Podatkova stand ta arrest maina

We continue our series of articles on tax debt issues. In this article, we will explain what a tax lien is, when the tax authorities can use this leverage on a debtor, and when they can seize property.

What is a tax lien?

Tax pledge - is one of the tools of the tax authorities to facilitate the repayment of debts by the taxpayer. It is used to impose certain restrictions on the debtor's property in terms of its disposal. If the tax debt is not repaid, the pledged property may be sold.

The procedure for applying tax lien is set forth in Articles 88-93 of the Tax Code of Ukraine, as well as in Procedure No. 586 of 16.06.2017.

The tax lien can be applied from the day of:

• the day following the last day of the tax payment deadline;
• the emergence of tax debt;
• concluding a tax deferral agreement.

Only the property described in the act can be subject to a tax lien.

How does the right to a tax lien arise?

The head of the tax service selects and appoints a tax administrator who will work with the tax lien and collect the tax debt. The manager also starts the process of property inventory. All the debtor's property that falls under the tax lien is described in the act and signed by the debtor and the tax manager.

The debtor may refuse to sign the Property Inventory Act, but this will not save the property from the tax lien. In this situation, the tax administrator will involve two witnesses in the inventory and then the debtor's signature will not be required.

Quite often, the tax authorities allow the debtor to independently compile a list of property that will be included in the act.

What property can be subject to a tax lien?

Property that is equal to or greater than the amount of the tax debt is pledged. If the property cannot be divided and is greater than the amount of the tax debt, then it is fully pledged. Liquidity is also an important factor. If the property is liquid and can be used as a source of repayment of the tax debt, it will also be included in the inventory.

There is property that will not be subject to a tax lien, and that is:

• leased property or where the debtor stores tolling raw materials;
• money on the accounts of the SEA VAT;
• property pledged to other persons;
• property and non-property rights that the payer is not entitled to alienate;
• property that, according to the Law on Pledge, cannot be pledged (e.g., cultural heritage monuments or cultural property included in the State Register of Cultural Heritage);
• funds of a legal entity intended for the payment of salaries.

A professional appraiser may be engaged to evaluate the property, or the property may be entered into the act at its book value, if it is determined.

If the debtor does not have any property, then the pledge is for future property that the debtor will acquire and which he or she is obliged to report to the tax authorities as soon as such property appears.

If the amount of the tax debt is less than UAH 1,020, the debtor's property is not subject to a tax lien.

After the act is drawn up, all data on the pledge is entered into the relevant registers:

• real estate - to the State Register of Real Property Rights;
• movable property - to the State Register of Encumbrances on Movable Property.

When does the tax lien expire?

The tax lien ceases to be valid after the

• the debtor has repaid the tax debt and interest;
• the tax debt was recognized as uncollectible;
• the court terminated the tax lien as a result of the taxpayer's bankruptcy;
• the tax notice-decision was recognized as unlawful and the court canceled it;
• the pledged property was sold to repay the tax debt;
• with the consent of the tax authorities, the pledged property is replaced with another property of equal value.

Is it possible to sell property subject to a tax lien?

You cannot alienate pledged property without the permission of the tax authorities. This is subject to a fine equal to the value of the alienated property. However, if such alienation occurred before the property was included in the inventory, the fine will not be applied.

If you decide to sell goods, inventories or finished products that are in tax lien at prices not less than the usual prices and redirect the proceeds to pay salaries or repay tax debt, then no penalties will be applied to you.

What is property seizure?

The essence of the seizure of property is that the debtor cannot use and dispose of his property to the fullest extent. His rights to the property are limited.

Depending on the type of arrest, different restrictions are imposed:

• full seizure - the debtor cannot use or dispose of its property;
• conditional arrest - the debtor must coordinate all actions with property or money with the head of the tax office or other authorized person.

Tax seizure may be applied in the following cases:

• the debtor's departure abroad;
• the debtor tries to transfer the property out of the country or transfer it to other persons;
• the debtor refuses to undergo an inspection of the safety of the property held in the tax lien;
• the debtor refuses to draw up an inventory of property and does not allow the tax administrator to visit.

How is an arrest made?

Depending on what is being seized (property or money), the procedure will differ.

In case of seizure of property, the procedure begins with the decision of the head of the tax authority. If there are grounds for seizure, the head of the tax authority makes such a decision within 24 hours and submits an application to the court to confirm the decision to seize.

If the court does not confirm the decision to seize the property within 96 hours, the tax authorities are obliged to lift the seizure.

If the decision to seize is made, the debtor will receive a notice of seizure with a requirement to temporarily leave the alienated property.

In the event of a seizure of funds, the head of the tax office also makes a corresponding decision and sends a request for confirmation to the court. Only in the case of a positive court decision can the money in the accounts be seized.

How to lift the arrest?

The arrest may be lifted if the tax debt is repaid or there is no court decision within 96 hours after the arrest is imposed.

In order to have the arrest lifted, the debtor may:

• pay the tax debt;
• allow the tax inspector to draw up an inventory of property;
• stop hiding property;
• appeal against the decision of the head of the tax authority to arrest (you have 10 days from the date of receipt of the arrest decision).

In the next article, we will tell you when the tax authorities can forgive and write off a tax debt and under what conditions.