Consolidated Tax Invoices in the Energy Sector: Risks and Tax Audit Practices

Registering tax invoices for electricity supply remains one of the most challenging aspects of tax accounting. This issue is critical for both electricity suppliers and traders engaged in buying and selling electricity on the market.

Taxation specifics: the cash basis method

The VAT cash basis method for electricity trading in Ukraine has been extended until January 1, 2028.

The unique nature of these transactions lies in the application of the VAT cash basis method. Under this approach, tax liabilities arise on the date funds are received, rather than at the time of supply.

At the same time, the cash basis method is a special tax regime that takes precedence over the general rules for determining tax liabilities established by Article 201 of the Tax Code of Ukraine.

In practice, this means that market participants focus on cash flow during the reporting period and use the mechanism of issuing consolidated tax invoices. This ensures payment discipline and cash flow stability. The cash basis method helps avoid situations where VAT must be paid before actual payment is received for electricity that has been supplied but not yet paid for.

The problem: lack of clear criteria

Current tax legislation does not provide a clear definition of the criteria for "rhythmic" and "continuous" operations in the context of the cash basis method.

According to the Tax Code of Ukraine, we have a general definition of "rhythmic" and rules for issuing consolidated tax invoices:

·        Definition of rhythmic: A supply is considered rhythmic if the seller ships goods or provides services to the same buyer at least twice within a single calendar month.

·        Consolidated tax invoices: For rhythmic operations, VAT payers using the cash basis method may issue consolidated tax invoices no later than the last day of the month in which funds (payment for supplies) were received. In other words, if you supply goods/services to the same buyer two or more times per month (rhythmic nature), you have the right to issue one consolidated tax invoice for the total amount of payments received during that month.

This is precisely the key reason for the differing interpretations of the procedure for issuing tax invoices between taxpayers and regulatory authorities.

The Tax Code of Ukraine does not provide a definition for "continuity" at all.

Tax practice shows that during audits, regulatory authorities often take a formalistic approach when assessing the legitimacy of issuing consolidated tax invoices.

Specifically, audit reports are issued following inspections, citing violations of the requirements of: Clause 201.1 of Article 201 of the Tax Code of Ukraine, Clause 201.10 of Article 201 of the Tax Code of Ukraine, and Clause 89 of Subsection 2 of Section XX "Transitional Provisions" of the Tax Code of Ukraine, resulting in the imposition of penalties for failure to register or late registration of tax invoices.

As a rule, regulatory authorities operate on the premise that in the absence of "rhythmicity" or "continuity" of transactions (for example, when only one payment is made per month), there are no grounds for issuing a consolidated tax invoice. In such cases, they believe the taxpayer should issue a tax invoice according to the general "first event" rule on the date funds are received.

Key business risks:‍

- penalties for late registration of tax invoices

- additional VAT assessments

-  tax disputes

-  denial of tax credit

The core issue lies in the lack of a unified approach to applying tax legislation.

Given the above, the issue of issuing tax invoices in the energy sector cannot be viewed as purely technical. It requires prior legal analysis and the development of a clear tax position.

Experience shows that the most effective approach is to prepare a legal position in anticipation of an audit and to obtain an individual tax consultation.

In the absence of clear criteria for "rhythmicity" and "continuity" of transactions, as well as inconsistent judicial practice, an individual tax consultation (ITC) becomes a key tool for tax planning and taxpayer protection.

The legal nature of an ITC

According to Article 52 of the Tax Code of Ukraine, a taxpayer has the right to request an ITC regarding the practical application of tax legislation. However, it should be remembered that an ITC is individual in nature, while simultaneously providing tax immunity.

A taxpayer who has acted in accordance with an individual tax ruling (ITR) cannot be held liable, even if such a ruling is subsequently amended or revoked.

Regarding the preparation of consolidated tax invoices, an ITR allows you to:

firstly, establish an approach for:

- applying the cash basis method;

- defining the "rhythmicity" of supplies;

- the frequency of preparing tax invoices;

- minimize the risks of: penalties for late registration;

- additional VAT assessments;

- disputes with tax authorities and counterparties;

- loss of tax credit;

secondly, build an evidentiary base for tax audits and for administrative or judicial appeals.

This approach allows for the minimization of risks even before a dispute arises.

An analysis of ITRs received by taxpayers in the energy market between 2019 and 2025 regarding the preparation of consolidated tax invoices under the cash basis method shows that tax authorities use varying wording and imprecise interpretations of Tax Code provisions. This may indicate poorly formulated questions in the ITR requests and a failure to fully disclose the specifics of the taxpayer's situation.

It should be noted that preparing consolidated tax invoices is a right, not an obligation, of the taxpayer, which must be agreed upon with the buyer in the supply contract and approved in the accounting policy.

Conclusion

The practice of tax audits in the electricity sector shows increased scrutiny by regulatory authorities regarding the registration of tax invoices. A formalistic approach to assessing the "rhythmicity" and "continuity" of operations, combined with an disregard for the specifics of the cash basis method, creates a situation where even a well-founded taxpayer position may be challenged by the regulatory authority.

In such conditions, the timely development of a legal position and proper documentation of operations are key tools for protecting the business and reducing tax risks.

In the event of tax risks or the need to develop a legal position regarding the preparation of tax invoices in the electricity sector, business entities can consult with the team at Fedotov & Partners and LLC "Solution Studio" to receive professional support that takes into account current regulatory practices and the specifics of the electricity market.

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