Despite the Resolution of the Cabinet of Ministers of March 2, 2022 No. 178, the Ministry of Defense continues to purchase fuel including VAT, which has led to damage to the state of more than 1 billion hryvnia.
The audit of the State Audit Service caused a new scandal with procurement of the Ministry of Defense of Ukraine. And this time – fuels and lubricants subject to VAT. Without complying with Cabinet of Ministers Resolution No. 178 of March 2, 2022 , the Ministry of Defense continues to purchase fuel at VAT. In addition, they managed to find a “non-existent” explanation from the State Tax Service, which supposedly states that procurement can be carried out in this way. So who is right – the Ministry of Defense or the State Audit Service? StopCor understood the situation.
The next series of purchases by the Ministry of Defense has acquired an unpleasant connotation, given the wartime and, as a consequence, the opening of criminal proceedings. It became known that the Ministry of Defense purchases fuel for the army under VAT, although the government adopted Resolution No. 178 “Some issues of taxation of value added tax at a zero rate during a state of war ,” which regulates the purchase of fuel by the military and sets a zero rate on fuel for the needs of the Armed Forces of Ukraine .
Confrontation between the State Audit Service and the Ministry of Defense
In turn, the State Audit Service conducted an audit of certain issues of the financial and economic activities of the Ministry of Defense of Ukraine from January 1, 2022 to December 31, 2022 and assessed such fuel purchases as “damage to the state.”
The State Audit Service determined that this damage amounted to more than UAH 1 billion. This is evidenced by data from a document that fell into the hands of the StopCor editors. And the amount of purchases itself accordingly exceeded 6 billion UAH.
The Ministry of Defense of Ukraine was not at a loss and objected to the audit report dated March 27, 2023 No. 00800-21/5t on the imposition of value added tax on operations for the supply of goods at a zero rate.
Attached to the same objection is a copy of a letter signed by Deputy Minister of Defense Rostislav Zamlinsky , which explains that fuel is not being purchased for mobilization tasks.
In addition, allegedly referring to the individual consultation provided by the State Tax Service of Ukraine (letter dated April 27, 2023 No. 540/PK/99-00-27-04-05), the department declares the legality of this purchase. Since this fuel was not purchased to carry out mobilization tasks, as stated in Resolution 178.
To clarify the circumstances of the case, the editors of StopCor also turned to the Ministry of Defense of Ukraine for clarification about the situation surrounding the purchase of fuel under VAT, as well as for a precise definition of what the term “non-mobilization tasks” means. After all, it was these measures that made it possible to purchase fuel at VAT. In response, the Ministry of Defense refused that this period was not determined by law.
And here comes even more interesting information - the State Tax Service officially notified the State Audit Service (letter dated 05/02/2023 No. 5571/5/99-00-21-03-02-05) that the Ministry of Defense did not prepare or register any individual explanation for the appeal , did not place individual tax consultations in the Unified Register, much less send them to the Ministry of Defense of Ukraine.
This means that the document that the Ministry of Defense of Ukraine is now so proudly appealing to is actually fake.
For these reasons, the State Audit Service informed the State Bureau of Investigation about this (letter dated 05/05/2023 No. 000800-17/5117-2023). And today, criminal proceedings have been opened on this fact.
“Equipment” for VAT and old-new scammers
Fuel for the Ministry of Defense has already been exposed with VAT charges in a fraudulent scandal, etc. In 2022, a private supplier, using the “roll-up” mechanism, withdrew from circulation funds intended to pay taxes to the state, as noted by the State Audit Service. According to information from open sources, fuel suppliers who illegally received VAT refunds from the Ministry of Defense of Ukraine in 2022 are the companies of the ex-chairman of the State Environmental Investment Agency of Ukraine, ex-deputy head of the Ukrainian Committee on State Material Reserves Vladislav Yakubovsky.
During the presidency of Viktor Yanukovych, Vladislav Yakubovsky served as head of the State Agency for Environmental Investments of Ukraine and deputy chairman of the State Committee of Ukraine for State Material Reserves. He became famous in the case of the theft of funds received by Ukraine under the Kyoto Protocol.
