Taxes
VAT
The State Fiscal Service of Ukraine in its Individual Tax Advice “On the date of the occurrence of a tax liability on VAT and the income tax in accordance with the purchase and sale agreement with a deferred payment” of 06.05.2019, No. 1968/6/99-99-15-03-02-15/ІПК considered the following situation. Under the terms of the contract of sale with a deferred payment, the buyer pays 1/12 of the contract value of the real estate, which is being acquired, in equal installments monthly during the year to the supplier.
The contract also provides for the possibility of early payment of property value.
In addition, such property is transferred to the buyer on the basis of the act of acceptance of the transfer on the day of signing the contract. Moreover, the transfer of property rights arises after the full settlement of the contract and state registration of this right.
In connection with this situation, the seller had a question about the procedure for taxing such a transaction VAT and income tax.
According to the tax authorities, in the considered situation, the VAT-payer of the real estate provider should determine the tax liability with VAT on the rules specified in para. 187.1 of TCU, namely on the date of the actual transfer of property in accordance with the act of acceptance and transfer.
In the part of the income tax, the seller, who is obliged to adjust the financial result before taxation, should take into account the following: in the case of sales of fixed assets (used in the business), the financial result before taxation is increased by the amount of the residual value of such assets, determined by the rules of accounting, and is decreased by the amount the residual value of these assets, determined on the basis of Art. 138 of TCU.
Accounting and Reporting
The Ministry of Finance of Ukraine in its letter “On the issue of depreciation of fixed assets” of 22.04.2019, No. 11210-09-63/11170 reported that those who have profit leading accounting under IAS-IFRS should not take into account the depreciation of fixed assets (hereinafter – FA), transferred to the reconstruction, modernization, completion, pre-equipment, conservation, during the calculation of the income tax.
According to the agency, this is due to the fact that the period of stay of FA for reconstruction, modernization, completion, re-equipment and conservation is not a term of useful operation (use) of such FA.
The authors of the letter also noted that the application of another procedure for accrual of depreciation of FA leads to the emergence of a temporary tax difference that is subject to deduction in future reporting periods in accordance with Accounting Standards 17.
Control and Responsibility
The Cabinet of Ministers of Ukraine by its Resolution “Certain issues of deregulation of economic activity” of March 27, 2019, No. 367 approved a new version of the model statute of a limited liability company.
The document states that:
- in the case of submission for the state registration of the creation of a limited liability company (hereinafter – LLC) operating on the basis of the model statute or the transition of the LLC to the activity based on the model statute of documents in electronic form, the version of the model statute is determined by the LLC (its founders) by choosing the options “automatically” or the corresponding provisions of the model statute approved by this resolution;
- in the case of submission for the state registration of the creation of a LLC operating on the basis of the model statute or the transition to activities based on the model statute of documents in paper form, it is considered that the options “automatically” are chosen;
- portal of electronic services should ensure the formation of a model code according to a single algorithm of digital code, which allows to automatically identify the new version of the model statute, on the basis of which a limited liability company operates;
- a model statute approved by the Cabinet of Ministers of Ukraine Resolution “On Approval of the Model Statute of a Limited Liability Company” dated November 16, 2001, No. 1182, applies only to the LLC, acting on its basis at the moment of the entry into force of this resolution, until their transition to activity based on its own statute or model statute approved by this resolution;
- LLC, which, at the moment of the entry into force of this resolution, acted on the basis of the model statute approved by the Cabinet of Ministers of Ukraine Resolution “On approval of the model statute of a limited liability company” dated November 16, 2011, No. 1182, and until June 18, 2019 did not transfer to activity on the basis of its own statute or model statute approved by this resolution, since June 18, 2019, are considered to have become operational on the basis of the model statute approved by this resolution, by choosing the options “automatically”.
