The Law of Ukraine “On Amendments to the Tax Code of Ukraine on Improving Tax Administration, Elimination of Technical and Logical Inconsistencies in Tax Legislation” No. 466-IX of January 16, 2020 (hereinafter – Law No. 466) amends amortization differences. The following information explains what should income taxpayers know about amortization differences in a new way.
Law No. 466 introduces several changes to the procedure for applying amortization differences.
Production method
In tax accounting, you can accrue amortization on fixed assets by the production method. Previously it was prohibited for application.
Those who wish to switch to the production method of amortization accrual should take into account the transitional rules of item 52 of part 4 of chapter XX of the Tax Code of Ukraine (hereinafter – Tax Code). Income taxpayers who decide to apply the production method from the II-IV quarter of 2020 should first make an inventory of these fixed assets as of the first day of the tax (reporting) period of 2020, in which the decision to apply the “production” method is made. And then you need to compare the book value (excluding revaluation) of fixed assets according to accounting data with the book value of fixed assets according to tax accounting. And if it turns out that:
- the total book value (excluding revaluation) of fixed assets according to accounting data is less than the book (residual) value of fixed assets, calculated according to tax rules, the difference arising from such a comparison should be depreciated as a separate item of fixed assets using the straight-line method of depreciation for 20 tax (reporting) quarters and reduce the pre-tax financial result for the relevant tax (reporting) period;
- the book value (excluding revaluation) of fixed assets according to accounting data is greater than the book (residual) value of such fixed assets, calculated according to tax rules, in case of change in the method of depreciation on the production method when determining the object of taxation profit is used book (residual) value of fixed assets, calculated according to tax rules.
Increase in financial result on accounting amortization
Tax amortization is not accrued for the period of non-use (operation) of fixed assets in economic activities in connection with their modernization, reconstruction, completion, retrofitting and conservation. That is, from now on, those companies that keep records according to international financial reporting standards (hereinafter – IFRS) and do not stop accruing depreciation in accounting, when carrying out the reconstruction of fixed assets, will through the application of tax differences increase the financial result for accounting amortization calculated under IFRS and pay more tax. They will not be able to reduce the financial result for tax amortization for these periods.
Exclusive preferential accrual terms
It is given the right to apply during the amortization accrual preferential terms of depreciation for the 4th, 3rd, 5th and 9th groups of fixed assets. Thus, to determine the object of taxation for the period from January 1, 2020 to December 31, 2030, it is possible to accrue tax amortization on fixed assets of:
- group 4 (machinery and equipment) and group 5 (vehicles), using a minimum amortization period of two years (total – five years);
- group 3 (transmitting devices) and group 9 (other fixed assets), using the minimum allowable amortization period, which is equal to five years (total – 20 and 12 years, respectively).
In order to be able to use these terms for the calculation of tax amortization, the fixed assets must simultaneously meet the following requirements:
- put into operation by the taxpayer within one of the tax (reporting) periods, starting from January 1, 2020 to December 31, 2030;
- were not in use;
- are used in their own business activity and may not be sold or leased to other persons (except for taxpayers whose main activity is services for the lease of property).
