On 8 December 2016 the Ukrainian Parliament adopted in its first reading the Draft Law No. 5368 “On Amendments to the Tax Code of Ukraine (regarding improving the investment climate in Ukraine)” (hereinafter the “Tax Reform Law”).
The Tax Reform Law will introduce among other things changes to VAT administration, tax administration, transfer-pricing rules and will also set a timeline for new tax reforms.
Administration of taxes
The Tax Reform Law provides for transfer by management of all tax databases from the State Fiscal Service to the Ministry of Finance. This transfer should be completed by 1 March 2017 and is intended to improve the Ministry of Finance's control functions over the State Fiscal Service.
The Tax Reform Law introduces into tax legislation a definition of, and functions for, the “taxpayer’s electronic office” as a way of improving e-governance. The functions of the electronic office are currently rather limited, but the changes to be introduced mean taxpayers will be able to obtain more services via the internet, such as correspondences with the tax office, receipt of reconciliation statements, etc.
Furthermore, the State Fiscal Service will maintain on its web site a uniform database of all individual tax rulings provided to taxpayers. This uniform database can then be used to prevent the use of individual tax rulings to optimise tax.
Transfer pricing rules
The Tax Reform Law increases the threshold criteria for transfer pricing reporting. It now applies when:
- the annual income of a Ukrainian taxpayer from any activity exceeds UAH 150 million (currently UAH 50 million); and
- the volume of the transactions with each qualifying counterparty exceeds UAH 10 million (currently UAH 5 million).
Increasing the threshold criteria will reduce the exposure of Ukrainian taxpayers to transfer pricing requirements and also reduce the need to draft transfer pricing documentation.
Furthermore, the Tax Reform Law will improve the criteria for how the controlled transactions are assessed for transfer pricing purposes, and will introduce new penalties for (i) the late filing of transfer pricing reports (to the amount of 1 statutory minimum salary per each calendar day of delay, capped at 300 statutory minimum salaries), and (ii) delays in providing transfer pricing documentation upon the tax authorities' request (to the amount of 2 statutory minimum salaries per each day of delay, capped at 200 statutory minimum salaries).
The Tax Reform Law will provide greater transparency for VAT refunds by merging the two separate registers currently in use for VAT refund into one single register. This united VAT refund register will allow the State Treasury to automate the VAT refund process.
The Parliament has also introduced a procedure for suspending/refusing the registration of VAT invoices in the Register of VAT invoices. The Tax Reform Law provides for a testing period for the suspension/refusal of VAT invoice registration, from 1 April 2017 until 1 July 2017. The automated risk-control system will suspend registration of VAT invoices after 1 July, based on certain risk criteria. The risk criteria are yet to be determined by the Ministry of Finance of Ukraine. After VAT invoice registration has been suspended, the taxpayer will receive a notification about said suspension with a request to provide additional explanations or documents. The list of documents that may be requested in order to confirm a risky transaction will be limited and is to be approved by the Ministry of Finance of Ukraine in 2017.
Reforms Must Go On
The Tax Reform Law sets forth that tax reforms in Ukraine will continue in 2017. The final provisions of the Tax Reform Law instruct the Cabinet of Ministers of Ukraine to develop and register with the Parliament by 1 July 2017 the draft laws on (i) the introduction of a uniform treasury account for the payment of taxes (the type of treasury account used for payment of taxes currently depends on the type of tax paid and where the taxpayer is registered), and (ii) a new tax on profits transferred abroad, which is reportedly to replace the existing Corporate Income Tax.
The Tax Reform Law shall come into effect starting 1 January 2017, following its adoption in its second reading by the Parliament and its promulgation by the President of Ukraine.
Laws: Draft Law No. 5368 “On Amendments to the Tax Code of Ukraine (regarding improving the investment climate in Ukraine)”