29 April 2011 Newsletter Tax and Legal News Contacts +380 (44) 490 3000 Email: kyiv@ua.ey.com Content Law of Ukraine On Amending the Tax Code of Ukraine No. 3221- VI of 7 April 2011 comes into force Draft Law On Amending the Tax Code and Some Legislative Acts of Ukraine (on improvement of some provisions of the Tax Code of Ukraine) No. 8217 is adopted in the first reading Draft Law On Amending the Tax Code of Ukraine and Approval of Rates of Export Duty for Certain Types of Grain Crops No. 8321 is adopted in the first reading STAU clarifies issues related to registration of a newly established entity as a VAT payer STAU specifies the procedure of VAT credit recognition for VAT invoices issued before 1 January 2011 STAU clarifies the procedure of taxation of transactions under commission, agency and trust agreements Electronic service for taxpayers legal entities is launched New forms of VAT, CPT and other tax returns are approved STAU publishes a list of companies that are eligible for VAT refund State Commission for Regulating the Financial Services Market of Ukraine approves the Methodology for forming and writing off bad debt allowance by non-bank financial institutions
Law of Ukraine On Amending the Tax Code of Ukraine No. 3221-VI of 7 April 2011 comes into force On 20 April 2011 the Law of Ukraine No. 3221-VI of 7 April 2011 On Amending the Tax Code of Ukraine took force. Law No. 3221-VI amends paragraph 176.2 of the Tax Code of Ukraine. Before the amendments were made, paragraph 176.2 established tax agents obligation to submit a quarterly tax calculation of (a) income accrued (paid) for the benefit of taxpayers and (b) the amount of PIT withheld, with no regard to whether this income is paid to taxpayers during the reporting period. According to the new wording of paragraph 176.2 of the Tax Code of Ukraine, this calculation is submitted only if income is accrued by the tax agent for the benefit of the taxpayer. Also, until 31 July 2011 the Law No. 3221-VI reduces excise duty rates for certain types of gasolines, light distillates and heavy distillates (gasoil) containing sulphur. Draft Law On Amending the Tax Code and Some Legislative Acts of Ukraine (on improvement of some provisions of the Tax Code of Ukraine) No. 8217 is adopted in the first reading On 19 April 2011 the Parliament of Ukraine adopted the Draft Law On Amending the Tax Code and Some Legislative Acts of Ukraine (on improvement of some provisions of the Tax Code of Ukraine) No. 8217 of 12 March 2011 in the first reading. The draft law provides for a number of amendments to the Tax Code, in particular: Amendments to the definition of emission income. According to the Tax Code of Ukraine emission income is the amount by which the inflows obtained by an emitter from emission of its own corporate rights and investment certificates exceed their nominal cost. The draft law states that emission income is the amount by which inflows obtained by an emitter from their sale exceed their cost; It broadens the definition of engineering, a category which now also includes services pertaining to compiling technical conditions, output data, proposals and calculations during the preliminary stages of projects, conclusions, agreements and expertises, development of state standards, norms and rules, technical and economic evaluations, tenders and auctions; It adds a calendar half-year to tax periods; It adds a provision on tax pledge, according to which if the balance value of property that may be subject to tax pledge is less than the amount of a taxpayer s tax debt, the right of tax pledge extends to that property; It adds a passage to the paragraph 164.6 of the Tax Code of Ukraine, according to which during the accrual of income in the form of compensation under civil agreements on works performance (services provision) the tax base is determined as the accrued amount of such compensation reduced for the amount of the single state social security contribution; It adds a paragraph 6 to Subsection 1 of Transition Provisions, according to which a taxpayer s income accrued according to results of tax periods till 1 January 2011 is subject to taxation at rates and according to provisions effective before 1 January 2011 with no regard to the date of their actual payment (provision); It adds a paragraph to Transition Provisions, according to which penalties accrued as the result of controlling authorities reviews are applied in amounts provided by the legislation effective as of the date of adoption of a decision about the penalties (taking into account the provision about penalties in the amount not more than UAH 1 for the period from 1 January till 30 June 2011) The draft law also provides for a range of other amendments to the Tax Code of Ukraine regarding payment of the Corporate Profit Tax, VAT and Personal Income Tax. It also proposes amendments to the Laws of Ukraine On Collection and Accounting the Single State Social Security Contribution, On State Mandatory Pension Insurance and others. Should the draft law be adopted as a whole, the majority of amendments provided by the draft law will take force the day it is published.
