Not long time ago, the State Tax Administration of Ukraine (STAU) published its letter of 8 September 2011 No 828/3/15 regarding the unprofitable businesses adversely affecting the meeting of the Sate Budget’s revenues targets.
According to the position of STSU contained in this letter, the taxpayers are eligible to form their expenses in the second quarter of 2011 out of the losses incurred only in the first quarter of 2011, but not out of the losses incurred in the preceding tax periods.
This stance, in the tax authorities’ point of view, is bolstered by para 3 of subsection 4 of section XX "Transitional Provisions" of the Tax Code of Ukraine. This para sets out that the taxpayer includes the losses arisen in the first quarter of 2011 into the expenses of the second quarter of 2011, but does not expressly provides that the mentioned losses arisen in the first quarter include the losses incurred in the preceding tax periods.
The logic of STSU fails in the light of para 22.4 of Final Provisions of the Law on Corporate Income Tax. The para at hand definitely provides that the losses not qualified as expenses in 2010 (this law confined the losses that may be included into expenses to 20 per cent of the losses incurred as at 1 January 2010) as well as the losses incurred in 2010 may be included into the gross expenses in 2011.
Thus, the Law on Corporate Income Tax clearly stipulates that the losses arisen in 2010 and in the preceding tax periods are to be included into the gross expenses in 2011 (in the first quarter of 2011). Accordingly, the losses incurred in the preceding tax periods make up the losses of the first quarter of 2011, which, in their turn, by virtue of the aforesaid paragraph of "Transitional Provisions" of the Tax Code of Ukraine must be included into the expenses of the second quarter of 2011.
Hence, the taxpayers once again faced the choice of either throw themselves upon the mercy of the tax authorities or passing through all the labyrinths of the judicial system. Let fortune favor the brave!
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