The number of business models that allow legal optimization of tax burden rapidly declined every year. This trend can be traced not only in Ukraine but around the world. In Ukraine one of the models that remains viable is the inclusion in the group of companies of investment fund which
Most often there are two types of models of working with investment funds.
Model 1
Funds or intellectual property rights (usually trademarks) are transferred to the investment fund after the investment fund issues interest-bearing loans or transfers the intellectual property rights with payment for them in the form of royalties. Such model of work allows to generate tax expenses in the form of interests or royalty on the companies of the group and such interests/royalty are not subject to income tax at the level of the investment fund (according to paragraph 141.6.1 of the Tax Code of Ukraine; hereinafter – Tax Code) or to value added tax (hereinafter – VAT) (interests and royalty are not subject to VAT).
From time to time there are attacks by the tax service on such models. For example, in the case УФТ № 440/3633/19, considered by the Supreme Court, under the pretext that the borrower company did not need a loan form the investment fund, it still received it and formed tax expenses in the form of interest.
Model 2
Under this model the developer sells residential real estate/rights to the investment fund at face value, and the latter resells such property/rights at the market value. Profits remaining on the investment fund are not subject of income tax (paragraph 141.6.1 of the Tax Code) or VAT (second and subsequent supplies of residential estate are subject to VAT benefit according to paragraph 197.1.14 of the Tax Code).
Is there an income tax?
Models of working with investment fund are quite limited in diversity as new models are scrutinized by the tax officials which, in the opinion of tax authorities, increases the risks that such operations must be subject to income tax as operations not related to investment activity and do not fall under paragraph 141.6.1 of the Tax Code.
In this regard, letter of the State Tax Service of Ukraine No. 1541 aroused interest, which considered the following operation: the asset management company on behalf of the mutual investment fund buys the rights of claim at a discount, and then sells at its actual cost. The question is whether the positive difference between the purchase price and the sale is subject to income tax at the level of the investment fund?
The tax authority avoided a direct answer in terms of selling at actual value. At the same time, it has pointed out that if the investment fund resells the rights of claim, the positive difference will not be subject to income tax in accordance with paragraph 141.6.1 of the Tax Code.
It should be noted that the conclusion of the tax authority is in itself positive, because it confirms the model of work, according to which the investment fund accumulates income from the resale of claims, and such income is not subject to income tax. In turn, companies that will exercise the rights of claim in favor of the investment fund will be able to generate tax losses without any adjustments. Transactions on resale of claims are also not subject to VAT due to the impact of the provisions of paragraph. 196.1.5 of the Tax Code.
In addition, if the investment fund sells at the actual price, the positive difference should not be subject to income tax. However, for investment funds such activities are not typical (usually they do not need such subject of performance).
