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Photo from skuky.net
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As usually the
case, the Verkhovna Rada (Ukrainian Parliament) decided to make a gift to
taxpayers and improve the tax
legislation for the New Year. One
of the most striking products of this "improvement" is special tax on transactions in
securities and derivatives (hereinafter
- the "Special Tax"). The tax has been introduced by
the Act of Ukraine "On Amendments to Tax Code of Ukraine with regard to Further Improvement
of Administration of Taxes and Duties" of 6 December 2012 and has been effective since 1
January 2013.
It should be noted that,
despite its name, the Special Tax is not a distinct tax, but merely a sort of
excise duty. The proponents of the Bill have decided not to bother themselves
with creating a new Chapter of the Tax Code of Ukraine for the introduction of
the Special Tax qua separate tax. They have slighted the arguments put forward
by the respective parliamentary committee in support of the fact that the
proposed tax is a new and separate tax on financial transactions and cannot be
considered an excise duty in terms of its economic substance.
Below is the brief
description of the Special Tax.
Taxpayers. The Special
Tax is chargeable on individuals and
legal entities (irrespective of their residency).
There are two types of the taxpayers:
(i) those carrying out transactions in derivatives and (ii) those alienating securities. The
taxpayers of the Special Tax are
not subject to separate registration
in the tax authorities.
Scope of the charge. By analogy with the taxpayers there are two groups
of taxable transactions: (i) transactions in derivatives and (ii) transaction related
to alienating securities (any form of
disposal involving the transfer
of the title). The taxable base is the
contractual value of the securities or
derivatives specified in the primary accounting documents.
Tax rates
Taxable transaction
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Tax rate
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Selling securities on a stock exchange with regard to which a stock exchange
rate is calculated.
Transactions in derivatives conducted via a stock exchange.
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0%
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Selling listed securities outside a stock exchange
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0,1%
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Selling unlisted securities outside a stock exchange (securities not
admitted to the trading on a stock exchange, or though admitted but traded as
unlisted securities).
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1,5%
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The execution of derivatives outside of a stock exchange.
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5 tax-exempt incomes
of citizens (UAH 85) for each executed derivative.
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The mode of payment. The Special Tax should be withheld and remitted to the tax authorities by the tax agent by the deadline prescribed for a quarterly taxable period. The duties of tax agents
are imposed on securities traders and
the issuers of the securities of
open-end investments funds (for the placement, redemption and
repurchasing of such securities only). With
regard to derivatives, the above
fixed tax in the amount of 5 tax- exempt incomes of citizens is directly paid by the parties to derivatives (at
least, such a conclusion can be drawn from reading the pure law, not yet covered by the clarifications of the tax
authorities). It is noteworthy
that each party to the derivative is subject to the aforesaid fixed tax.
Risks and problems. The Act to the extent to which it concerns the determination
of tax rate cannot brag about its unambiguousness which can
naturally result in some problems and risks for the taxpayers.
First, the law is not completely
clear on the point whether the taxpayer
is eligible for the zero rate where the stock exchange
rate has been calculated, but the securities of the taxpayer have not taken
part in this calculation (the stock exchange rate has
been calculated based on the bids/asks of other persons
selling the same securities on the stock exchange). This may, for example, arise where the securities have been sold by the taxpayer based on the addressed
bids/asks that are not taken into
account when calculating the stock
exchange rate.
It may be
assumed that the tax authorities will pursue the position on the applicability
of the zero rate only
to those securities that have actually participated in the calculation
of the stock exchange rate.
Secondly, in order to apply
the zero rate to the transactions in securities traded on a stock exchange the legislator
requires the stock exchange rate of such securities to be calculated
in accordance with the requirements
established by the National Securities and Stock Market Commission (hereinafter - "Commission") and approved by the central executive body in charge of
financial policy. To date,
the following requirements though
set by the Commission (decision of
22 November 2012 № 1688), but without any approval
on the part of the above-mentioned central executive
body (probably, the Ministry of Finance of Ukraine).
So, on formal grounds (the lack of
the approval referred above) the tax authorities may not recognize the
entitlement to the zero rate in respect of any transaction in securities carried out on the stock exchange.
Thirdly, the
legislators have, for unknown reasons, forgotten to set forth a tax rate for transactions
in securities conducted on a stock exchange with regard to which the stock
exchange rate has not been computed. This may, for example, occur when during
the trading session of a stock exchange in the course of which the taxpayer sold
his securities there were less than three unaddressed bids and less than three
unaddressed asks pertaining to the respective securities. Under the Procedure for
Determining Stock Exchange Rate of Securities approved by the above decision of
the Commission, in order for a stock exchange rate to be calculated there must
be not less that the above specified number of the unaddressed bids and asks in
relation to such securities.
If the stock exchange
rate of securities has not been computed, but they have been sold on a stock
exchange, then, on the one hand, there are no grounds to apply the zero rate, and,
on the other hand, there are no grounds for the application of other rates
(0.1% and 1.5%) either. The latter are relevant for transaction in securities
carried out outside a stock exchange only.
How to act in this
situation seems to be a sophisticated question. It is logical to argue that
because the rate is not specified, the tax should not be levied at all. Not
surprisingly, the tax authorities may have their separate opinion on this matter.
Policy considerations. Finally, here are some speculations on the policy
consideration underlying the launch of the Specific Tax. Given that the exemption (zero rate) is granted to transactions
in securities and derivatives traded on a stock exchange, it is not difficult to
guess that one of the key objectives was to support the business of stock
exchanges. But is this really the main purpose?
Perhaps, by enacting the Act the legislator intended to strike a blow to
tax avoidance (tax mitigation). It is not a secret
for anybody that securities are widely used in tax avoidance schemes. If the blow to tax avoidance has been stricken
indeed, this will hold true only for securities that
cannot be traded on a stock exchange at all (e.g. promissory notes).
“Tricks” with promissory notes with 1.5% tax charged
at each stage of the sale may be too expensive to afford. In the meanwhile, as for shares and bonds, there should be no serious
problems. In order for the zero rate to become
applicable, it suffices to include the securities in the list of a stock exchange
as unlisted securities which can be done almost anytime and even with reference
to securities of rather dubious quality.
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