Draft Law On Amending the Tax Code of Ukraine and Approval of Rates of Export Duty for Certain Types of Grain Crops No. 8321 is adopted in the first reading On 21 April 2011 the Parliament of Ukraine adopted the Draft Law On Amending the Tax Code of Ukraine and Approval of Rates of Export Duty for Certain Types of Grain Crops No. 8321 of 31 March 2011 in the first reading. The draft law introduces the following amendments to the legislation: Exclusion of the following transactions from the list of non-vat-able transactions: consulting, engineering, legal (including advocatory), accounting, audit, actuarial and other similar services of a consulting nature, as well as services pertaining to development, supply and testing of software, data processing and consulting on informatization issues, provision of information and other services in the informatization sphere, including services rendered using computer systems; It cancels VAT exemption for services to foreign and domestic vessels engaged in international transportation of passengers, their luggage and cargo that are subject to port charges under the Ukrainian legislation; It includes owners of special licenses for subsoil usage to rent fee payers in case they conclude agreements on works (services) related to subsoil usage, including but not limited to transactions with tolling raw materials; It increases rental rates for oil and gas condensate; It increases the rates for subsoil use for extraction of certain mineral resources (in particular oil, condensate, metallic ore, etc.); It approves export duty rates for certain types of grain crops (wheat, barley, corn); these rates will be effective until 1 January 2012. Should the Draft Law be adopted it will take force the first day of the month following the month when it is published. STAU clarifies issues related to registration of a newly established entity as a VAT payer In its Letter No. 7026/6/16-1415 of 12 April 2011 the STAU clarified the peculiarities of a newly established entity s registration as a VAT payer. The STAU noted that an entity may be registered as a VAT payer both by obligatory order and by its own voluntarily decision. In particular, Articles 181 and 182 of Section V of the Tax Code of Ukraine establish the conditions under which entities may or must be registered as VAT payers. Thus, referring to the paragraph 182.1 of the Tax Code of Ukraine, the STAU notes that voluntary registration of a VAT payer is allowed, if its goods/services supply does not exceed UAH 300 thousand, under the condition that this entity has been registered as a business entity for not less than 12 calendar months and its amount of goods/services supply to other taxpayers during the last 12 months is not less than 50 percent of the total amount of supply. In its Letter the STAU clarifies that a newly established entity which has been registered as a business entity for less than 12 calendar months is not deprived of the right to register as a VAT payer if its VAT-able transactions exceed UAH 300 thousand. STAU specifies the procedure of VAT credit recognition for VAT invoices issued before 1 January 2011 In Letter No. 4905/7/16-1517-10 of 21 January 2011 the STAU has clarified the procedure for VAT credit recognition for VAT invoices issued before 1 January 2011. The STAU noted that VAT invoices that a seller sends to a buyer by post must have a registered acknowledgement of receipt. The STAU concluded that a documentary confirmation of the legitimacy of VAT credit recognition for VAT invoices issued in any previous reporting period is a document that confirms the date of receipt of a VAT invoice from a seller. This means a registered letter with acknowledgement of receipt and a calendar postage stamp on it, and a VAT invoice bearing a
registration stamp of incoming correspondence (provided all other requirements for VAT credit recognition are met). Therefore, as the STAU notes, when a taxpayerseller receives VAT invoices issued in different tax periods but obtained in the current reporting period, it is entitled to recognize VAT credit only if it has documentary proof of the delay. STAU clarifies the procedure of taxation of transactions under commission, agency and trust agreements On 25 March 2011 the STAU published Letter No. 8342/7/16-1517, clarifying the procedure of taxation of transactions under commission, agency and trust agreements. According to this document, the tax base for goods/services which are supplied/received under commission (consignment), agency or trust agreements is the supply cost of the goods determined by the contract price, but it is not lower than the arm s length price. The date of increase of VAT liabilities and VAT credit of taxpayers that supply/receive