On the Way to Pre-War Taxation: Draft Law Adopted

The Verkhovna Rada of Ukraine adopted as a basis (in the first reading) the Draft Law “On Amendments to the Tax Code of Ukraine and Other Laws of Ukraine Regarding the Peculiarities of Taxation During Martial Law” No. 8401 of January 31, 2023, initiated by the Prime Minister of Ukraine. It was developed for the implementation of the Memorandum on Cooperation signed with the IMF. Below we analyze the main provisions of this act as adopted in the first reading.

Renewal of Terms

For the period the legal regime of martial law, state of emergency, it was offered to exclude provisions of the Tax Code of Ukraine stating that the course of the terms specified in this Code, other legislation, the compliance of control with which is entrusted to the supervisory bodies, shall be suspended.

Also, it is determined that the suspension of the terms stipulated by the current edition of the Tax Code of Ukraine shall be valid until July 1, 2023.

Abolition of Taxation Features – 2% Single Tax Rate

It was determined that temporarily, from April 1, 2022 until the termination or abolition of martial law, state of emergency in the territory of Ukraine, but not longer than until July 1, 2023, payers of the single tax of the third group can be individual entrepreneurs and legal persons – economic subjects of any organizational and legal forms, and the interest rate for them is set at 2 percent of income.

Consequences of Cancellation of a 2% Single Tax Rate

The Draft Law defines that from July 1, 2023, payers of the single tax of the third group which have used taxation features shall lose the right to use these taxation features and are automatically considered as such who apply the taxation system which such tax payers applied before the election of taxation features.

Restoration of Inspections

The bill repeals the norm according to which tax inspections shall not be started, and those inspections which have been started are to be suspended. It is expected that inspections will be renewed from July 1, 2023.

It is also suggested to determine that documentary and factual inspections during martial law shall be carried out if the following are available during the inspections in a safe manner:

– access, admission to territories, premises and other property used to carry out economic activities and/or are objects of taxation, or are used to obtain income (profit), or are related to other objects of taxation by such taxpayers;

– access, admission to documents, certificates of financial and economic activities, received income, expenses of taxpayers and other information related to calculation and payment of taxes, fees, settlements, compliance with requirements of the legislation, control over which is entrusted to the supervisory bodies, as well as financial and statistical reporting drawn up in the manner and on the grounds determined by law;

– carrying out inventory of fixed assets, commodity and material values, funds, withdrawal of balances of commodity and material values, cash.

If the inspection was started but cannot be completed due to the absence of the conditions defined above, it can be suspended by the decision of a manager (their deputy or authorized person) of the controlling body until the removal of obstacles for its conducting.

Conditions of Release of Payers from Fines for the Period of Martial Law

It is suggested to suspend for a period of martial law the provision, according to which fines shall not be applied for the violation of tax legislation committed for the period from March 1, 2020 to the latest calendar day of the month (inclusive), in which the effect of the quarantine established by the Cabinet of Ministers in the territory of Ukraine for the purpose of prevention of distribution on the territory of Ukraine of a coronavirus disease (COVID-19) ends.

At the same time, it was established that in the case of payment by a taxpayer within 30 calendar days from the day following the day of receipt of a tax message-decision, the sums of a tax obligation calculated based on the results of documentary checks which were restored or commenced on or after July 1, 2023 and completed by the date of termination or abolition of martial law, state of emergency in the territory of Ukraine, punitive (financial) sanctions (fines) calculated on the amount of such tax obligations shall be cancelled, and interest shall not be accrued. The amount of the tax obligation paid in the manner prescribed by this paragraph is not subject to appeal.

Change Relating to VAT on Import Transactions

The current version of the Tax Code of Ukraine defines that for the transactions involving the importation of goods into the customs territory of Ukraine, the date of the transfer of tax amounts to the tax credit is the date of payment of tax on tax liabilities in accordance with clause 187.8 of Article 187 of this Code, and for the transactions involving the supply of services by a non-resident in the customs territory of Ukraine – the date the payer draws up a tax invoice for such operations, provided that such a tax invoice is registered in the Unified Register of Tax Invoices.

Legislators propose changes to this provision, according to which for the transactions involving the supply of services by a non-resident in the customs territory of Ukraine, the date of assignment of tax amounts to the tax credit is the date of submission of the tax return on value-added tax for the previous reporting (tax) period, for which the recipient of services was charged tax obligations for such transactions. If a positive value of the amount calculated in accordance with clause 200.1 of Article 200 of this Code has arisen from such a declaration, the amount of tax for such transactions shall be included in the tax credit only after payment (transfer) to the budget of the amount of tax specified in such a declaration.

Amendments to the Law of Ukraine “On Collection and Accounting of the Single Contribution to Compulsory State Social Insurance”

The bill provides for the following:

– penalties are not accrued to the payer during the period of martial law, but not longer than until July 1, 2023;

– interest is not accrued during the period of martial law, but not longer than until July 1, 2023;

– a moratorium on conducting documentary inspections is valid until July 1, 2023;

– in case of payment by the payer of the single contribution within 30 calendar days from the day following the day of receipt of a demand to pay arrears from the single contribution, the amount of the single contribution calculated on the basis of the results of documentary inspections which were restored or commenced on or after July 1, 2023 and completed by the date of termination or abolition of martial law, state of emergency in the territory of Ukraine, penalties calculated on the amount of such a single contribution shall be cancelled, and interest shall not be accrued. The amount of the single contribution paid in the manner prescribed by this paragraph is not subject to appeal.

Amendments to the Law of Ukraine “On Use of Settlement Transaction Registers in the Field of Trade, Public Catering and Services”

It was determined that sanctions for violations of the requirements of this Law shall not apply to termination or abolition of martial law in the territory of Ukraine, except for the sanctions for violation of the implementation of settlement transactions when selling excise duty goods, but not longer than until July 1, 2023.

The text of the Draft Law will be finalized before the second reading, and the deputies will also enter proposals for its amendments.