Tax Innovations. To be or not to be?

Electronic VAT Administration, New Changes

On 16 July 2015 the Parliament of Ukraine supported the Draft Law 2173а[1] to address the problems in the electronic VAT administration system. However, the Law has not been signed by the President yet.

Thus, in particular, it provides for non-application of deadlines for registration in the Unified Register of Tax Invoices as set by paragraph 201.10 of Article 201 of the Tax Code of Ukraine for tax invoices dated within the period from 1 July through 31 August 2015 and establishes somewhat different (delayed) timing for the purpose of minimal distraction of taxpayers’ current assets. Also, the period in which the right to tax credit is retained in case of untimely registration of tax invoices (from 180 to 365 days after the tax invoice date) is extended. Head of the Tax and Customs Policy Parliamentary Committee Ms. Nina Yuzhanina has noted that fines for untimely registration of tax invoices will not be applied to taxpayers till 1 October 2015. This provision should be reflected in the final wording of the Law. It should be noted that agrarians have defended the current VAT preferential treatment for their sector; the rules providing for its cancellation have been excluded from the draft law wording.

The rule set for purchase transactions with goods/works/services that are partially used in VAT-taxed and in VAT-exempt transactions is to register consolidated tax invoice in the Unified State Register of Tax Invoices (after the attribution of the total paid VAT to tax credit) for the total amount of the share (i.e. not for each single transaction).

The amendments will come into effect on 1 July 2015, i.e. will extend to the previous period, save for the provisions on the application of penalties for exceeding the amount of tax, for which the taxpayer may register tax invoices/adjustment calculations with the Unified Register of Tax Invoices. Should the President sign the law within July, the changes regarding fines and penalties are expected to come into effect on 1 August 2015.

Transfer Pricing Rules Eased

On 15 July 2015 the Parliament of Ukraine voted for the Draft Law 1861[2] providing for changes in transfer pricing issues (TP). To come into effect, the eagerly awaited law requires only the President’s signature.

In particular, the Parliament has excluded the rules requiring application of the TP rules to VAT taxation. According to some assessments, the law-maker has just corrected the previous technical inaccuracy, as the Tax Code of Ukraine defines a controlled transaction only with regard to corporate profit tax (CPT).

It is defined that business transactions under subparagraphs - and of paragraph 39.2 of Article 39 of the Tax Code of Ukraine shall be regarded as controlled ones, if the following conditions are met simultaneously:

  •  a taxpayer’s annual income from any activity determined according to the accounting rules exceeds UAH 50 million (minus indirect taxes) for the relevant tax (reporting) year;
  • the volume of such  business transactions of the taxpayer with every contractor determined according to the accounting rules exceeds UAH 5 million (minus indirect taxes) for the relevant tax (reporting) year.

Therefore, the income standard is raised from UAH 20 million to 50 million and shall now refer to the accounting profit of the taxpayer only, without regard to its affiliates’ income, as the case is in the currently effective wording of the Tax Code of Ukraine. Accordingly, the mention of 3% of income taken into account in determining the taxpayer’s CPT object for the relevant tax (reporting) year is excluded from the second condition, while the threshold of transactions with a single counterparty is increased to UAH 5 million per annum.

Apart from that, the fine for failure to declare controlled transactions is reduced from 5% to 1 % of the amount of undeclared controlled transactions.

Other changes in July

On 17 July 2015 the Parliament also supported the Draft Law "On amendments to the Tax Code of Ukraine (to reduce the tax pressure on taxpayers)"[3]. The Draft Law has not become a Law and, therefore has not come into effect yet but is pending the President’s signature. Among others, the following changes are envisaged.

The powers to promulgate generalizing tax consultations are vested in the Ministry of Finance. Individual consultations are provided by the State Fiscal Service as before. However, now it has become obligatory to place them on the website of the supervisory authority providing the consultation within 10 calendar days after their issue date without reference to the taxpayer’s name and tax address.

The list of cases, in which the State Fiscal Service is obliged to send (deliver) tax notices, has been updated. In fact, it is forbidden to issue the so-called "transit" inspection reports, on which no tax notices are issued. As a rule, information contained therein was used for subsequent additional accruals of tax obligations for related contractors. Now each report of a tax authority should be accompanied by a tax notice.

One of the criteria for recognizing fixed assets as fixed assets has been changed. Their value shall now be over UAH 6000 instead of UAH 2500 (approximately USD 250).

Also, the law stipulates the procedure for keeping record of foreign nationals and companies that own real estate in Ukraine.

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All the above Draft Laws duly voted but President's signature is needed. Ones the President signs the Draft Laws (if does not set a veto), they become Laws of Ukraine. We will keep you informed accordingly.


For any further consultations please contact the Tax Practice of the Arzinger law office.

Kind regards and best wishes,

Pavlo Khodakovsky

Partner, Head of Tax and International Tax Practice

Olga Baranova

Senior Associate of Tax and International Tax Practice

[1] Draft Law on amendments to the Tax Code of Ukraine to improve value added tax administration // URL:  http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=55743

[2] Draft Law on amendments to the Tax Code of Ukraine (regarding transfer pricing) // URL: http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=53720

[3] Draft Law on amendments to the Tax Code of Ukraine (to reduce the tax pressure on taxpayers) // URL: http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=53799