VAT Schemes and 'Skrutky': How Experts Expose Fictitious VAT Credit

“Skrutka” and “tax pit” sound like jargon from an investigator’s office, but the economics behind them is simple: someone records input VAT credit for which no real supply ever took place. My job as a forensic economic expert is not to trade in labels, but to show through documents whether the declared credit is actually backed by primary records and by a genuine transaction. Below I explain the mechanics of these schemes, the role of the tax invoice and its registration, and which questions can properly be put to an expert — and which fall outside an expert’s competence.

Where “artificial” credit comes from

VAT works on the principle of a difference. A payer charges an output tax liability on its sales and, at the same time, is entitled to reduce the amount payable by an input tax credit — the VAT paid (or accrued) in the price of goods and services it purchased. The right to that credit arises under the rules of Article 198 of the Tax Code of Ukraine (PKU) and is confirmed by a tax invoice (podatkova nakladna) registered in the Unified Register of Tax Invoices (YERPN).

The entire economics of a scheme is built on this mechanism: if you “draw up” input credit without a real purchase, you can artificially reduce the VAT payable. That is exactly the credit I describe in an examination as not confirmed by a genuine supply. The legal qualification — intent, elements of a crime — is for the investigation and the court; the expert only shows that the transaction does not “add up” documentarily or economically.

The roles in the scheme, in plain terms

A classic construction has several links, each with its own function.

Role	What it does	Trace in the documents
Tax pit (podatkova yama)	Generates “surplus” input credit and never pays its liabilities; later disappears or is liquidated	Registered tax invoices with no real activity, no resources
Transiter (conduit)	Passes turnover through itself to “dilute” the chain and hide the pit’s link to the buyer	Near-zero margin, in and out “same day”, identical amounts
Beneficiary	A real business that receives the artificial credit and lowers its own VAT payable	Credit appears in the return, but there is no primary record or movement of goods behind it

Separate from these is the “skrutka” — a substitution (re-grading) of the nomenclature. Real VAT is fed through the pit from the sale of one type of goods (for example, those where the credit is “surplus”), and “on the way out” the same volume of tax is re-issued against a completely different product needed by the beneficiary. Formally the VAT amounts match, but the nomenclature and UKT ZED codes on the input and the output differ. This is one of the most visible markers during a study.

The tax invoice and YERPN — where everything is recorded

The details and procedure for drawing up a tax invoice are set by Article 201 of the Tax Code. What matters for the examination is that the invoice contains the commodity code under UKT ZED (the Ukrainian classification of goods for foreign economic activity; for services, the DKPP code), the volume, the price and the VAT amount, and that its registration in the YERPN is tied to a specific date. The register lets me reconstruct the sequence: who issued an invoice, to whom, when and for what.

The State controls this process through SMKOR — the automated system that monitors whether tax invoices and adjustment calculations meet risk-assessment criteria. If an invoice matches signs of risk (in the transaction or in the payer itself), its registration is suspended, and the payer must confirm the reality of the transaction with explanations and documents. Suspended registration is not a verdict in itself, but in a study it is an important signal: it shows the transaction already raised questions at the administration stage.

The legal basis on which the expert works

A forensic economic examination is conducted under the Law of Ukraine “On Forensic Expert Activity” and the Instruction on assigning and conducting forensic examinations and expert studies, approved by Order of the Ministry of Justice (Minyust) No. 53/5. Among the types of economic examination is precisely the study of accounting and tax accounting and reporting documents. It may be ordered in criminal proceedings (under the Criminal Procedure Code, KPK), and also in a commercial or administrative dispute challenging tax assessments (under the Commercial Procedure Code, HPK, and the Code of Administrative Procedure, KAS). The examination is carried out by the specialised State institutions of the Ministry of Justice system or by attested forensic experts entered in the Register.

How the expert matches credit against the reality of supply

My work is not to “believe” the return, but to check whether a real business transaction stands behind the credit. The study runs “bottom-up”: from the primary document to the ledgers and reporting. What I look at first:

• primary records for every disputed transaction — delivery notes, consignment notes (TTN), acceptance acts — and whether they match the tax invoices in nomenclature, volume and dates;
• physical movement of the goods — warehousing, transport, loading and unloading documents; goods cannot “move” without leaving a trace;
• the supplier’s resource capacity — whether it had staff, warehouses, equipment, and a prior purchase of the same goods;
• matching input against output by nomenclature and UKT ZED codes — this is where the re-grading surfaces;
• cash settlements per bank statements — whether there was a real movement of money or merely “looped” amounts.

