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| Co-authored
by Anton Babak |
Within the scope of the Tax Reform of 2015 the Corporate Income Chapter
of the Tax Code of Ukraine has been completely recast. What follows is a brief
description of new corporate income tax (“CIT”) rules mainly being in force as
from 1 January 2015.
General Changes
- CIT is no more levied on
profits determined under special tax accounting rules. It is now levied on
pre-tax profits calculated in accordance with book accounting standards, but
subject to certain adjustments (tax differences);
- Tax differences are not mandatory for small enterprises (with annual
income up to UAH 20 million). They may opt for not to apply the tax
differences. In this case CIT is chargeable on the amount of “raw” book
profits;
- Tax authorities has obtained the right to audit book accounts of
taxpayers (either under the Ukrainian GAAP or the IFRS). This does not come as
a surprise as at present book profits do make up the basis of the tax
assessment;
- Approach to the expenditures that are not associated with the conduct
of the taxpayer's business has dramatically changed. As for now, these
expenditures are generally allowable;
- 4% limitation on the deductibility of consulting, marketing,
advertising and engineering services bought from non-residents do not apply
anymore;
- Borrowers under inter-companies interest free loans are no more
chargeable to CIT on the deemed interest accrued on such loans and in certain
cases on the principal of such loans;
Tax Differences
- Depreciation
and amortization: special depreciation and amortization rules provided
by the Tax Code of Ukraine apply. They do not differ in any material respect
from those being in effect formerly;
- Transfer
pricing rules: pre-tax book profits can be increased taking account
of differences between arm’s length and contractual prices;
-
Thin-capitalization rules: certain interest expenses incurred in respect of
related non-residents are now disallowed. The restriction normally applies to
taxpayers whose debt-to-equity ratio exceeds 3.5 (for banks and financial
organizations - 10);
- Purchases
from residents of blacklisted jurisdictions and non-profit organizations: a deductibility restriction is now set
at 70% of the amount of the actual expense. The restriction can be overridden
where the taxpayer is able to justify under transfer pricing rules the arm’s
length character of the underlying transactions;
- Royalty: deductibility
restrictions essentially remain the same as before (e.g. a full
non-deductibility of royalties paid out to residents
of blacklisted jurisdictions and a 4% restriction on the deductibility of
royalties paid out to other non-residents). The novelty is that the above
restrictions can now be circumvented where the taxpayer is able to justify under
transfer pricing rules the arm’s length character of the underlying
transactions;
- Transactions
in securities: special tax accounting rules disabling the
utilization of securities-related losses remain in force.
Administration
Novelties
- New rules concerning advance CIT on dividends operates. Advance CIT is
nowadays payable not on the full amount of the dividend distribution, but only
on the excess of this amount over the taxed profits of the corresponding tax
period;
- New rules with regard to filing tax returns and paying monthly advance
payments have been laid down (will be effective from 2016). The new deadline
for filing annual tax returns will be 1 June of the year following the tax
year. The threshold for those required to pay monthly advance payments of CIT will
increase to UAH 20 million of the annual income (as against current UAH 10
million). A twelve-month period for the calculation of monthly advance payments
will be determined from June of the current tax year through May of the next tax
year (as against the present March-February period).