The Ministry of Justice of Ukraine should ensure:
1) by May 15, 2019, the modernization of the portal of electronic services in part related to the state registration of the creation of LLC, acting on the basis of the model statute, as well as the transition of the LLC to activities based on the model statute, which provides:
- interaction with the applicant in the format of “question-answer” and the formation through the portal of electronic services on the basis of received answers of all documents required for state registration of the creation of LLC, acting on the basis of the model statute, as well as the transition of the LLC to activities based on the model statute;
- providing the applicant with tips on the legal implications of choosing one or another answer to a question;
- access to the new revision of the model statute, on the basis of which the LLC operates, and information on the relevant digital code of the model statute, as well as the disclosure of the indicated information in the form of open data;
2) by September 1, 2019, the choice of the user interface (in English) of the portal of electronic services, which includes the translation into English of questions, answers, hints and text of the model statute.
Financial Market
The National Bank of Ukraine by its Resolution “On Approval of the Amendments to the Instructions for Cash Transactions by Banks in Ukraine” of 18.04.2019, No. 62 made amendments to the Guidelines for Cash Transactions by Banks in Ukraine, strengthening the supervision of the implementation of cash settlements and the conduct of cash transactions by banks in Ukraine.
Thus, the bank should take measures to study of clients – business entities that receive cash from the bank for further cash settlements in order to refute or confirm suspicions about the client’s performance of financial transactions with signs of fictitious behavior.
In particular, taking into account the risk-oriented approach, the bank should receive confirmation documents from the client on the basis of which cash payments are made. Such documents may include: a procurement act; purchase note; tax calculation of the amount of income accrued (paid) in favor of individuals, and the amounts of tax deducted from them, a loan agreement; supply contract; transportation contract; storage agreement, other accounting documents.
Strengthening supervision of cash settlements and the conduct of cash transactions by banks is due to the discovery by the National Bank of Ukraine of the results of supervision in the field of financial monitoring of numerous facts of financial institutions’ carrying out of risk (circuit) transactions with the use of cash. In addition, it complies with the requirements of the Ukrainian legislation on preventing and counteracting the legalization (laundering) of proceeds from crime, financing of terrorism and financing of the spread of weapons of mass destruction.
The regulator also standardized the use of electronic signature and electronic stamp in the banking system of Ukraine during the execution of cash transactions in accordance with the requirements of the legislation (in particular, the Law of Ukraine “On electronic trust services”).
The National Bank improved certain rules of the organization of cash transactions of Ukrainian banks regarding the work of banks with doubtful authenticity and payment of banknotes, etc.
This document enters into force on June 3, 2019.
Securities Market
The National Securities and Stock Market Commission (hereinafter – NSSMC) on its official site announced the commencement of the operation of the Financial Reporting System (hereinafter – FRS) in XBRL format, starting on 18 June 2019 with the relevant software package and specialized website frs.gov.ua, which would provide basic information for FRS users.
The NSSMC informed companies that compile financial statements according to the international financial reporting standards about the need for registration in FRS and urged reporting entities to begin preparing for information disclosure in a new format to avoid possible errors after the XBRL format becomes mandatory for submission of an annual financial statements. This will happen on January 1, 2020.
Currently, the NSSMC accumulates the information required for registration of FRS reporting entities to launch the software and emphasizes the need for all users of the system to provide information for the creation of accounts as an electronic document by June 07, 2019, the composition and format of which must comply with the XML electronic form specification – information about users authorized to provide company reporting.
Information details needed to create user accounts in the FRS and how to submit it are available on the NSSMC website.
Labor and Salaries
The State Service of Ukraine on Labor reported when a written employment contract should be necessarily concluded.
The legislation on labor of Ukraine provides for the possibility of concluding labor contracts with employees, in writing, by signing a separate document under the name of an employment contract, either by writing an employee’s application and issuing an employer’s order to accept an employee for work.
