Taxes
VAT
The Cabinet of Ministers of Ukraine by Resolution “On approval of procedures for suspension of registration of tax invoice/adjustment calculations in the Unified Register of Tax Invoices” No. 1165 of December 11, 2019 approved new: Procedure for suspension of TI/AC registration in the Unified register of tax invoices and Procedure for consideration of a complaint regarding the decision on refusal of registration of TI/AC in URTI, as well as a number of annexes thereto concerning the mechanism of blocking TI/AC (Risk criteria: payers and transactions, List of indicators of positive payer history, VAT payer table, etc.).
All this will take effect from February 1, 2020. From the same date, the resolution of the Cabinet of Ministers No. 117 of February 21, 2018 and the old blocking rules shall cease to be valid. However, the Decision-making procedure on registration refusal of registration of TI/AC in URTI (approved by the order of the Ministry of Finance No. 520 of December 12, 2019) will continue to be effective after the CMU Resolution No. 1165 comes into force.
In general, these new “blocking” Procedures and documents are not too different from the old ones, but some points need to be taken into consideration.
1. Signs that screen TI/AC before monitoring:
- a sign of “tax burden” the amount of VAT paid in the last 12 months increased from 400 thousand to 1 million UAH;
- another anti-blocking feature was added – the product/service with TI/AC was specified in the Payer Table. The Table should now be taken into account by fiscal authorities before the monitoring of TI/AC.
2. The criteria for payer riskiness are almost the same and, unfortunately, the criterion of “availability of information” from taxpayers regarding the “riskiness of the transaction” has not disappeared. For “risky” payers the possibility is documented to refute their riskiness and the regional l commission (this is its competence) must respond within 7 days to such documents. In case of delayed decision, the risk should be automatically removed from the payer.
3. The indicators of “positive history” of the payer (they allow to avoid the criteria of risky transactions) were significantly narrowed:
- the volume of deliveries to one buyer is reduced from 150 to 50 thousand UAH, but at the same time the volume of deliveries per month should not exceed 500 thousand UAH, and the manager should not hold more than three positions;
- two delivery volumes were canceled and the delivery rate of one product/service code was changed from 20 to 100%;
- the residual value of fixed assets will now have to exceed UAH 5 million (now – UAH 1 million);
- payment of a single social contribution per worker – exceeding the SSC of the minimum wage by more than 2 times (now – 1.5) and the number should be at least 5 people (new);
- the total amount of taxes last year should exceed UAH 10 million (now – UAH 5 million).
4. Worsened the risk criterion for transactions related to the proportion of “suspicious” goods in the Fiscal List (this List must be approved by a separate STS order and published on its website). Now the list items in the total difference between purchases and sales of goods should be more than 50% (now – more than 75%).
5. All decisions on registration/refusal of registration of TI/AC will be made by regional commissions, the Central Commission will only consider complaints against the decision of regional commissions on refusal of registration of TI/AC.
Unified Social Contribution
The State Tax Service of Ukraine in the individual tax consultation “Concerning the accrual and payment of a single contribution from remuneration of a foreign citizen” No. 60/6/99-00-04-07-03-06/ІПК of January 10, 2020 has reported: if an individual – a foreign citizen works under the terms of a civil contract in an organization in Ukraine, such a foreigner is an insured person, and the amount paid to him is the basis for accruing a unified social contribution (hereinafter – USC).
Such an explanation, provided by the specialists of the State Tax Service, is supported by, in particular, the reference to Art. 3 of Fundamentals of the Legislation of Ukraine on obligatory state social insurance No. 16/98-ВР of January 14, 1998.
The insured nationals of Ukraine, foreign nationals, stateless persons and their families residing in Ukraine have the right to social security under obligatory state social insurance. Of course, unless the legislation of Ukraine, as well as the international agreement of Ukraine, the consent to which was provided by the Verkhovna Rada otherwise provide.
At the same time, the supervisors noted that each specific case of the relationship between the accrual and payment of the USC should be considered taking into account the documents and materials pertaining to the particular case.
