ITC on determining the status of a tax resident

Challenging ITCs and judicial practice

An Individual Tax Consultation (ITC) may be challenged in court. That is, an ITC can be declared unlawful and annulled, and the tax authority may be obliged to provide a new ITC answering the question.

If, when issuing an ITC, the requirements of the Tax Code of Ukraine were not met for example, if the description of the question submitted in the request was missing, the factual circumstances were not considered, the justification for applying the legislative provisions was absent, or the conclusion regarding their practical application was missing this deprives the taxpayer of the ability to apply the ITC in practice to resolve a specific issue.

This article provides a more detailed review of court cases related to challenging ITCs concerning tax residency.

Case № 1

The plaintiff applied to the tax authority to obtain an ITC on the question:
“Considering the factual circumstances presented, of which state will an individual be considered a tax resident for the period from 01.01.2023 to 31.12.2023?”

The tax authority issued a response stating:
“Since the individual is a citizen of Ukraine and spent more than 183 days in Ukraine in 2023, while the taxpayer’s place of residence is registered in Ukraine, was a sole proprietor, had not been deregistered as of December 31, 2023, submitted tax reports for 2023, owns movable and immovable property in Ukraine, and is a founder of Ukrainian resident legal entities, this is sufficient grounds to recognize the person as a resident of Ukraine for the period from January 1, 2023, to December 31, 2023 (inclusive).”

The plaintiff challenged the ITC, arguing that the tax authority merely cited provisions of the tax legislation without providing guidance on the practical application of the Tax Code norms considering the factual circumstances and documents submitted by the taxpayer.

The courts established:

• The plaintiff moved to reside permanently in the United Arab Emirates (UAE);

• All family members (wife, son, and daughter) also moved to the UAE and did not return to Ukraine;

• A lease agreement for accommodation in the UAE was concluded;

• The plaintiff’s wife, son, and daughter obtained UAE resident identification cards;

• The child was enrolled in a school in the UAE;

• The plaintiff obtained a UAE “Golden Card”;

• According to a certificate confirming tax residency status, the UAE Federal Authority confirmed that the plaintiff is a resident of the UAE.

The courts concluded that in 2023 the plaintiff had a permanent residence and close personal ties in Dubai, UAE, and therefore, during the specified period, did not qualify as a resident of Ukraine.

Considering that the tax authority provided an unsubstantiated and inadequate response to the plaintiff’s question, the challenged ITC was deemed unlawful and subject to annulment. The court obliged the tax authority to issue a new ITC addressing the question, taking into account the appellate court’s conclusions.

Case № 2

The plaintiff challenged the ITC because the tax authority did not provide a specific and comprehensive answer to the question:
“Considering the factual circumstances presented, of which state will an individual be considered a tax resident for the period from 2016 to 2020?”

The ITC contained several citations from the tax legislation; however, it did not provide a direct answer to the question. The plaintiff argued that a tax consultation should not be merely a formal response but should provide effective assistance to the taxpayer regarding the clarification of their rights and obligations.

The courts of first and appellate instance established the following:

• The plaintiff’s permanent place of residence is in the State of Israel;

• Part of the plaintiff’s family resides in Israel;

• The plaintiff’s housing is located in Israel;

• Business activities are conducted in Israel.

The court recognized the ITC as unlawful and annulled it. The court deemed the inaction of the tax authority, in failing to provide an answer in the ITC, unlawful. The tax authority was obliged to provide a response in a new ITC. The court also indicated that, when issuing the ITC, the tax authority had grounds to determine the plaintiff’s residency status as a tax resident of Israel.

Conclusions

If it is necessary to determine tax residency status, it is advisable to consider applying to the tax authority for an Individual Tax Consultation (ITC).

An ITC should contain a response and final, clear conclusions regarding the specific situation. If the ITC does not meet the requirements of the legislation, it may be challenged in court, and the tax authority can be obliged to provide a response in a new consultation.

In the event of disputes with tax authorities regarding the determination of tax residency status or the fulfillment of tax obligations, an ITC can serve as evidence in a court case.