Amendments to the Tax Code of Ukraine (VAT)

By Roman Blazhko 

In my post dated 29 July 2011 I already mentioned the amendments introduced by the law of 7 July No 3609-VI (the draft law No 8217) to the Tax Code of Ukraine touching upon the administration of taxes. Below, I am delighted to call your attention to the most significant, at least to my thinking, amendments brought by this law in respect of VAT:

1. The grounds for the voluntary registration of a VAT payer are broadened. An entity is eligible for the voluntary VAT registration if either its share capital or book value of assets (fixed assets, intangible assets and inventory) exceeds UAH 300 thousand.

2. The criteria for automatic VAT refund were varied. The volume of zero-rated transactions of the taxpayer seeking automatic VAT refund in its total volume of supplies was lowered from 50 to 40 per cent. It is also determined that while defining the discrepancies between the taxpayer’s input VAT and its counterparties’ output VAT three preceding reporting periods (one quarter) are taken into account.

3. The procedure for the issuance of VAT invoices was slightly modified. A VAT payer is obliged to specify in the VAT invoice the product code under the customs tariff if the goods supplied are either excisable or have been previously imported into Ukraine. A VAT payer is now permitted to register its VAT invoices in the Unified register of VAT invoices within 20 calendar days following the day of their issuance.

Please note that the law No 3609-VI has been in effect since 6 August 2011.

Draft Law No 8217 signed by the President of Ukraine

By Roman Blazhko

In my posts of 22 and 29 July 2011 I already referred to the draft law No 8217 considerably amending the Tax Code of Ukraine.

On 1 August 2011 the draft law was signed by the President of Ukraine. Generally, the law will be in effect as from the day following the day of its official publication; however, a bulk of its provisions will be effective since 1 January 2012.

The Law on Court Duty(Fees)

By Roman Blazhko

The Law of Ukraine “On Court Duty(Fees)” was signed by the President of Ukraine on 28 July 2011. The law will enter into force as from 1 November 2011.

The law will raise the amounts of court duty(fees) payable in tax litigation. Filing the claim on the cancellation of a tax notification-decision will be charged UAH 28.23 (as against a current UAH 3.40) and seeking monetary relief (e.g.  claiming overdue VAT refund) will be charged 1 per cent of the amount claimed but no more than UAH 1,882.00 (as against a current ceiling of UAH 1,700.00).

As one can see, to litigate with the tax authorities became more expensive, but not radically.

Accrual method in corporate income taxation

By  Dmytro Savchuk

Below, please see the article by my colleague Dmytro Savchuk touching upon accrual method in corporate income taxation. 

 

One of the most anticipated changes brought by Title III of the Tax Code of Ukraine is a new method of determining income and deductible expenses.

Income and deductible expenses will be determined not under the "first event" rule enshrined in the Law of Ukraine "On Corporate Income Tax" (hereinafter - the “CIT Law”), but based on the accrual method. Under this method the income from the sale of goods is determined on the date of the transition of the title to such goods to the buyer, and the income from services rendered and works performed is determined on the date of the execution of the report or another similar document confirming the rendering of the services or the performance of the works. Deductible expenses making up the cost of goods (works, services) are recognized in the reporting period in which the income from the sale of such goods (works and services) was determined. 

Given that the said procedure for recognizing income and deductible expenses coincides with the methodology defined by financial reporting standards, the transition from the “first event” rule to the accrual method may draw closer tax accounting and business accounting to each other. Differences that may arise between tax accounting and business accounting as a result of the application of the accrual method are said to be so-called tax differences. They result from the economically reasonable restrictions imposed by the state in respect of corporate income taxation. In addition, the convergence of tax accounting and business accounting may simplify the preparation of a corporate income tax return. 

At the same time, against the background of the growth in receivables owed for the goods delivered, the transition to the accrual method in determining income may adversely affect the liquidity of some businesses.For example, the CIT Law stated that in case of the sale of goods (works, services) for state budget funds the income was recognized on the date of the receipt of the money or other consideration (the cash method). The Tax Code of Ukraine does not provide for an alternative to the accrual method.

The suppliers of budgetary organizations will also determine income based on the accrual method. Since our budgetary organizations do not have the habit of timely disbursing their obligations, such taxpayers will have to pay tax on profits, which even does not exist yet.

In general, the determination of income and deductible expenses according to the accrual method is a very expected and favorable innovation in the tax legislation. Nonetheless, despite all the advantages of this method, some taxpayers would rather favor the cash method (income and deductible expenses are determined on the date when the respective funds are received/paid). For instance, the Tax Code of the Russian Federation enables certain taxpayers to opt, on their own, for the cash method.