The Supreme Court of Ukraine, in its ruling of 25 October 2026 (Case No. 910/12456/24-Ц), upheld the tax authority’s position that an employee’s right to claim standard tax deductions (social, property, education) under Article 176 of the Tax Code is contingent on the employer’s actual remittance of withheld ПДФО to the budget. The case involved an employee whose employer withheld UAH 45,000 ПДФО in 2025 but failed to pay it to the State Treasury due to bankruptcy. The employee filed an annual tax return claiming a UAH 12,000 property deduction refund. The tax authority denied the refund citing Article 176.1: “Tax deductions are granted provided the tax has been actually paid to the budget.” The Court confirmed that “paid” means “received by the budget,” not “withheld by the agent.” This precedent applies to all tax agents (employers, banks, notaries) and all deduction types. Employees can now verify remittance status via the taxpayer’s web cabinet (“My Taxes” section) before filing returns.
Key Takeaways
- Verification Before Filing: Taxpayers must check the “Paid to Budget” column in their electronic tax card (Form 1ДФ.І) before claiming deductions. If the agent shows “Withheld” but not “Paid,” the deduction will be rejected, and an amended return will be required later.
- Agent Liability Shift: The ruling incentivizes employees to report non-remitting employers to the tax police (Article 212 Criminal Code). The tax authority can now pursue the agent’s assets (including personal assets of directors) for the unpaid tax plus penalties, while the employee’s deduction claim remains suspended until collection.
- Bankruptcy Protection Gap: In employer insolvency, the employee becomes an unsecured creditor for the unpaid net salary, but the tax deduction is lost entirely until the state recovers from the estate. No statutory compensation mechanism exists for lost deductions.
Disclaimer: This article is compiled and summarized by the AI based on publicly available information and is for general information purposes only. It does not constitute any form of formal tax advice, legal opinion, or basis for performance. Please consult a qualified professional tax advisor or legal counsel for tax advice.
Source: Read Official Announcement