Typical signs of artificial credit

• re-grading of nomenclature — one product on the input, a different one on the output, with the VAT amounts preserved;
• a break (gap) in the chain — at some link the source of the goods or the payment of the liability disappears;
• mismatch of UKT ZED codes between purchase and sale;
• suspended registration of tax invoices via SMKOR followed by no confirmation;
• absence of primary records, or their non-conformity with the tax invoices;
• economic senselessness of the transaction — zero margin, “same-day” settlements, no business purpose.

No single one of these signs is proof. They work in the aggregate: the more matches, and the more systematically they recur, the more grounded the conclusion that the credit is not confirmed by the documents provided.

Why a “gap” alone does not prove fictitiousness

This is the most important nuance, and I always stress it. A tax gap is a mismatch between the seller’s declared liability and the buyer’s credit along the supply chain. But it is often found not at the payer itself, but “higher up” the chain — at the supplier’s supplier, several links away from a specific company.

For a single good-faith payer this is a critically important distinction:

• it may have genuinely received the goods, paid for them and held all the primary records, without knowing — and without any way of knowing — that a pit arose somewhere on the third or fourth link;
• the principle of individual liability of the taxpayer, consistently upheld in the practice of the courts and of the European Court of Human Rights (ECtHR), means that another party’s violations are not automatically “transferred” to someone who acted really and in good faith;
• in my practice it is precisely the documented reality of the transaction — TTN, warehouse, payment, business purpose — that often rebuts the “fictitiousness” claim built solely on the existence of a gap in the system.

So a proper expert conclusion never reads “there is a gap, therefore it is fictitious.” It reads “on the documents provided, the transaction is / is not confirmed, by the following signs.”

Working with material from BEB and DPS

In practice the examination relies on material gathered by other bodies. The State Tax Service (DPS) produces audit acts, YERPN data, SMKOR information and details of tax gaps. The Bureau of Economic Security (BEB), as the pre-trial investigation body in the economic sphere, provides the criminal-proceedings material — seized primary records, electronic databases, bank statements, protocols. Information from the State Financial Monitoring Service on the movement of funds is also relevant.

But a strict rule applies here: the expert studies only the material provided and does not gather evidence independently. If a DPS act contains a conclusion of “unreality”, for me that is not a ready-made answer but only a starting thesis that I test against the primary records. If documents are missing, I file a request for supplementation or draw up a notice that a conclusion cannot be given — but I do not “fill in” what is absent from the material.

Which questions to put to an expert, and which not

Whether a conclusion is usable as evidence at all depends on how the question is framed. The dividing line is simple: an expert answers economic questions, not legal ones.

Correct (within competence):

• Is the input VAT credit for transactions with a given counterparty over a given period confirmed by the primary documents provided?
• Do the VAT return figures correspond to the accounting records and to the tax invoices registered in the YERPN?
• What is the amount of tax credit not confirmed by primary documents?
• Does the nomenclature (UKT ZED codes) of the purchased and the sold goods match across the transactions studied?

Incorrect (outside an economic expert’s competence):

• Do the official’s actions constitute tax evasion? — this is the qualification of an act, a matter for the court.
• Did the person have intent, did they understand the “fictitiousness”? — a question of guilt, not for the expert.
• Is the counterparty a “fictitious enterprise”? — a legal assessment of an entity’s status, not an economic study.

When a question is framed as a legal one, I either reformulate it within competence, with the initiator’s agreement, or note that it falls outside the economic examination.

Common mistakes by those ordering the examination

• providing only the DPS audit act with no primary records or ledgers — there is nothing on which to confirm or rebut the credit;
• posing legal questions about guilt and qualification, and receiving the expected refusal on that part;
• equating the gap with fictitiousness and framing questions as if the answer were already known;
• not delimiting the period and the list of counterparties — the scope of study “blurs”;
• supplying plain copies of documents instead of originals or duly certified copies.

If you are a lawyer, a business manager or an investigator facing assessments over VAT, “skrutky” or an alleged tax gap, it is worth checking the list of documents and the wording of the questions with a forensic economic expert in advance. A short consultation before the examination is ordered helps frame the questions correctly and confirm the reality of your transactions with documents — I would be glad to help assess your situation.