Accounting and Reporting
The State Tax Service of Ukraine through the Office of Large Taxpayers has reminded that the Ministry of Finance of Ukraine by the Order “On Approving Changes to Some Methodological Recommendations on Accounting” No. 6 of January 14, 2020, approved the changes to some methodological recommendations on accounting. The main purpose of the amendments is to align the provisions of the Method Recommendations with the provisions of the applicable law.
The tax officials briefly commented on the essence of the changes:
Recommendation method for fixed assets accounting for No. 561:
- the rule that the primary (overestimated) value of an fixed asset object can be increased by the amount of indexation is excluded from the tax legislation;
- it is defined that the liquidation value will be determined by the commission, created by the order of the head of the enterprise, when the object is put into operation;
- it is specified that when creating a trust fund for the restoration of the fixed assets the balance of unused trust fund to be returned to the lessor, is reflected in the debit account 48 “Target financing and receipts” and credit subaccount 685 “Settlements with other creditors”.
Inventory Method 2 does not include:
- the requirement to indicate the place of drafting in the procurement act;
- the request for the procedure for displaying the amount of VAT, which is calculated when the stocks are received and disposed of;
- the accounting entry under the operation “Write-off of inventory losses incurred as a result of an emergency” is excluded from Annex 3.
Methods of intangible assets accounting No. 1327 are not applied by banks.
Methods of financial expenses accounting No. 1300 do not apply to micro-enterprises, small enterprises, non-business societies, enterprises that maintain a simplified accounting of income and expenses in accordance with tax legislation, as well as to representations of foreign entities.
Methods of accounting of joint activities without the creation of a legal entity No. 1873 are not applied by budgetary institutions, banks, and entities that, in accordance with the law, prepare financial statements under IFRS.
Method of recommendation concerning accounting policy No. 635
Class 9 Accounts “Activity expenses” are mandatory for all businesses with the ability to open Class 8 Accounts “Expenses by elements”.
Control and Responsibility
The President of Ukraine signed the Law of Ukraine “On amendments to certain legislative acts of Ukraine on expanding the possibilities of self-representation in the court of state authorities, authorities of the autonomous republic of Crimea, local self-government bodies and other legal entities regardless of their establishment” No. 390-IX of December 18, 2019, which has expanded the list of persons who can exercise self-representation of legal entities.
Not only executives, members of the executive bodies of a legal entity, but also other authorized persons in accordance with the law, statute, regulation, employment contract (including employees), etc. can now represent legal persons in court.
Previously, only the Criminal Procedure Code allowed an employee of an enterprise to exercise the right of self-representation, whereas the other three procedural codes did not provide for such an opportunity. In addition, since January 1, 2020, the next stage for a lawyer's monopoly on representing state and local self-government bodies in courts solely by prosecutors or lawyers was to be introduced, but now legal entities, regardless of the order of their establishment, can participate in the case represented by their head, member of the executive body, and other person authorized to act on their behalf in accordance with the law, statute, regulation, employment contract (self-representation of legal entity), or through a representative.
Financial Markets
The National Bank of Ukraine by resolution “On amendments to the list of non-taxable cash settlement transactions” No. 167 of December 28, 2019 specified the list of non-taxable cash settlement transactions.
This will enable user to accurately identify clearing and settlement services that are not subject to value added tax withеру purpose of tax accounting.
Indeed, the changes have been made to the list of transaction related to:
- opening (closing) customer accounts in national and foreign currencies, bank metals;
- documenting or confirming customer settlements;
- conducting customer settlements;
- cash desk customer service.
The list was clarified base on the changes to the currency legislation, as well as changes to the legal acts of the National Bank of Ukraine on non-cash payments in Ukraine in national currency, the order of opening and closing the accounts of clients of banks and correspondent accounts of resident and non-resident banks.
The resolution became effective on January 10, 2020.
Labor and Salaries
The State Labor Service of Ukraine reminded that since January 1, 2020, penalties for violations of labor law have been increased.
