Unblocking Tax Invoices: What Should the Buyer Do?

Nowadays, the internet is flooded with various content mentioning the unblocking of tax invoices, as this issue arises periodically in almost every business. However, most articles provide recommendations only for the Seller of goods, since the tax authorities block invoices and refuse to register tax invoices (TIs) on the Seller's side. Moreover, under current legislation, only the Seller can unblock a tax invoice in a pre-trial procedure and initiate tax disputes in court and appeal the refusal of registration.

First and foremost, the blocking of a TI threatens losses for the Buyer of the goods, not the Seller

As a result of TI blocking, the Buyer loses the ability to reduce their own tax liability by the amount of VAT paid when purchasing the goods. Consequently, when reselling the goods, the Buyer pays VAT in full, rather than only on the added value.

What should be done when a tax invoice is blocked,
and how can the Buyer prevent losses caused by TI blocking?

Let’s consider the most common questions Buyers ask us whenever they need a lawyer's tax consultation regarding TI blocking.

1. Can the Buyer independently unblock an invoice blocked by the tax authorities?
   Unfortunately, tax legislation does not allow the Buyer to prove the illegality of TI blocking or to challenge the decision of the State Tax Service commission in either administrative or judicial proceedings. Only the Seller of the goods has the right to:
   - provide explanations in case of invoice blocking;
   - appeal the refusal of TI registration;
   - initiate tax dispute resolution on this matter in court.
   Thus, the Buyer effectively depends on the activity and effectiveness of the Seller’s actions aimed at unblocking tax invoices.
2. Can the Buyer force the Seller to register a tax invoice through the court?
   The Buyer should not file a lawsuit against the Seller to expedite registration or unblocking of a TI, as the court will evidently deny such a claim. The legal position of the Supreme Court on this matter is set out in the ruling in case No. 908/1568/18 of 5 June 2019. The ruling states that demands for the Seller to register a TI are not subject to judicial review.
3. How can the Buyer protect their rights in court in the event of tax invoice blocking?
   In case No. 917/877/17, the United Chamber of the Commercial Court of Cassation within the Supreme Court ruled that:
   “There is a direct causal link between the Defendant’s inaction in fulfilling the statutory obligation to register tax invoices and the impossibility of including the VAT amounts in the Plaintiff’s tax credit and, accordingly, of reducing the tax liability by that amount, which in fact constitutes this person’s losses.”
   It is important to note that this judicial practice applies to cases where the Seller has taken no action whatsoever to register tax invoices. However, in our view, this approach can also be applied where the Buyer seeks to recover from the Seller the losses caused by the blocking of tax invoices.
   Therefore, if the Seller takes no steps to unblock the tax invoice, the Buyer may file a lawsuit in the commercial court to recover the losses incurred.
4. Can the Buyer protect themselves from the negative consequences of tax invoice blocking?
   The Buyer can prevent the risk of losses from tax invoice blocking by contractually regulating the payment for purchased goods or services. To do this, the contract should include, when concluded, a provision granting the Buyer the right to transfer 20% of the cost of goods/works/services to the Seller only after the Seller registers the tax invoice. The need to receive their money will be the best motivation for the Seller to take all necessary steps to register the tax invoice.

Finally, a blocked tax invoice is not a dead end for either the Seller or the Buyer! However, an effective solution to TI blocking requires active and professional action, including in court.

The tax attorneys at WinnerLex have extensive practical experience and can provide qualified assistance both in unblocking tax invoices and in other situations, including support during tax audits, which are becoming increasingly frequent.