At the end of June, the Eastern Interregional Department of the State Tax Service for Large Taxpayers refused PJSC “Zaporizhstal’ a VAT recovery for March-April 2023 in the amount of over UAH 350 million. This resolution violates the legislative norms established in the Tax Code of Ukraine and bylaws that guarantee Ukrainian businesses the right to the VAT recovery.
Zaporizhstal is one of Ukraine’s largest producers of pig iron and rolled steel, hot-rolled and cold-rolled plates, and bent sections. The plant supplies products to more than 50 countries, providing foreign exchange earnings to the Ukrainian economy. Despite all the difficulties caused by the full-scale invasion of the russian federation, Zaporizhstal remains one of the pillars of the Ukrainian Defence Forces and Zaporizhzhia region. The total amount of funds allocated by the plant for the defence of the state since 24th of February 2022 is at least UAH 302 million.
Zaporizhstal has the right to be exempted from certain taxes for 2022, but to date the plant has not yet taken advantage of tax benefits despite the war. The amount of tax deductions additionally paid by Zaporizhstal to the budget of Ukraine and the Zaporizhzhia community during the grace period exceeds UAH 350 million. The plant continues to pay taxes in full.
In its resolution, the State Tax Service refers to the Decree of the President of Ukraine, which enacts the resolution of the National Security and Defence Council to impose sanctions on some of Zaporizhstal’s shareholders. We believe it is necessary to clarify that there are no representatives of the sanctioned shareholders among the officials of Zaporizhstal’s management bodies. The sanctions imposed relate to individual and legal shareholders and have no impact on the stable operation of the plant. Zaporizhstal itself is not among the sanctioned entities, and the presence of sanctioned shareholders does not make Zaporizhstal the sanctioned entity. The sanctions imposed are personal in nature, and they impose restrictions on the sanctioned persons and do not affect the operations of Zaporizhstal and its subsidiaries.
We would like to note that the imposition of sanctions on some of Zaporizhstal’s shareholders does not entail blocking the company’s operations. The plant does not conduct business with the sanctioned shareholders: no contracts have been concluded with these counterparties, no negotiations are underway to conclude such contracts, no business relations are maintained, and no payments are made in their favour.
“Refusal to a Ukrainian producer, such as Zaporizhstal, in VAT recovery guaranteed by law is a blow to the support of social and defence functions of the plant. This resolution limits the possibility of timely payments to suppliers of raw materials and equipment in the wartime. As a result, this may lead to the plant’s failure to fulfil production orders, limit the inflow of foreign currency earnings into the Ukrainian economy and call into question the amount of assistance provided by the plant to the Ukrainian Defence Forces,” Roman Slobodianiuk, General Director of Zaporizhstal, said.
In view of the above, Zaporizhstal insists on the need to reconsider the resolution of the State Tax Service to refuse to recover the value added tax, which in fact leads to the artificial withdrawal of the plant’s working capital and does not comply with the current legislation.