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Buying High-Priced Consultancy Services
If a company buys consulting services at a high price (several hundred thousands or even millions of hryvnias), the act/certificate on works performed will not usually suffice for the successful passage of the tax audit. It is necessary to have a detailed report or another similar document reflecting the content of the consultancy services received. Otherwise, the tax authorities can cancel your input VAT/expenses and charge the penalties amounting to 25% of the additionally assessed tax liabilities.
Transactions
involving non-residents is a vast field for finding tax violations. First, the
tax authorities check the compliance with withholding tax rules. Has the
taxpayer reasonably taken advantage of the provisions of the tax treaty
exempting the non-resident from taxation in Ukraine or setting out a lower tax
rate than under national law?
Secondly, the legislation provides
for a myriad of restrictions in respect of the deductibility of expenses
incurred while dealing with non-residents. A striking examples are (i) the
limitation on the deductibility of consulting, marketing and advertising
services purchased from non-resident and exceeding 4% of the revenue of the
previous year and (ii) the total non-deductibility of such services purchased
from non-residents having offshore status. It is clear that sometimes the taxpayer
may stumble and fail to comply with these limitations.
Transactions with Related Parties
Transactions
with related (affiliated) parties are subject to transfer pricing rules. That
is, if it is established that the movement of goods/services between related
parties has taken place at prices other than arm’s length ones, the tax
authorities may adjust the tax consequences of the respective transactions by applying
arm’s length prices. This, in its turn, may result in additional tax
liabilities and penalties for the taxpayer.
There has been recently an outbreak in
tax authorities’ attempts to apply transfer pricing rules. On 1 January 2013 the
new (more "perfect", at least according to the tax authorities)
transfer pricing rules will come into effect. So, we can only expect an
increase of such attempts in the new year.
Unusual Transactions
Suppose that an enterprise specialising
in construction works suddenly and for unknown reasons engages in the exportation
of steel. It seems that there is nothing illegal in such kind of activity. But
it is rather doubtful that these transactions will not be subject to special scrutiny
of the tax authorities. The tax authorities can find sham companies in the chain
of supply (at least ones in their understanding), ignore the respective supplies
for tax purposes and finally deprive the taxpayer of the input VAT/expenses.
Transactions in Securities
Transactions
in securities were and remain a popular tool for tax avoidance/mitigation and
therefore always attract the special attention of the tax authorities.
What is worth a wide-spread scheme of selling securitised real estate through investment funds? The latter ensures
considerable tax savings as investments funds are almost completely exempt from
corporate income tax in Ukraine.
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