Gilt in Tax Relations

My sincere thanks go to the Ukrainian Bar Association for the great opportunity to speak at the tax forum.

The topic of my speech was guilt in tax relations.

After the small tax reform of 2020 (Act No. 466), a lot has changed in this area. At the same time, the key change was undoubtedly the division of tax offenses into intentional and other ones, as well as the provision of more significant fines for intentional offenses.

Taxation of Foreign Income of Individuals

It was my pleasure to speak at the meeting of the committee on tax and customs law of the Ukrainian Bar Association on the topic of taxation of foreign income of individuals. 

The most complex and at the same time hottest issue in this context is the issue of taxation of Ukrainian refugees in foreign countries. 

Generally, foreign countries treat Ukrainian refugees as their tax residents. Ukraine is not ready to give up the tax revenues and continues considering such refugees as its own tax residents as well.  

The solution to these intricacies lies in the realm of double tax treaties. At the same time, the least favorable situation seems to exist for the refugee who keeps working remotely in Ukraine under an employment contract.  

There is a risk that, in addition to salary taxes withheld in Ukraine, such a refugee may face in the country of his/her foreign stay foreign income tax and possibly social contributions in respect of his/her Ukrainian salary.

Changes to Procedure for Suspension of Registration of VAT Invoices

I was glad to speak at the meeting of the Committee on Tax and Custom Law of the Ukrainian Bar Association on the topic of the suspension of the registration of VAT invoices.

My speech, in particular, concerned the changes to the procedure for the suspension of the registration of VAT invoices brought by the Resolution of the Cabinet of Ministers of Ukraine No. 1428 dated 23 December 2022. The Resolution entered into force on 11 January 2023. It became a kind of compromise between the interests of business and the government in the light of the unprecedented fiscal pressure caused by the system of the suspension of the registration of VAT invoices in the second half of 2022.

Below is a brief summary of the most important changes introduced by the Resolution:

1) Automatic registration of a VAT invoice in case the tax authorities accept the data table of the VAT taxable person subject to certain conditions (does not apply where the regional commission of the tax authorities has already made a decision to decline the registration of the VAT invoice).

2) Unconditional registration of a VAT invoice. It is possible if there is no decision on the compliance of the VAT taxable person with the criteria of riskiness and the CEO of the taxable person holds a similar position in no more than three VAT taxable persons. For unconditional registration, the amount of supplies in one concerned VAT invoice must not exceed UAH 5,000, and the total monthly amount of supplies must not exceed UAH 500,000.

3) The obligation to indicate in the decision on compliance of the VAT taxable person with the criteria of riskiness the detailed information according to which the compliance of the VAT taxable person with a certain criterion of riskiness is established, including: (i) the type of the transaction (purchase or supply); (ii) period of the transaction; (iii) the code of the product involved; and (iv) information about the counterparty of the VAT taxable person involved in the risky transaction.

4) In the context of the notorious paragraph 8 of the criteria of riskiness, a list of tax information codes was introduced (approved by the order of the State Tax Service of Ukraine dated 11 January 2023 No. 17). The tax information code must be indicated in the decision on compliance of the VAT taxable person with the criteria of riskiness based on the specified paragraph 8. The list of codes practically does not change the situation in favor of VAT taxable persons. It has 18 codes which cover almost all the grounds for the riskiness of the VAT taxable persons that the tax authorities can come up with. In the list, for example, you can find an insufficient number of labor resources, the implementation of the transaction with the counterparty in respect of which a decision has already been made on compliance with the criteria of riskiness, and a number of other common grounds for "riskiness" used by the tax authorities in practice.

Court Jurisprudence on Procedural Aspects of Tax Audits

It was my pleasure to speak at the meeting of the Committee on Tax and Customs Law of the Ukrainian Bar Association on the topic: " Court Jurisprudence on Procedural Aspects of Tax Audits."

A key issue in the relevant field during 2022 was the issue of canceling tax assessment notices issued premised on the results of tax audits carried out on the basis of the Resolution of the Cabinet of Ministers of Ukraine dated 2 February 2021 No. 89 "On shortening the period of validity of the restriction regarding the moratorium on carrying out certain types of audits".

Currently, this Resolution continues to be reversed in accordance with the judgment of the Sixth Administrative Court of Appeal dated 5 July 2022 in case No. 816/228/17 brought by Prommetsplav, LLC. Furthermore, the jurisprudence of the Administrative Cassation Court (cases No. 640/16093/21 and 160/24072/21) shows that the very fact of conducting a tax audit on the basis of the said Resolution of the Cabinet of Ministers of Ukraine is sufficient for treating the relevant tax assessment notices as illegal.

Changes in VAT Regulation During the Period of the Application of Martial Law

I was glad to speak at the meeting of the committee on tax and customs law of the Ukrainian Bar Association on the topic: "Changes in VAT Regulation During the Period of the Application of Martial Law".

Since the beginning of the full-scale invasion of the Russian Federation into Ukraine on 24 February 2022, a large number of amendments have been made to the Tax Code of Ukraine regarding VAT. 

The following three are the most notable among those amendments:

1) Introduction of a temporary reduced VAT rate of 7% for motor fuels; 

2) Governing the issue of the enjoyment of input VAT deduction without a registered VAT invoice for February-May 2022; and

3) Suspension of the operation of the VAT refund procedure for the period until July 2022.