The tolling transactions are quite popular among domestic companies. And not just because they help save on fixed assets. They also make it possible to take advantage of the established tax procedure. However, we caution that taxpayers are suspicious of such transactions. For them, this is another scheme of tax evasion. What do you need to know about taxation for tolling transactions?
Income tax
The object of taxation is the profit with source of origin from Ukraine and beyond, which is determined by adjusting (increase or decrease) the financial result before tax (profit or loss), determined in the financial statements of the enterprise in accordance with NAS or IFRS, by difference arising in accordance with the provisions of the Tax Code of Ukraine (hereinafter – TCU) (i. 134.1.1 of the TCU). At the same time, there are no tax differences for the processing of tolling raw materials in this case (when both the customer and the processor are residents of Ukraine). Accordingly, the subject of income tax is the financial result determined by accounting rules.
Single tax
Single taxpayers can carry out tolling transactions. At the same time, the prohibitions and restrictions set by p. 1 of c. XIV of the TCU. The main one is the ban on non-monetary form of payments. Single tax payers of groups 1 to 3 pay for goods shipped (work performed, services rendered) only in monetary form (cash and/or non-cash settlement). This is required by i. 291.6 of the TCU. Therefore, it is not possible to use the finished product or raw material as settlement with the sole processor. Moreover, this prohibition applies to both the sole processor and the sole contractor.
In addition, a single taxpayer in group 2 cannot produce products from the tolling raw material of a business entity that is subject to the common tax system. The tax authority considers this as a violation of the conditions of application of the simplified taxation system, since the operations for the production of such products are inherently operations for the provision of services to the customer (category 107.03 «ЗІР»). As an argument, they cite the rules of subitem 1 of i. 291.4 of the Tax Code, according to which group 2 may contain natural persons – entrepreneurs who carry out business activities to provide services to single tax payers and/or the population.
There is no such restriction for group 3, so the customer and the processor can use the simplified system without problems. Of course, subject to cash payments transactions. The sole tax is levied only on the processing fee for the processing of tolling raw materials received by the processor. If the processor is a non-payer of value added tax (hereinafter – VAT), then he pays a single tax of 5% of the amount of income received, and the VAT payer pays 3% of the amount of income received and VAT.
VAT
The object of VAT taxation is the transactions of taxpayers of this tax for the supply of goods and services, the place of delivery of which in accordance with Art. 186 of the TCU is located in the customs territory of Ukraine (i. 185.1 of the TCU). Operations on the transfer of the tolling raw material to the processor and the return to the customer of finished goods, as well as the raw material residues (waste) are not considered as supplies of goods in the sense of subitem 14.1.91 of the TCU. Since the ownership of the tolling raw material from the customer to the processor does not pass, and therefore, there is no VATable object. Of course, this does not apply to that part of the raw material or finished goods that is payment for processing services. For VAT purposes, this will be considered as a supply of goods.
Raw material processing services fall within the definition of “supply of services” defined by subitem 14.1.185 of the TCU. In addition, the place of supply of raw material processing services according to subparag. “d” of subitem 186.2.1 of the TCU is the place of actual delivery of such services. As their place of supply is the customs territory of Ukraine, such services are subject to VAT on a general basis (at a rate of 20%).
VAT tax liability arise for the processor in the first event: either on the date of completion of the act of provided services or on the date of receipt of funds from the customer.
In turn, the customer includes in the tax credit the amount of VAT accrued/paid during the provision of processing services. Of course, in the presence of the tax invoice, duly prepared and registered by the processor in the Unified Register of Tax Invoices (hereinafter – URTI).
And if the payment for processing is made by raw materials or finished products, then the tax obligations arise for the customer on the date of transfer to the processor of the relevant part of raw materials or finished products. At the same time, the VAT base is determined on the basis of the contractual value of such assets, but not below the minimum base established by i. 188.1 of the TCU. The processor will be entitled to the tax credit if there is the tax invoice from the customer registered with the URTI.
As already mentioned, there is no VAT subject in case of return of the waste to the customer. But if, for example, this waste remains with the processor and can still be used or sold, then such an operation will be considered as the free transfer of goods and is therefore subject to VAT (subparag. “a” of i. 185.1 of the TCU).