goods/services within the framework of such agreements and other civil agreements (without property rights to such goods/services) should be determined according to generally accepted rules. The STAU has also clarified the procedure for adjusting VAT liabilities under commission agreements: If a commission agent makes a deal on more favorable terms than those defined by the consignor, the additional benefit belongs to the consignor. Therefore, upon sale of goods to the buyer for a price higher than the one defined by the consignor, the commission agent must send a report to the consignor and pass him/her everything received under the commission agreement; At the date of goods supply to the commission agent, the consignor has to assess its VAT liabilities, issue a VAT invoice and provide it to the commission agent. Based on the received VAT invoice, the commission agent is entitled to claim VAT credit; At the date of receipt of the report from the commission agent (in which it states the price at which the goods were sold, which exceeds the price of the consignor), the consignor increases its VAT liabilities and sends the commission agent an adjustment to the VAT invoice issued earlier. The commission agent in its turn increases its VAT credit on the basis of the adjustment received. The STAU noted that adjustment of VAT liabilities and VAT credit when performing transactions under agency and trust agreements should be done in the same way. The STAU also noted that transactions under commission, agency or trust agreements, if the first event took place before 1 January 2011, should be governed by the provisions of the Law of Ukraine On VAT. If the transactions are commenced in 2011 (even if the agreements were concluded before 2011), VAT liabilities and VAT credit must be determined according to provisions of the Tax Code of Ukraine. Electronic service for taxpayers legal entities is launched By Order 85 of 11 February 2011 On the launch of electronic service for taxpayers-legal entities, the STAU launched an electronic service for tax agents-legal entities with whom agreements on recognition of electronic documents have been concluded, as an additional service to the agreement on electronic documents recognition. With the help of this service, taxpayers can stay informed about the results of electronic processing (reconciliation) of tax reporting and about the processing of data from the Unified Register of VAT invoices and Registers of VAT invoices issued and received. New forms of VAT, CPT and other tax returns are approved The STAU has approved new forms for the following tax returns: VAT return (Order of STAU 41 of 25 January 2011); CPT return (Order of STAU 114 of 28 February 2011); CPT return for banks
(Order of STAU 98 of 21 February 2011); Tax return for the results of joint activities on the territory of Ukraine without establishment of a legal entity and the Procedure for accounting the results of joint activities on the territory of Ukraine without establishment of a legal entity (Order of STAU 113 of 28 February 2011); Calculation and Procedure for calculation of tax liabilities of non-residents that carry on their activities on the territory of Ukraine through permanent establishments. (Order of STAU 115 of 28 February 2011). STAU publishes a list of companies that are eligible for VAT refund The STAU has published a list of 24 companies that are eligible for an automatic VAT refund. The list of the companies can be reviewed at the following link: http://www.ukrrudprom.ua/digest/nds_dlya_i zbrannih.html State Commission for Regulating the Financial Services Market of Ukraine approves the Methodology for forming and writing off bad debt allowance by non-bank financial institutions On 1 March 2011 the State Commission for Regulating the Financial Services Market of Ukraine issued Order No. 111, which approved a new Methodology for formation and writing-off of bad debt allowance for compensation of possible losses by non-bank financial institutions under all types of loan transactions (except for off-balancesheet transactions, excluding guarantees), purchased securities (including mortgage certificates with fixed income) and other active transactions according to Ukrainian legislation, including accrued interest and commission under all such transactions. According to the above mentioned Order, Order of the State Commission for Regulating the Financial Services Market of Ukraine 912 of 4 June 2004 is no longer valid. The Methodology covers non-bank financial institutions, except for insurance companies, nonstate pension funds, administrators of non-state pension funds and professional participants in the securities market. The Methodology is valid starting from 1 April 2011.