Improvement of the e-management system for value added tax

The Law of Ukraine “On Amending the Tax Code of Ukraine on improving the management of value added tax” No. 643 was adopted by the Verkhovna Rada of Ukraine on 16 July 2015. The law in its main part came into force as of 29 July 2015.

Specifically, the following amendments in the area of e-management of value added tax are introduced:

  • The list of necessary requisites for the tax invoice have been simplified (the type of civil agreement and the address of the seller are now excluded from the list of requisites). Taxpayers are allowed to reflect VAT credit on the basis of the VAT invoice registered in the Unified Registry of Tax Invoices within 365 days of the date the VAT invoice was issued.
  • Penalties for violating the terms of registration for tax invoices/bills/corrections made before 1 October 2015 in the Unified Register of Tax Invoices will not apply.
  • For VAT invoices made from 1 July to 30 September 2015, the registration deadline—15 calendar days from the day the VAT invoice was drawn—is not applied, but certain registration periods are set depending on the terms for drafting the VAT invoices.
  • The Law of Ukraine "On enforcement proceedings" does not have effect on the accounts in the system of e-management of value added tax, as the assets on such accounts cannot be 1) seized or 2) levied.

Changes to transfer pricing rules

The law of Ukraine “On Amendments to the Tax Code of Ukraine on transfer pricing” No. 609 was adopted by the Verkhovna Rada of Ukraine on 15 July 2015. The law came into force as of 13 August 2015.

The Law substantially amends the Tax Code with respect to transfer pricing rules:

  • The criteria of the controlled operations were changed: (1) the threshold of operations with one counterparty was increased from 1 million (or 3% of income) to 5 million (not including indirect taxes); (2) the turnover of the taxpayer was increased from 20 million to 50 million (not including indirect taxes) for the respective fiscal (reporting) year; (3) the procedure of calculating the abovementioned thresholds was changed, according to new rules such amounts are calculated according to the accounting rules.
  • The transfer pricing rules do not apply for VAT purposes.
  • The fine for not submitting the report with respect to controlled operations was increased – from 100 minimum salaries to 300 minimum salaries, which is equal to UAH 365,400 currently.
  • The fine for not declaring controlled operations was decreased from 5% of the amount of the controlled operation to 1% of the amount of the controlled operation but not to exceed 300 minimum salaries.
  • It is defined that the payment of financial sanctions (fines) does not release the taxpayer from the obligation to submit a report on controlled operations and/or documentation on transfer pricing.
  • The term for submitting additional information and/or substantiating the compliance of the controlled operation with the “arm’s length” principle upon request of the tax authorities was prolonged from 10 calendar days to 30 calendar days.

Concerning reducing the tax burden on taxpayers

The Law of Ukraine “On Amendments to the Tax Code of Ukraine on reducing the tax burden on taxpayers” No. 655 was adopted by the Verkhovna Rada of Ukraine on 17 July 2015. The law comes into force on 1 September 2015.

In particular, we note the most significant changes:

  • The obligation is introduced for non-residents—who have property rights to real estate or land in Ukraine, imposed by taxes, if the means and objectives of the property do not require the formation of such a company (organization) or separate unit or permanent representative office of non-resident in Ukraine—to register with Ukrainian tax authorities in accordance with their location.
  • Temporarily, until 31 December 2016, taxpayers with income or volume of transactions up to 20 million UAH, accrued on the amount of tax liability that the taxpayer paid without appealing the tax notification-decision, are released within 10 days from the date of paying the tax obligations.
  • Taxpayers are released from late interest payment for self-calculating the amount of a monetary obligation within 90 days following the last day of the deadline for payment of the liability. The tax authorities are prohibited from using the tax audit acts as grounds for conclusions about the relationship between a taxpayer and its contractors, if as a result the tax notification-decision was not issued to the taxpayer or such tax notification-decision is considered to be withdrawn. The Ministry of Finance is now in charge of providing integrated tax rulings with its mandatory publication on the official website of the authorities.

Convention for the Avoidance of Double Taxation with the Government of Ireland

The Law of Ukraine “On ratification of the Convention between the Government of Ukraine and the Government of Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains and the Protocol to the Convention” No. 606 was adopted by the Verkhovna Rada of Ukraine. The law came into force as of 17 August 2015.

Significantly, as provided for by the Law, the said Convention and the Protocol shall come into force from the date of the last written notice by the Contracting States of the completion of all internal procedures necessary for its entry into force.

In accordance with the Convention, the following tax rates are established:

  • Dividends – 5%, if the beneficial owner is a company (other than a partnership) which holds directly at least 25 percent of the capital of the company; 15% - in all other cases.
  • Interests – 5%, if interest paid in connection with the sale on credit of industrial, commercial or scientific equipment or any loan granted by a bank. 10 % - in all other cases.
  • Royalties – 5% in case of payment in respect of any copyright of scientific work, any patent, trade mark, secret formula, process or information concerning industrial, commercial or scientific experience; 10% - in all other cases.

Changes to the procedure of taxation of non-profit organizations

The Law of Ukraine “On changes to the Tax Code of Ukraine with respect to taxation of non-profit organizations” No. 652 was adopted by the Verkhovna Rada of Ukraine. The law came into force as of 13 August 2015.

The law, in particular, allows companies with tax losses not to pay advance payments with respect to corporate profit tax, under the condition that such companies have filed the tax return for the respective period of the reporting (tax) year in which the taxpayer did not receive any profit or has experienced tax losses.

The law also defines straightforward criteria for non-profit organizations and the mechanism for non-profit organizations to have a full release from taxes if their income is utilized for the purposes as defined in founding documents.