctly determined the additional assessment, whether the penalty was applied correctly. These are not legal questions but economic ones. A court is not obliged — and often lacks the specialist knowledge — to recalculate VAT across hundreds of invoices or reconstruct an enterprise’s financial result for a year on its own.

It is precisely to clarify such questions that a forensic economic expert is engaged. Within economic examination there are several expert specialisms, and in tax disputes the most common are studies of:

• accounting, tax records and reporting documents (specialism 11.1);
• documents on the economic activity of enterprises and organisations (11.2);
• documents of financial and credit transactions (11.3).

A forensic economic expert is not simply an accountant: they hold the corresponding qualification, are entered in the state Register of Certified Forensic Experts maintained by the Ministry of Justice, and work under the Law of Ukraine “On Forensic Expert Examination” and the Ministry’s specialist instruction (No. 53/5). That is what gives their conclusion procedural weight. The expert takes the primary documents, accounting registers and reporting — and checks whether they support the sums the controlling authority put into the PPR.

Procedural context: the KAS and the burden of proof

A PPR is challenged under the rules of administrative justice — the Code of Administrative Procedure of Ukraine (KAS). This matters fundamentally.

Who proves the lawfulness of the decision

Administrative proceedings apply a rule absent from other kinds of litigation: the duty to prove the lawfulness of a decision rests on the subject of authority (Article 77(2) of the KAS) — that is, on the tax authority. It is not for the taxpayer to prove their innocence, but for the authority to justify that the additional assessment was made lawfully and is arithmetically correct.

This construction makes an economic examination especially valuable. If the expert shows that the authority’s calculations are not borne out by the documents, or contain arithmetic or methodological errors, the burden of proving the opposite stays with the DPS. An expert’s conclusion in the proceedings is an independent means of proof, on a par with written evidence and the parties’ explanations.

Before going to court the law also allows a pre-trial (administrative) appeal — filing a complaint with a higher-level controlling authority within the time limits set by the Tax Code of Ukraine (PKU), under Article 56. An economic analysis of the calculations is already useful at this stage: a reasoned complaint pointing to concrete errors sometimes removes part of the assessment before the case ever reaches court.

The administrative dispute and the criminal dimension: do not conflate them

Challenging a PPR is an administrative dispute under the KAS. It must be kept distinct from the criminal dimension: if criminal proceedings are opened over suspected tax evasion, the pre-trial investigation is conducted by the Bureau of Economic Security (BEB), and the rules of the Criminal Procedure Code (KPK) already apply. Economic examination is used in both arenas, but the subject matter, the manner of ordering it and the consequences differ. This article is about the administrative dispute over a PPR — and it is here that the expert’s conclusion most often becomes the decisive piece of evidence when the additional assessment is recalculated.

Pre-trial examination and court-appointed examination: what differs

This is one of the questions I am asked most often. There are two routes to obtaining an expert conclusion.

Criterion	Commissioned study (pre-trial)	Examination ordered by the court
Who initiates	The party (business, lawyer), before or during the case	The court, by its ruling
When it fits	To assess prospects, build a position, add evidence to the claim	When the court needs an independent study of specialist questions
Procedural status	An expert conclusion the party submits as evidence	An expert conclusion in the case
Feature	Prepared faster, driven by the party	Questions framed by the court, weighing the parties’ positions

Formally, procedural law grants both conclusions the status of evidence, and the court assesses them under the general rules — together with the other evidence, with none having pre-established force. In practice a pre-trial study often becomes the foundation of the statement of claim: it shows exactly which sums are wrong and why the authority’s position fails. Where a sharp dispute over the calculation method remains between the parties, the court will frequently order an examination by its own ruling. The sensible strategy is not to set these routes against each other but to use the pre-trial analysis to frame the questions for a possible court examination properly.

Typical subjects of economic examination in PPR disputes

Most often the expert is asked about the documentary and computational confirmation of the sums fixed in the report and the PPR. In summary, this means:

1. Value added tax — whether the tax liabilities and the input VAT credit were correctly determined; whether the data are supported by primary documents and registered VAT invoices.
2. Corporate income tax — whether the pre-tax financial result, income and expenses were correctly determined, and whether the tax differences (adjustments) are justified.
3. The additional assessment overall — whether the understatement stated in the report matches the accounting and reporting data.
4. Penalties and late-payment interest — whether their size was correctly calculated as a derivative of the principal liability.

An important detail: an error in the base calculation automatically “drags along” incorrect penalties and interest, because they are computed from the additionally assessed sum. So refuting the principal calculation often collapses the entire structure of the PPR.

The link to primary documents and Article 44 of the PKU

The foundation of any tax conclusion is the primary documents. Article 44 of the Tax Code of Ukraine requires a taxpayer to support the data in their tax reporting with primary documents, accounting registers, financial statements and other records connected with the calculation and payment of taxes. No document — no basis for a figure in the reporting.

This rule cuts both ways. If the DPS asserts an understatement, it too must rely on documentarily confirmed data, not on assumptions or “tax information” without primary records. In my practice a significant share of assessments “falls apart” precisely because inspectors built their conclusions on indirect data, whereas the documents the taxpayer holds confirm that the transactions were real and the accounting correct. The expert’s task is to match the declared figures against the primary documents and show that they agree — or exactly where the discrepancy arose.

A practical tip: even before an audit it is worth keeping an ordered archive of primary records — contracts, delivery and VAT invoices, work-completion acts, bank statements, consignment notes. Reconstructing documents after the fact is hard, and their absence weakens the position regardless of how good the examination is.

What the expert does NOT do: the boundary of competence

This is a matter of principle that everyone heading to court should absorb. A forensic economic expert does not assess the lawfulness of a PPR and does not decide legal questions. They do not conclude whether the authority’s decision is “lawful” or “unlawful”, do not qualify the actions of officials, and do not interpret rules of law — that is the exclusive competence of the court.

The expert answers a narrow but important question: whether the controlling authority’s economic calculations are confirmed by the documents and accounting data. If a question is framed in legal terms (“is the PPR lawful?”), the expert must decline it or reframe it in economic terms. So the quality of the conclusion depends heavily on well-posed questions — and here the joint work of lawyer and expert at the preparation stage is critical.

Typical mistakes to avoid

• putting legal questions to the expert that they have no right to answer;
• turning to examination only when the appeal deadlines are already running out;
• failing to prepare an ordered body of primary documents, so the study stalls;
• expecting the conclusion to “cancel” the PPR — in reality it is only evidence, which the court weighs.

A short action plan

1. On receiving the report and the PPR, do not delay — check the deadlines for administrative and judicial appeal.
2. Gather the primary documents and accounting registers for the disputed period.
3. Commission a pre-trial economic analysis to understand which sums, and why, can be contested.
4. Together with your lawyer, frame the position and, if needed, the questions for a court examination.
5. Submit the expert conclusion as evidence — and remember that the burden of proving the PPR lawful lies with the authority.

If you have received a PPR with a questionable assessment, do not rely on legal arguments alone — the figures need professional checking too. I will be glad to help with an economic study of the calculations and with preparing a well-grounded position for the court.