Taxes
VAT
The State Tax Service of Ukraine in the individual tax consultation “On taxation of income tax and VAT transactions for free distribution of samples of goods for advertising purposes” No. 1873/6/99-00-07-02-02-15/ІПК of December 12, 2019 reported that in case the taxpayer conducts promotional activities by presenting samples of goods free of charge to non-tax payers (other than individuals) and taxpayers who are taxed at the rate of 0%, such payer of income tax when determining the object tax increase profit or loss before tax in the amount of goods in the manner prescribed by subitem 140.5.10 of the Tax Code of Ukraine (hereinafter – TCU).
If the value of the goods transferred freely (purchased (imported) for marketing/promotional activities (including free distribution) directly by the payer or through other persons is included in the value of taxable transactions, in particular in the value of sales of goods subject to tax and income generation (that justifies for example, costing of goods, or other, defined by the taxpayer's accounting policy, a document that establishes the selling price of the purchased, imported goods and includes in such prices the value of goods sold/promoted for free) are considered to be used in taxable transactions within the business activities of such a taxpayer, and therefore free distribution of these goods is not considered as a separate transaction for the supply and no additional VAT taxation is required.
When the free distribution of purchased (imported) goods within the framework of promotions is carried out not directly by the taxpayer, but on his/her behalf by third parties, then the services of such third parties for the distribution of those goods are subject to VAT and taxation in the general way. In this case, the basis of taxation will be the cost of the distribution service, not the cost of the goods to be distributed.
Corporate Income Tax
The Ministry of Finance of Ukraine approved the amendments to the form of the corporate income tax return, approved by the order of the Ministry of Finance of Ukraine No. 897 of October 20, 2015.
These changes include, in particular:
- supplements to the income tax return with a new addition to the income tax “Information on tax benefits amounts1”, which will be submitted by taxpayers who do not pay tax in connection with the receipt of tax benefits, in accordance with resolution of the Cabinet of Ministers No. 1233 of December 27, 2010;
- supplements to the income tax return with the new lines to reflect tax liabilities, other penalties and charges, determined in accordance with the Tax Code of Ukraine (hereinafter – TCU), unrelated to the correction of errors (lines 35–37). The value of the new line 35 should be taken into account in the calculation of the indicator of line 26. Also similar is line 35 “The amount of increase of tax liability for violation of the requirements of purposeful use of tax exempted assets in accordance with items 142.1–142.3 of article 142 of section III, item 41 of subdivision 4 of chapter XX of the Tax Code of Ukraine” will appear in Table 1 of Annex VI of the correction of errors and will be taken into account in other indicators of this Annex;
- supplements to the table on the availability of annexes with a column to mark the presence of a new addition to the income tax, as well as division of the column “ФЗ12” into two columns for the marking of financial reporting under NAS or IFRS;
- definition in Note 1 to Annex to TI that in the lines “Full name of non-resident1” and “Location of non-resident1” of this annex indicates the full name of non-resident, location of non-resident specified in the contract/agreement;
- exclusion from table 1 of Annex to TI of line 12 “Contributions and premiums for insurance or reinsurance of risks in Ukraine or insurance of residents from risks outside Ukraine”;
- supplements to the correction of errors annex with the third table on the presence of the annexes attached to the declaration – financial reporting forms for the reporting (tax) period to be specified;
- presentation in the revised version of the names of differences in lines 3.1.6, 3.1.6.1, 3.1.6.2 and 3.1.7 of the differences annex to the declaration, as well as supplement to this annex in the section “Other differences” with the new line 4.1.4.1 to reflect the positive difference between the sum of any payments (remuneration) to insurance intermediaries and other persons and the amount of the standard of such expenses stipulated by subitem 141.1.3 of the TCU.
These changes were approved by Order of the Ministry of Finance No. 481 dated November 14, 2019. This order enters into force from the date of its official publication, except for the amendments to the differences annex and the new annex to the income tax, which come into force on January 1, 2020.
According to item 46.6 of the TCU, new forms of declarations (settlements) are applied from the period following the publication.
So, if these changes are made public this month (December 2019), it is necessary to report for the first time on the updated income tax return for the periods from January 1, 2020 according to the TCU.
However, as practice shows, tax officials often ignore this rule. Therefore, it is likely that tax authorities will insist on reporting on an updated return form for the current reporting periods.
Unified Social Contribution
The Cabinet of Ministers of Ukraine at its meeting approved the changes to the budget of the Social Insurance Fund of Ukraine (hereinafter – the Fund) for 2019. This is the second adjustment to the annual budget indicators, the original version of which was adopted on January 16, 2019.
UAH 1,017 billion was allocated for financial support (financing of hospitals, maternity benefits and burial allowances) and the total amount of expenditures is UAH 15,361 billion.