After the collapse of Yanukovych, Yakubovsky appeared in the Trade Commodity group of Granovsky-Adamovsky. And while the active phase of the ATO continued in the state, Trade Commodity purchased fuel from the Rosneft company, presenting it as the production of diesel fuel, when in fact it was a mixture of kerosene and base lubricant. Such fraud led to breakdowns in the engines of Ukrainian tanks and other military equipment. In addition, the country was being robbed of billions of hryvnia.
By the way, Yakubovsky’s business partner is a former international class athlete Zaza Zozirov , who was an active participant in the Savlokha organized crime group . Zozirov became Yakubovsky’s partner in the Construction Point , founded in 2009. At that time, Yakubovsky was already collaborating with Yuri Ivanyushchenko. The authorized capital of the company is 500,000 hryvnia. In it, Yakubovsky has 50%, another 25% belongs to Zaza Zozirov and Georgian citizen Zazi Gumberidze. The peak of the sports career of wrestler Zaza Zozirov came at the end of the 90s, when the president of the Wrestling Federation was the criminal authority Boris Savlokhov , and another star of the same sport in the same period was Elbrus Tedeev , a regional deputy.
And that's not all... then only the criminal connections become even more interesting. In 2020, as part of the impeachment case against Donald Trump, American intelligence published the correspondence of Lev Parnas (he is a partner of Rudy Giuliani, who, in turn, was Trump’s lawyer). And so, as journalists found out in correspondence with Arsen Avakov , Parnas remembers the Ukrainian Locomotive Company and Vladislav Yakubovsky: he wants Avakov to help Yakubovsky start transportation on the Lviv Railway.
How gaps in legislation can affect the trading market
Government Resolution No. 178 has become, to a certain extent, a stumbling block for the domestic fuel market. Fuel supplies to the front may be slowing down, and we notice some gaps in the document.
In war conditions, when the bulk of public funds are directed to the defense of the country and providing the army with everything necessary instead of simplifying public procurement procedures, some of them, unfortunately, on the contrary, become more complicated. In particular, this applies to the issue of providing fuel to the Ukrainian military.
A representative of one of the companies, who has been fruitfully working in the domestic energy market for a long time, told reporters in an exclusive commentary about why the process of delivering fuel and lubricants to the army is complicated and expensive.
As the expert notes, in the summer of 2022, due to a large shortage of petroleum products in the country, the Ministry of Defense, as a large consumer of fuel, was interested in receiving fuel as a priority. Therefore, all contracts were concluded for 100% advance payment, because without this, the military department actually had to compete for scarce fuel with ordinary consumers. Accordingly, the contracts were concluded on conditions where a preferential VAT rate of 7% was in effect, which lasted until the end of June 2023. At that time, value added tax was also non-refundable. Therefore, such conditions satisfied all parties. However, the tax “holidays” are over, the VAT rate after July 1 of this year increased to 20% and the situation has changed dramatically.
In addition, a specialist in the fuel market noted that last fall the Office of the Department of Public Procurement of the Moscow Region learned about the resolution of the Cabinet of Ministers No. 178 of March 2, 2022 “On some issues of taxation of value added tax at a zero rate during martial law,” which has a number of serious gaps:
— firstly, the Ministry of Defense is not on the list of organizations that can make purchases at a zero VAT rate;
- secondly, the preamble of Cabinet of Ministers of Ukraine resolution No. 178 indicates only purchases carried out as part of the implementation of the mobilization order;
– thirdly, the formulation of the intended purpose in this document, according to experts, is spelled out incorrectly.
As a result, the Department of Defense concluded that there was a legal position that the military department was not subject to this regulation.
“Due to price dumping across the entire range of petroleum products, a monopoly position in the market until recently was occupied by PJSC Ukrnafta, which also concluded all contracts with the Ministry of Defense, first with a 7% VAT rate, and then with 20%. In this situation, when there is one monopoly supplier, and with already existing risks, the State Audit Service and the Prosecutor General's Office or local prosecutor's offices at the place of registration of companies file claims against both Ukrnafta and the counterparty companies on the market that supplied the products during the first year of a full-scale war in 2022 and at the beginning of 2023. Moreover, the amount of claims against Ukrnafta is colossal, because this company is actually was a monopolist in supplies to the municipal government ,” our interlocutor comments.
