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 other differences. The following information explains what income taxpayers need to know about other differences in a new way.
Law No. 466 amends the procedure for applying other differences.
Changing the approach to the application of differences
From January 1, 2021, the approach to the application of differences from item 140.2 of the Tax Code of Ukraine (hereinafter – Tax Code) will be completely changed. The formula for calculating the difference will be different, namely:
- the restriction on the allocation of interest is applied if the amount of debt obligations of the taxpayer to all non-residents, and not only related, exceeds the amount of equity more than 3.5 times;
- all interest is subject to restrictions, including in transactions with residents;
- only interest subject to capitalization, in accordance with the provisions of international and/or national accounting standards, is not taken into account until the relevant asset is put into operation;
- the size of the limit is reduced from 50 to 30%;
- the rules for calculating the cost limit are changed. Thus, 30% is now taken from the adjusted object of income tax, and not from the amount of pre-tax financial result, financial expenses and the amount of depreciation according to the financial statements of the reporting tax period in which such interest is accrued.
In addition, these criteria are relevant for financial institutions and companies engaged exclusively in leasing. There are no separate differences for these payers.
Changes in differences from items 140.4.2 and 140.4.3 of the Tax Code
From January 1, 2021, the differences indicated in items 140.4.2 and 140.4.3 of the Tax Code will be changed. The object of taxation is reduced by the amount of accrued income from participation in the capital of non-residents (including controlled foreign companies) and the amount of accrued income in the form of dividends payable in its favor from such non-resident or from a controlled foreign company.
New differences for successors
There will be new differences for successors (item 140.4.5 of the Tax Code). According to them, the taxpayer – successor must reduce the financial result by the amount of the negative value of the taxpayer's tax (reporting) period, which was accounted for by the taxpayer, which ends on the date of approval of the transfer deed or distribution balance, reduces the financial result before taxation successor's tax in the amount not exceeding the amount of the taxpayer's equity, which is terminated, as of the end of the previous tax (reporting) year and provided that the terminating taxpayer and the taxpayer – successor were related parties more than 18 consecutive months before the date of completion of the merger.
At the same time, such an adjustment of the financial result should be made in respect of the income taxpayer, which is reorganized due to:
- accession, merger, transformation – in the period of approval of the transfer deed;
- division, allocation – in the period of approval of the distribution balance in proportion to the received share of property according to the distribution balance.
New difference in the case of cooperation with specific non-residents
There will be a new difference that will force taxpayers to adjust the financial result, namely to increase the financial result by 30% of the value of goods/services sold to specific non-residents. Thus, the difference will be based on the results of the year (item 140.5.51 of the Tax Code).
In addition, the Tax Code will stipulate that the difference that forced to adjust (increase the financial result) for the amount of goods purchased from specific non-residents, will also be calculated only for the year.
Year – for adjustments and royalty differences
The annual period of adjustments and royalty differences, if differences that forced to increase the financial result by the amount of costs for accrual of royalties in favor of non-residents (item 140.5.6 of the Tax Code).
Penalty tax difference
The penalty tax difference has been improved. Now the financial result should be increased not only by the amount of fines, penalties, forfeitures accrued in accordance with civil law and civil law agreements in favor of non-taxpayers (except individuals), and in favor of taxpayers who are taxed at a rate of 0%, but also for the amount of damages paid to these persons, compensation for unearned income (lost profits), accrued in accordance with civil law and civil law agreements, including in the field of foreign economic activity, as well as the amount of fines, penalties accrued by supervisors bodies and other public authorities for violation of the law (item 140.5.11 of the Tax Code).
Difference in the absence of a business purpose
There will be a difference, according to which the financial result will have to be adjusted (increased) by the amount of expenses incurred by the taxpayer during transactions with non-residents, if such transactions have no business purpose (item 140.5.151 of the Tax Code). The burden of proving the absence of a business purpose rests with the supervisory authority.
Non-profit difference
The non-profit difference stipulated in item 140.5.9 of the Tax Code has been adjusted. It should not be applied (if the financial result should not be adjusted by the amount of funds or value of goods, works performed, services provided, transferred free of charge during the reporting (tax) year to non-profit organizations entered in the Register of non-profit institutions and organizations. In the amount that exceeds 4% of taxable income of the previous reporting year), if the payment of such payments to non-profit is a mandatory condition for carrying out professional activities in accordance with the laws of Ukraine.