The changes are related to the actual over-execution of the Fund's budget revenue in particular at through the payment, that exceeds the projected one, of the unified social contribution (hereinafter – USC) by insurers (employers) and the redistribution of funds. The Fund's total revenues, taking into account the balance of funds at the beginning of the year, amounted to UAH 25.665 billion, which is more by UAH 996 million.
9.37% of USC is credited to the Fund on a daily basis as payment by the insurers of a single contribution. All available resources are channeled by the Fund to finance insurance payments and financial support as soon as they are received.
Simplified Tax System
The State Tax Service of Ukraine in individual tax consultation “Should an entrepreneur who sells cocktails (“hot wine”, mulled wine) made using exclusively table wines, acquire a license for the retail trade of alcoholic beverages?” No. 1684/6/99-00-04-01-02-15/ІПК of December 4, 2019 reported the following.
In case of beer retailing, the sole entrepreneur (hereinafter – SE) is still entitled to a single tax. But if mulled wine or hot wine is poured along with beer, the situation will be somewhat complicated.
Wines are related to alcoholic beverages. Accordingly, alcoholic beverages are products obtained by alcoholic fermentation of sugar-containing materials or made from potable alcohols with an ethyl alcohol content exceeding 0,5% by volume in the headings 2203, 2204, 2205, 2206 (except for kvass of “live” fermentation), 2208 according to UKT ZED, and also with ethyl alcohol content of 8.5% by volume units and more specified in heading 2103 90 30 00, 2106 90 according to UKT ZED.
In addition, experts from the State Tax Service (hereinafter – STS) noted that table wine is a wine made by full or incomplete fermentation of the wort. Depending on the sugar content, table wine is divided into dry, semi-dry and semi-sweet.
According to DSTU 4806-2007 “Wines. General specifications” use of, sugar, water, flavors and colorants is prohibited in the production of grape wine.
Therefore, cocktails (“hot wine”, mulled wine) made using exclusively table wines are not table wines. That is, according to the STS, the SEs sell cocktails.
Since cocktails (hot wine, mulled wine) are not table wines, the SE, which plans to manufacture and market alcoholic beverages, must carry out such activities subject to a license for retail of alcoholic beverage.
In view of these arguments, the SE should move from a simplified to a general system of taxation based on subparagraph 3 of subitem 291.5.1 of the TCU.
Control and Responsibility
The State Tax Service of Ukraine through the Office of Large Taxpayers has informed that from December 18, 2019, the Law of Ukraine “On amendments to certain legislative acts of Ukraine concerning improvement of the procedure of licensing business activities” No. 139-IX of October 2, 2019 will be effective.
This document changes the procedure and grounds for administrative liability for violations related to business activities without licenses, financial services, alcohol and tobacco trade, with or without counterfeit of excise stamps.
Thus, since December 18 the trade (wholesale, retail, export, import) of ethyl alcohol, cognac, fruit and retail alcoholic beverages or tobacco without a license will be subject to the provisions of part 1 of Art. 164 (imposing a fine from 1 000 to 2 000 tax-exempt minimum incomes (from 17 000 to 34 000 UAH) with confiscation of manufactured products, tools of production, raw materials and money obtained as a result of committing this administrative offense, or without such) instead of Art. 156 of the Code of Administrative Offenses (hereinafter – CAO) will be applied.
In addition, the court may not apply the confiscation of goods and proceeds from their sale (currently under Article 156 of the Code of Administrative Offenses, such confiscation is mandatory).
Currently in accordance with Part 1 of Art. 164 of the CAO the offenders are held liable for conducting business activities:
- without the license or other permits;
- in violation of license conditions.
Starting December 18, according to Part 1 of Art. 164 CAO (as revised) there will be no charges for activities in breach of license terms. However, the activity during the period of termination of the license will be considered a violation, unless the law provides the conditions of operation of the entity during that period.
Supplements to Art. 164 are also related to violations by the licensee of the statutory period of notification of the licensing authority on changes to the information specified in the application and documents, which were added to the license application, entailing a fine of between 250 and 500 tax-exempt minimum incomes (hereinafter – TEMI) 4 250 to 8 500 UAH).
In addition, if the licensee fails to comply with the order to eliminate the violation of the license conditions, the fine will be from 500 to 1 500 TEMI (from 8 500 to 25 500 UAH).
The courts will still hold subjects liable for violations of licensing issues under Art. 164 of the CAO based on the records of authorized persons of licensing bodies.
On December 18, according to Art. 1668 of the CAO penalties will be imposed not only for breach of the procedure for financial services provision without obtaining financial institution status or without a license, but also for breach of procedure for financial services provision by legal entities entitled to provide individual financial services without the status of financial institutions.
Labor and Salaries
At the end of the year, the State Labor Service of Ukraine clarified whether it was obligatory to approve the staffing list and how the position titles should be recorded.
According to Part 3 of Art. 64 of the Commercial Code of Ukraine the enterprise, i.e. the employer, has the right to independently determine the organizational structure, as well as to determine the number of employees and staffing list.
