4 Problematic Issues of Unified Tax in the Life of Ukrainian Farmers ~ U-Tax Blog

Wednesday, August 15, 2018

4 Problematic Issues of Unified Tax in the Life of Ukrainian Farmers

Unified tax of the 4th group (formerly known as  fixed agricultural tax) is for compelling reasons selected to be paid by the overwhelming majority of Ukrainian farmers.

Below, we have summarized those major issues that arise while paying this tax.

Problem No 1 - uncertainty for the future

The base of taxation is the official appraisal of land.  In 2018, a new all-Ukrainian official appraisal of agricultural land is being carried out  (in accordance with the resolution of the Cabinet of Ministers of Ukraine dated 7 February  2018 No. 105).

If the new official appraisal of land turns out to be significantly higher than it is of today, some farmers cannot see any economical sense in keeping paying  the unified tax. They may consider switching instead to the general system of taxation, including corporate profit tax.

However, let us not rush to conclusions. We are waiting for the results of the new official appraisal of agricultural lands.

Problem 2 - the impossibility of confirming the status of a unified tax payer in the presence of a meager tax debt

If your company for certain magical reasons is identified as one having a tax debt in a funny amount of several hryvnias as of 1 January, it is very likely that the tax authorities will not confirm your status of a unified tax payer for the new year.

Fortunately, there is court jurisprudence on this issue available in favor of taxpayers. Courts can uphold the following taxpayers’ arguments:

- the presence of a small amount  tax debt does not constitute a ground for the refusal to confirm the status of the unified tax payer (for example, the ruling of the High Administrative Court of Ukraine dated  6 September 2016 in the case No. 821/354/16);

- The existence of a tax debt may be a ground for the refusal to vest a farmer with the initial status of a unified  tax payer, but it cannot be a reason for not confirming his already existent this status (the resolution of the Supreme Court of 8 May 2018 in the case No. 816/1088/17).

Problem 3 - improperly executed lease agreements

To qualify  for the unified tax, it is necessary that the share of agricultural production of the taxpayer is at least 75% of his total production. The tax authorities are trying to maintain that the 75% share of agricultural production must be carried out mandatory on land, the rights to which are properly formalized.

Consequently, if your company’s  land comprises a significant portion of  land plots with no properly formalised rental rights, there is a risk of losing the status of a unified tax payer.

Fortunately, the tax authorities do not do this quite often now. It was much more interesting for them to carry out such inspections at the time when the special VAT regime for agricultural producers was still in force. Then they were trying to deprive farmers of both the  status of the subject of the special VAT regime and the status of a unified tax (fixed agricultural tax) payer at the same time.

There is also taxpayer-favorable  court jurisprudence in this context. The courts share the view that the whole crop of the farmer  must be taken into account for the calculation of the share of agricultural production, irrespective of whether it has been grown on land parcels rights  to which have been properly or improperly executed (for example, the ruling of the High Administrative Court of Ukraine dated 6 September 2016 in case No. 808/7906/13a).

Problem 4 - cultivating hayfields and pastures

It is not uncommon for today that farmers sow grain crops on pastures or hayfields. If you do so, it would be advisable for you to pay for such parcels of land the unified tax as if for  arable land, that is, taking into account the coefficient of 1,756.

Otherwise, there will  is the risk of an additional tax assessment.

A striking example of the additional assessment is the case No. 808/2649/17, in which courts, including the Supreme Court, found for  the tax authorities. In this case the tax authorities, having analyzed the taxpayer’s form SG-29 (СГ-29),  managed to ascertain that the taxpayer had used its hayfields as arable land. As a result, the taxpayer was charged the additional unified tax, taking into account the specified coefficient of 1.756. Moreover, a 25% fine  was imposed on the taxpayer for the underreporting of the unified tax.

* - Photo from http://www.1zoom.me

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