According to Article 24 of the Labor Code, compliance with the written form is mandatory:
1) with an organized recruitment of employees (The order of the organized recruitment of employees is regulated by the decision of the Central Committee of the CPSU and the Council of Ministers of the USSR “On Measures for the Further Improvement of the Organized Recruitment of Workers and Youth Civic Appeal” of 27.09.1984. Today, the organized recruitment of workers is practically not used);
2) when entering into an employment contract for work in areas with special natural geographical and geological conditions and conditions of high risk for health (in Ukraine, only such territory is affected by radioactive contamination as a result of the Chernobyl disaster);
3) when concluding a contract (the scope of contracts is determined by the laws of Ukraine, for example, the Laws of Ukraine “On Cooperation”, “On Education”, “On Higher Education”, “On Commodity Exchange”, “On Libraries and Library Affairs”, “On theaters and theatrical affairs”, “On museums and museum affairs”, “On physical culture and sports”, “On telecommunications”, “On railway transport” etc.);
4) in cases where the employee insists on the conclusion of an employment contract in writing;
5) when entering into an employment contract with a minor;
6) when entering into an employment contract with an individual (if the employer is an individual - entrepreneur or simply an individual who uses hired labor related to the provision of services (cooks, nannies, drivers, etc.);
7) in other cases stipulated by the legislation of Ukraine (for employees of religious organizations, citizens who are undergoing alternative service, persons who take part in public works engaged in work in the farm).
The only form of a written labor contract is not provided for by the law, except for the form of an employment contract between an employee and an individual who uses hired labor (the Order of the Ministry of Labor of 08.06.2001, No. 260). In other cases, the approved form is absent, but in any case, in a written employment contract, it is expedient to indicate all elements of labor relations, such as labor duties, working conditions, recreation, privileges, guarantees, indemnity, wage conditions and bonus conditions, surcharges, allowances, and other provisions of importance.
Summary of Court Rulings
The District Administrative Court of Kyiv city upheld the decision of April 26, 2019 in the case No. 640/1240/19 and ordered the State Fiscal Service of Ukraine (hereinafter – SFSU) to withdraw the letter “Criteria of risk of the taxpayer and criteria for risk of carrying out transactions, a list of indicators and coefficients, defining the positive tax record of the taxpayer” of 05.11.2018, No. 4065/99-99-07-05-04-18, which approved the Risk Criteria for blocking tax invoices, due to the fact that the SFSU did not comply with the regulatory procedures when the acceptance of Risk Criteria.
In accordance with para. 10 of the Procedure for stopping the registration of a tax invoice/ adjustment calculation in the Unified Register of Tax Invoices, approved by the Resolution of the Cabinet of Ministers of Ukraine of February 21, 2018, No. 117 (hereinafter – Order No. 117), the risk criteria of the taxpayer, the transactions risk, the list of indicators for determining the positive tax record of the taxpayer under which it is determined the tax history of the tax payer, are determined by the SFSU and it submits for approval to the Ministry of Finance. The latter within two days agrees or sends to the SFSU for complying the criteria and the list of indicators, which determines the positive tax record of the taxpayer. The SFSU should inform the specialized committee of the Verkhovna Rada of Ukraine about the specified criteria and publish the agreed criteria on its web-site.
However, the Risk Criteria of the taxpayer, as defined in the letter dated November 05, 2018, No. 4065/99-99-07-05-04-18, were not approved by the normative act of the SFSU and not approved by the Ministry of Finance, which contradicts the requirements of para. 10 of the Procedure No. 117.
The SFSU has not proven that during the adoption of the Risk Criteria of the taxpayer, regulatory procedures were followed, while the materials of the case are different.
In addition, the decree of the Cabinet of Ministers dated December 28, 1992, No. 731, approved the Regulation on the state registration of normative legal acts of ministries and other bodies of executive power, in accordance with para. 3 of which there are to be applied the normative legal acts, adopted by the authorized rule-making entities, containing the rules of law, is non-personalized and designed for repeated use, regardless of the term of their activity (permanent or limited at a certain time) and the nature of the information contained therein. The risk criteria of the taxpayer have not been registered with the Ministry of Justice of Ukraine (the opposite is not proved by the defendant of the court), and therefore are deemed not to have come into force and cannot be applied.