According to item 1 of Part 1 of Art. 40 of the Labor Code of Ukraine, an employment contract concluded for an indefinite period, as well as a fixed-term employment contract before the expiration of its term may be terminated by the owner or authorized body in case of changes in the organization of production and labor, including liquidation, reorganization, bankruptcy or redevelopment of an enterprise, institution, organization, redundancy or staff.
To date, no normative document has approved the standard form of staffing list, except for enterprises, institutions and organizations with budget financing, which prepare it in accordance with the standard form approved by order of the Ministry of Finance No. 57 of January 28, 2002.
The letter of the Ministry of Labor and Social Policy of Ukraine No. 162/06/187-07 of June 27, 2007 states that the staffing list at the enterprise is a document establishing for this enterprise (institutions, organizations) the structure, staffing and salaries of employees. The staffing list contains position titles, staff numbers and salaries for each position.
Given the need to regulate and enforce workers' rights to work, the protection against unlawful dismissal and remuneration is mandatory. The absence of the latter should be considered as a violation of the requirements of the labor legislation, for which the employer may bear administrative responsibility in accordance with Part 1 of Art. 41 of the Code of Ukraine on Administrative Offenses.
The records on the job title, occupation or position for which the employee is accepted shall be made in accordance with the names of professions and positions specified in the Classifier of Occupations DK 003: 2010, approved by the State Consumer Standards Order No. 327 of July 28, 2010, and in accordance with paragraph 2.14 of the Instruction on the procedure for keeping the employment records of employees, approved by joint order of the Ministry of Labor of Ukraine, the Ministry of Justice of Ukraine and the Ministry of Social Protection of the Population of Ukraine No. 58 of July 29, 1993 (hereinafter – Instruction No. 58). Therefore, business executives, when drafting personnel records (work books, orders, staffing lists, etc.), must record job titles according to the Classifier of Professions.
In accordance with the rules of Appendix 1 to Annex C to the Classifier of Occupations, derivative words may be applied to professional job titles, provided that they maintain sectoral and functional affiliation, qualification requirements, avoid duplication, and retain the code of the newly created profession.
In accordance with the rules of Annex 2, Appendix C to the Classifier of Occupations, professional job titles may be extended by user terms and words specifying the place of work, work performed, the field of activity, provided that the concise reporting, unless otherwise provided for in the Classifier of Occupations or relevant legal acts.
As the Classifier of Occupations is not a normative act, but only a statistical and recommendation document, the State Labor Committee recommends to issue the orders that comply with the professional titles of works, approved by the staff list of the enterprise, with the professional title of the works indicated in the Classifier. The staffing list should also be amended accordingly if the title of a particular position has been correctly spelled out, but subsequently has been changed as a result of the introduction of changes and additions to the Classifier of Occupations.
The General Provisions of the Handbook of Qualification Characteristics of the Occupations of Workers, contained in Issue 1 “Occupations of workers common to all business activities”, approved by Decree No. 336 of the Ministry of Labor and Social Policy of December 29, 2004, provides that a specific list of workers (position) responsibilities are determined by the work (position) instructions of employees of all categories, which are developed and approved by the employer on the basis of a typical qualification characteristic, taking into account specific tasks and duties, functions, rights and responsibility of these groups and features of a staffing list of company, institution or organization.
If necessary, the tasks and responsibilities included in the typical qualification characteristic of a particular profession (position) may be shared between individual contractors, or the range of tasks and responsibilities of individual employees may be expanded with the tasks assigned to them by different groups of professions (positions) equal in complexity, the performance of which does not require another specialty, qualifications.
In the absence of a job title in the Occupational Classifier, which fully corresponds to the duties assigned to the employee, the closest to the content title is chosen, and the job description contains all the features of position duties.
Summary of Court Rulings
The panel of judges of the Court of Cassation as a part of the Supreme Court of Ukraine heard case No. 160/3114/19 and canceled the claim for a hired lawyer to pay a single social security tax debt (hereinafter – USST).
The lower courts ruled that persons conducting an independent professional activity and at the same time being employees are not exempted from paying USST if they are registered as persons conducting an independent professional activity.
The Supreme Court disagreed with this and made the following legal conclusion: “A person pursuing an independent professional activity, in particular a lawyer, is considered to be self-employed and is obliged to pay a single contribution to compulsory state social insurance not less than the amount of the minimum social security contribution regardless of the actual income provided that such person is not a hired worker. If the lawyer is a hired employee, he or she is insured and the employer pays the single contribution. That is, the purpose of collecting a single contribution to compulsory state social insurance is achieved as the employer pays it”.
The ruling of CAT of the SCU of November 27, 2019 states that “Another interpretation of the provisions of Law No. 2464-VI, on which the SFS insists on the need to pay a single contribution by persons who are registered with the SFS bodies and have a certificate that allows to practice law, and who are simultaneously are employed within the scope of this activity causes double payment (directly by the person and the employer), which contradicts the purpose of the unified insurance contribution introduced by the state” – stated in.
