On 25 December 2014 the Parliament of Ukraine passed the Law of Ukraine On Amendments to the Tax Code of Ukraine concerning the Features of Corrections to the Tax Liabilities of Corporate Income Tax and Value Added Tax in the Case of Application of the Tax Compromise(the “Law”). On 16 January 2015, the Law was published in the official parliamentary newspaper upon while it came into force and effective.

The tax compromise mechanism is being applied for the first time in Ukraine. As stated in the explanatory note to the Law, the main aim of this innovation is to exempt taxpayers from financial criminal and administrative liability by allowing them to pay any undeclared value added tax (“VAT”) and corporate income tax (“CIT”) liabilities.

For this purpose, the taxpayer should submit a correction of its tax liabilities (the template of which is to be prepared by the tax authorities) in respect of CIT and/or VAT for any tax periods before 1 April 2014, but within the limitation periods prescribed by the Tax Code of Ukraine (1095 days).

According to the tax compromise, if a taxpayer pays 5% of corrected liabilities, the other 95% of its tax liabilities will be considered settled.

The taxpayers may use the tax compromise procedure within 90 days from the date the Law becomes effective. The tax compromise procedure should be settled within 70 days from the date of submission of the correction.

The tax authority should inform the taxpayer within 10 working days following the submission of the correction whether (i) the tax compromise has been accepted, or (ii) there is a necessity to conduct an unscheduled documentary tax audit concerning the data set out in the correction.

It is important to note that the Law allows taxpayers to invoke the tax compromise procedure during the course of a tax audit, as well as with respect to tax liabilities which are currently under administrative or judicial appeal. In these cases, the taxpayer should submit to the tax authority an indication of its intent to apply for the tax compromise. 

In summary, it appears that the Law is aimed to eliminate the shadow economy and the illegal tax schemes, by providing tax avoiders with an opportunity to become legal taxpayers.

Law: Law of Ukraine On Amendments to the Tax Code of Ukraine concerning the Features of Corrections to the Tax Liabilities of Corporate Income Tax and Value Added Tax in the Case of Application of the Tax Compromise