According to Article 8 of the Law “On the State Budget of Ukraine for 2020”, as of January 1, 2020, the minimum wage is 4723 UAH, which causes an increase in the penalties for economic entities for violation of labor legislation.
Thus, for the actual admission of an employee to work without signing of an employment contract, the registration of a part-time employee in the case of actual completion of the full-time work established at the enterprise, and payment of wages (remuneration) without accrual and payment of a single contribution to the general State Social Security as well as taxes the penalties will be 30 minimum wages for each employee, that is 141,690 UAH;
- for violation of the terms of payment of wages to employees, other payments stipulated by the labor legislation for more than one month, not full payment, the penalty will be imposed at three times the minimum wage, that is 14 169 UAH;
- for failure to comply with the minimum state guarantees for wages – 10 minimum wages – 47 230 UAH;
- for non-observance of the statutory guarantees and benefits to employees involved in the performance of the duties stipulated by the laws of Ukraine “On military duty and military service”, “On alternative (non-military) service”, “On mobilization training and mobilization” – in ten times the minimum wage for each employee for whose rights were violated – 47 230 UAH;
- for preventing the examination of observance of labor legislation, obstacles to its implementation – at three times the minimum wage – 14 169 UAH;
- for obstacles in carrying out a check on the detection of violations (actual admission of an employee to work without conclusion of an employment contract, registration of a part-time employee in the case of actual full-time work established at the enterprise, and payment of wages (remuneration ) without accrual and payment of a single contribution to compulsory state social insurance as well as taxes) the penalty will be imposed at 100 times the minimum wage, set by the law at the time of detection of violations – 472 300 UAH;
- for violation of other requirements of the labor legislation – in the amount of one minimum wage – 4 723 UAH.
Summary of Court Rulings
The Supreme Court of Ukraine, by its decision of December 5, 2019, in case No. 2a-0870/5489/11, recognized that loss-making transactions are possible during the taxpayer's business activity. But the consideration of such transactions as business is appropriate in cases where the taxpayer justifies the economic reasons or business purpose (considering the risks of business activity) for conclusion of treaties at a price lower than the production cost.
However, the courts of the prior instance did not establish or substantiate the existence of reasonable economic or other reasons (business purpose) for the systematic sale by the complainant of the goods at prices below their prime cost and as the result of such transactions receive losses. Such reasons may be available only if the taxpayer intends to obtain an economic effect as a result of entrepreneurial or other economic activity, and not solely or mainly through reimbursement from the state VAT budget. The intention of the taxpayer to generate income only in such a way without carrying out real economic activity can not be considered as an independent business purpose.
The Other Things
The Ministry of Digital Transformation of Ukraine has announced that the Government is launching a new comprehensive “eMaliatko” service.
Parents of a newborn baby can receive one package of services at the maternity hospital:
- State birth registration;
- determining the origin of the child;
- appointment of childbirth assistance;
- registration in the State Register of natural persons – taxpayers;
- attesting the newborn baby’s Ukrainian citizenship;
- entering information about a newborn baby into the Unified State Demographic Register under unique record number.
“eMaliatko” will generally provide 10 state services for parents of newborns in one package. “eMaliatko” is currently available in trial mode in Kharkiv and includes eight services.
In January, the service will be launched in 10 other Ukrainian cities: Kyiv, Dnipro, Odesa, Zaporizhzhia, Rivne, Kryvyi Rih, Lviv, Lutsk, Vinnytsia and Mariupol.
The implementation of the complex “eMaliatko” service started five months ago on the instructions of the President of Ukraine. Currently, the service is being implemented by the Ministry of Digital Transformation of Ukraine with the support of the Prime Minister of Ukraine, the Ministry of Justice, the Ministry of Internal Affairs, the Ministry of Economic Development, Trade and Agriculture, the Ministry of Health, the Ministry of Social Policy, the Ministry of Finance, the State Migration Service, the State Tax Service and with the assistance of international projects: SURGE, EGAP programs (Swiss Confederation and Eastern Europe Foundation), EGOV4UKRAINE project, part of the program ULEAD with Europe, EU4PAR.
