Webinar on Taxation of Transactions with Non-residents in 2021

I was my pleasure to hold a webinar hosted by Liga-Zakon on the topic of: "Taxation of Transactions with Non-residents in 2021."

The main conclusions drawn from the webinar:

- It is very desirable during 2021 to decide on the retention / liquidation of foreign legal entities that could potentially fall under the Ukrainian CFC rules. The Tax Code of Ukraine exempts the receipts obtained in the aftermath of the liquidation of such legal entities in 2021 from personal income tax.

- When structuring transactions on the sale of Ukrainian legal entities through foreign holding companies (the sale of shares in a foreign company that controls a Ukrainian company), it may now be necessary to pay a withholding tax in Ukraine.

- It should be taken into account that the tax difference of 30% is now applicable not only to buying goods (works, services) from non-residents belonging to the "blacklisted” jurisdictions” or “blacklisted” entity types, but also to selling goods (works, services) to such non-residents.

- The deviation of prices in controlled transactions (transfer pricing) from the “arm’s length” prices now triggers not only additional corporate income tax charges, but also additional withholding tax charges in connection with the qualification of such a deviation as constructive dividends.

 

Court Jurisprudence in Tax Disputes Involving an International Element

I want to thank the Business Consulting Academy for the opportunity to speak at a webinar on the topic of court jurisprudence in tax disputes involving an international element. 

In the context of the webinar, I would like to point out that at the end of 2020, the Supreme Court published its Review of court jurisprudence in the field of transfer pricing and international taxation. The review (in Ukrainian) is available at this link: https://supreme.court.gov.ua/userfiles/media/new_folder_for_uploads/supreme/Ohliad_transfertne_tsinoutvorennia_1.pdf.

Unfortunately, I am supposed to say that the document does not live up to the expectations that arise from reading its name. It cannot be called even a more or less comprehensive review of the court jurisprudence of the resolution of tax disputes in the field of international taxation. 

In general, the review discusses only the topic of transfer pricing, including quoting a number of unnecessary, in my opinion, for such a review, court judgements on certain obvious and non-debatable issues. 

Other issues of international taxation are not covered in the review at all, except for the two judgements concerned with permanent establishments and one judgement concerned with a tax difference arising from purchasing goods from counterparties registered in low-tax jurisdictions. 

CASE LAW IN TAX LITIGATION: GRAND CHAMBER AND MODEL CASES

I was pleased to hold a webinar on the case law of the Supreme Court in tax disputes for the students of the tax course of the Business Consulting Academy. 

This time model (exemplary) cases and cases considered/to be soon considered by the Grand Chamber were dealt with. 

While there are not many  model cases in the field of tax litigation  (one two and that is all), the situation with the cases of the Grand Chamber is much more interesting.

Among the most recent cases of the Grand Chamber, it is worth especially noting the following two:

1) Case No. 804/4602/16 intiated by Salamander Insurance Company, LLC. In this case, the Grand Chamber on 1 July 2020 put an end to disputes related to the failure of banks to execute wire transfer instructions of the taxpayers on transferring taxes to the state revenues. The conclusion of the Grand Chamber is unlikely to please such taxpayers. It ruled that the  taxpayers are exempt from fines and daily default interest, but the tax liability itself must be paid once more by the taxpayers to the state revenues. 

2) Case No. 826/9464/18 initiated Ukrvydavpoligrafiya. The case has not been resolved yet. The consideration at the Grand Chamber is scheduled for 26 August  2020. This is really one of those cases being of a great significance to tax lawyers. The case addresses the issues that are extremely important for tax litigation in general. In particular, the Grand Chamber will opine on: (i) the possibility of challenging the tax audit orders after their execution and (ii) the possibility of invoking procedural violations as legal grounds for the cancellation of tax assessments in the event that the taxpayer allowed the tax authorities to carry out the tax audit.

TAX LITIGATION: MITIGATION OF QUARANTINE

One can say that yesterday (17 July 2020) went down in history as a day of serious mitigation of the quarantine in the area of tax and, in fact, other litigation.

On this day, the Act of 18 June 2020 No. 731-IX came into force. This Act:

- Repeals the provision of the Code of Administrative Procedure of Ukraine and other procedural codes  on the  extension of almost all procedural time-limits for the full  duration of the  quarantine.

- Lays down that the procedural time-limits extended in accordance with the above-mentioned repealed provision for the full duration of the quarantine expire twenty days after the entry into force of the Act, i.e. on 6 August 2020.

- Instead of the automatic extension of procedural time-limits for the time-frame of the quarantine, introduces the possibility of their renewal by the court.  The renewal does not promise to be easy. To renew a procedural time-limit, it is necessary to satisfy the court that the time-limit has not been obeyed due to the very effect of the  measures introduced in connection with the quarantine.

There turn out to be some curiosities. The Act provides for an absolutely illogical rule that the court may extend the procedural time-limits within 20 days after the entry into force of the Act on the grounds specified by the Act.

What was meant by this is not clear at all. 

First, as noted above, over these 20 days, the procedural time-limits are considered to be automatically extended by virtue of the direct provision of the Act.

Second, the Act sets forth only the grounds for renewal, not the extension of procedural time-limits.

Please note that the resumption  of the application of  procedural time-limits only relates to court tax disputes. In the field of administrative appeals, everything remains unchanged.

Paragraph 52-8 of subsection 10 of the Transitional Provisions of the Tax Code of Ukraine continues to apply. According to this paragraph, the time-limits for administrative appeals are considered to be suspended until the last calendar day of the month in which the quarantine expires.

BILL No 1210: PERSONAL INCOME TAX (INTERNAL TAXATION)

This is to continue the series of publications on tax changes provided by the Bill № 1210.

This time here is the publication № 2 on changes in the field of personal income tax (limited to internal taxation only):

- The extension of the preferential taxation of real estate items to items of unfinished construction (paragraph 172.1 of the Tax Code of Ukraine);

- The application of the 18% rate to the sale of third and subsequent vehicles by the taxpayer within the same year (paragraph 173.2 of the Tax Code of Ukraine);

- On releasing a mortgage debt, the only mortgage principal will fall under taxation (paragraph 164.2.17 of the Tax Code of Ukraine);

- Fourfold increase in fines for failure to submit or submitting an improperly filled form № 1 DF (Article 119 of the Tax Code of Ukraine);

- The introduction of depreciation of trucks (impossibility of depreciation of cars still remains in place) for individual entrepreneurs liable to the general system of taxation; the only costs of repair but not those of overhaul as before can be directly (without depreciation) attributed to the costs of the taxable period (paragraph 177.4.6 of the Tax Code of Ukraine);

- The elimination of the need to file a tax return in cases of sale / gift / exchange of property that has not triggered any tax liabilities to be remitted to the state revenues (paragraph 179.2 of the Tax Code of Ukraine).