What happens if we are flagged by the KURGAN system? What precautions should we take?
Consequences of Being Flagged by the KURGAN System
Being flagged by the KURGAN system may lead to serious sanctions. The main consequences that may be encountered are as follows:
VAT deductions related to these invoices are disallowed, and a tax loss penalty equal to three times the evaded VAT is imposed.
If it is determined that the goods or services were not actually acquired, the relevant invoices are removed from the accounting records; threefold tax loss penalties are imposed on the evaded corporate/income tax and provisional tax.
There is a risk of imprisonment ranging from 3 to 8 years.
Tax inspectors may require the provision of financial guarantees, if deemed necessary.
Loss of credibility may occur in the eyes of banks and customers.
VAT refund claims become subject to the outcome of tax inspections.
2. Thirteen Criteria Considered in the Detection of the Use of Fake Invoices
(Revenue Administration Inspection Board Circular dated 18.04.2025 and numbered E-55935724-010.06-7361)
The KURGAN system assesses whether a document has been knowingly used by analyzing the following 13 criteria.
Therefore, it is of critical importance that our goods and service procurements comply with these criteria.
Whether the tax technical report prepared for the taxpayer issuing the fake document includes a determination that the document was knowingly used.
Whether the goods or services subject to the fake document are related to the taxpayer’s field of activity and whether such expenses are essential for business operations.
The accounting accounts in which the fake document amounts are recorded, and the ratio of these amounts to total costs/expenses and deductible VAT.
Whether the taxpayer has any relationship with the issuer of the fake document; whether they work with the same financial advisor, and if so, the reasons for any contract termination.
The taxpayer’s sector, line of business, profitability ratios, turnover, and tax declaration profile (continuous losses, carried forward VAT, etc.).
Whether fake documents were obtained from multiple taxpayers.
Whether there is sufficient storage capacity to hold the quantity of goods stated.
The existence and accuracy of dispatch notes, transport documents, delivery receipts, and their consistency with vehicle plate tracking systems.
The authenticity of payments related to the fake documents: payment instruments, cheque endorsements, the party collecting the payment, fictitious transactions or refunds; and whether the DBS system was used.
Whether previous field inspections identified any findings related to the goods subject to the fake documents.
Whether there is a history of fake invoice usage in previous tax audits of the taxpayer, including reports indicating intent (mens rea).
Whether the taxpayer’s shareholders or directors have any prior involvement in issuing or using fake documents.
Consistency between the invoice issuance dates and the electronic signature timestamps.
Conclusion
Compared to previous practices, the KURGAN system is capable of detecting the use of fake or misleading documents through much deeper and more advanced data analysis.
For this reason, the reliability of suppliers, the accuracy of documentation and payments, and the consistency of transactions with actual business activities must be reviewed with the utmost diligence.
