The State Tax Service’s tax risk system – halfway through, no results

The 15th of the 24 months allocated by the Cabinet of Ministers for the implementation of the experimental project on the functioning of the Tax Risk Management System (compliance risks) in the State Tax Service (hereinafter — TRMS, the System, the Experiment) is underway. At the same time, Resolution No. 854 of the Cabinet of Ministers dated July 25, 2024, was also adopted to implement the National Revenue Strategy of Ukraine until 2030 (NRSU).

Notably, this attempt by the State Tax Service to introduce a systematic and automated approach to dealing with tax risks is not the first, has been ongoing since 202, and is an unavoidable stage in the activities of the tax authority.

The purpose of tax compliance management is to manage risks related to four key taxpayer obligations, to wit: registration (registration with the tax authorities), timely reporting, submission of accurate reporting indicators and timely payment of taxes.

The NRSU expects that the introduction of the System will make it possible to:

help taxpayers avoid the most common mistakes;
simplify tax reporting and tax payment as much as possible;
resolve issues in cooperation between regulatory authorities and taxpayers;
increase the level of transparency and consistency in the work of the State Tax Service;
minimize the risks of taxpayers’ non-compliance with tax legislation requirements;
introduce a compliance mechanism from state registration of taxpayers to the system of risk tracking and payment of taxes;
ensure proper collection of revenues and fees, minimize shortfalls in taxes in accordance with identified risks, etc.

Complete lack of transparency

The State Tax Service has already adopted a number of orders relating to the System, but they have not been made public. In fact, nothing is known about the content of the State Tax Service’s 2025 annual operational plan to improve compliance with tax legislation, nor about sectoral, industry or other action plans provided for in the Experiment. Thus, the TRMS remains a black box and a scare tactic for taxpayers.

We understand that not all aspects of the System’s functioning can be disclosed, but complete opacity in the introduction, operation and use of the System is unacceptable. It does not allow even an indirect assessment of the provisions of the regulatory and legal acts governing the System, including their compliance with the existing provisions of the Tax Code of Ukraine.

There is a possibility that certain provisions of these regulatory acts unreasonably expand the existing provisions of tax legislation. In addition, the lack of transparency in the implementation of the System indicates that the State Tax Service in practice continues to focus on fiscal and punitive methods and also raises doubts about the effectiveness of its introduction. The lack of transparency may also point to attempts by tax authorities to avoid direct responsibility in the future for the System’s selection of taxpayers for audits.

However, none of the NRSU’s expectations listed above have been fulfilled so far.

The State Tax Service’s meaningless and episodic announcements about the introduction of the System during 2024 are a clear case of ineffective communication and do not give taxpayers any understanding of how exactly they should bring their activities into full compliance with tax legislation as seen by the tax authorities. So far, the State Tax Service’s communication regarding the introduction of the System looks like a primitive publicity stunt.

The System is not isolated

The System is not an isolated information and analytical system. In the future, it is supposed to use increasingly larger volumes and more diverse information from other ministries and agencies, as well as from foreign competent authorities.

Here’s an example: In March of this year, the State Tax Service, the State Financial Monitoring Service and the Security Service of Ukraine announced the intensification of the fight against financial crimes, tax evasion, money laundering and terrorist financing, and signed a trilateral Memorandum of Cooperation. Cooperation will take place in the areas of information exchange; the creation of working groups to prepare and conduct joint activities; exchange of experience and the provision of explanations relating to areas of activity.

In May, these same agencies announced the creation of a joint Coordination Center to combat tax fraud, with the prospect of involving the State Customs Service.

On the (in)effectiveness of the System

Halfway through the Experiment, taxpayers still do not understand what exactly they can expect in practice from the introduction of the System.

The lack of proper communication from the State Tax Service and information about real achievements indirectly indicates that, for now, the results of the System’s implementation are likely insignificant.

Let us use indirect assessment of such effectiveness.

According to information published on July 11, 2025, by Lesia Karnaukh, acting head of the State Tax Service, during the first half of 2025 and as a result of cooperation between the State Tax Service and law enforcement agencies in combating tax evasion and money laundering, the state was compensated for more than UAH 156 million in losses, and 29 criminal proceedings were registered.

At the same time, the head of the parliamentary committee on finance, tax and customs policy, Danylo Hetmantsev, has repeatedly stated that the shadow sector of the Ukrainian economy amounts to UAH 800–900 billion annually, with 30–50 percent of the economy operating in the “shadow.” He emphasized that annual losses in the production and circulation of excisable goods, household appliances and the gambling business alone reach tens of billions of hryvnias. He then went as far as providing examples of schemes.

A comparison of the figures for compensated losses and registered criminal proceedings with the total volume of the shadow sector of the domestic economy, though indirect, clearly casts serious doubt on the effectiveness, particularly the analytical work, of tax authorities and law enforcement agencies, including with regard to the actual detection, prevention and elimination of tax risks that have been known for years. A year of the Experiment in no way indicates that the introduction of the System has had any impact on this negative trend.

This is a trivial conclusion, but in order to minimize and/or prevent long-known tax avoidance schemes and eliminate the main players behind these schemes, political will is needed — from the authorities in general and the leadership of the State Tax Service in particular. The System is also necessary, but without the former, it will remain only a tool for imitating activity and primitive publicity stunts, aimed primarily at external donors.

I would also note that, while asserting the need to digitize all tax administration and control processes, including the active use of analytical IT solutions, and to eliminate the human factor through maximum automation, the leadership of the State Tax Service is simultaneously introducing a network of advisory centers on issues related to the suspension of tax invoice registration/adjustments in the Unified Register and taxpayer compliance with risk criteria (involving hundreds of tax officials), as well as a network of tax consultant offices (with 1,500 tax officials expected to be involved). So where is the risk-oriented approach, the digitization of tax risk management and the elimination of human factor?