It should be noted that all VAT was already paid to the budget of Ukraine last year. It was registered by suppliers at the address of the Ministry of Defense of Ukraine. And the State Tax Service, basically, does not have any questions for suppliers. In fact, they are now simply trying to transfer these funds from one “budget pocket” to another, simultaneously creating a number of legal conflicts and grounds for corruption and blocking all supplies to the Ministry of Defense from private suppliers, the specialist notes. This, of course, will not generate additional funds in the state treasury, since such state actions do not bring any added value to national security and defense.
Also, as an expert on the fuel market noted, the Prosecutor General’s Office demands that all contracts concluded since the beginning of martial law and still invalid in terms of VAT. Moreover, regardless of whether VAT refund mechanisms and a preferential rate of 7% were in effect at the time of conclusion,
“The Prosecutor General’s Office also demands that these funds be returned to the Ministry of Defense. Thus, a situation is now emerging where, in competition with PJSC Ukrnafta, when it was just entering the market, all other suppliers abandoned the position of 100% advance payment from the Ministry of Defense. That is, for the entire 2023 there was not a single ton of fuel that would have been supplied to the Ministry of Defense with advance payment ,” adds the specialist.
In other words, the process of obtaining fuels and lubricants for the military on the front line has become significantly more complicated and there is a threat of a new shortage. As experts note, the way out of this situation is to resolve the problem by clearly introducing amendments to Cabinet of Ministers Resolution No. 178. Namely, to state the fact that the Ministry of Defense is not in the list of the resolution, and to add the Ministry to the list.
Thus, if you expand the list by adding MOU to it, the document will have an unambiguous interpretation both for the military department, that all new tenders for fuel must be announced without VAT, and for the fiscal authorities, which will return funds for this tax to suppliers. This will simplify the procurement procedure for domestic sellers of petroleum products, and for the customer (the Ministry of Defense), and for end consumers - Ukrainian defenders at the front.
Legal conflicts and how the government is not finalizing
So, the situation in the country is similar to the popular saying - everyone has their own truth. The Ministry of Defense buys fuel with VAT, because it is not for mobilization tasks (questions, what other tasks can they perform during martial law?), but military units, the National Guard, border guards without VAT.
If you don’t go into legal subtleties, but explain it in human language: the norm is written really crookedly. Indeed, since March 2022, the Ministry of Defense, taking into account the binding of this resolution, decided to purchase fuel without VAT only within the limits of mobilization plans, as specified in the resolution, and in all other cases - at VAT.
However, the State Audit Service regards the purchase of fuel by the Ministry of Defense under VAT as “damage to the state.”
In the meantime, the battles with explanations and bilateral accusations continue, the Ministry of Defense continues to maintain its position and plans to purchase fuel again, taking into account the value added tax.
Explanations based on primary sources, or how StopKor looked for the truth
Studying the difficult situation, StopKor asked for clarification from all departments that, in one way or another, are involved in the situation with fuel taxation.
First of all, a letter of request was sent to the Ministry of Defense. To which the editors received the following response (unsubscribe): “When purchasing fuels and lubricants, the corresponding transactions are subject to tax in the manner and amount determined by the current legislation of Ukraine.” - stated in the document.
A request was also sent to the State Audit Service of Ukraine regarding the legality of the purchase of fuels and lubricants with taxation. The State Audit Service informed the editors of StopCor in a letter about the implementation of seven financial audits of contracts concluded by the Ministry of Defense and confirmed the opening of criminal proceedings on them.
Another authority that StopKor contacted to confirm or refute the statements of the Ministry of Defense was the State Tax Service of Ukraine. In response, a letter was signed by the director of the methodology, Marianna Kuts, stating that no individual consultations were provided to the Ministry of Defense.
