President signed the law “On Amending the Tax Code of Ukraine regarding the improvement of tax administration, elimination of technical and logical inconsistencies in tax legislation” No. 466-IX (hereinafter – the Law), which Verkhovna Rada of Ukraine adopted on January 16, 2020. As a result, the Law has come into force for the most part as of May 23, 2020.
The Law provides for many changes aimed at improving and simplifying the system of tax administration, its harmonization with world standards. It is aimed at introducing international tax control standards for all participants in international trade and implementing the provisions of the BEPS Action Plan.
The document also improves the tax administration system and expands the capabilities of online services for taxpayers. For instance, now the taxpayer, who is reporting electronically or has passed electronic identification online in the electronic office, will be able to submit a request to receive documents from the tax authorities in electronic form. Individual tax consultation (hereinafter – ITC) can be provided to the taxpayer not only verbally and in writing, but also in electronic form.
Here is a brief list of the main changes.
Terms of tax payment
Now it will be clearly stated in the Tax Code that if the deadline for paying a tax obligation falls on a weekend or holiday, then the last day of payment will be considered the operating (banking) day following this weekend or holiday. This point in practice often caused disputes between taxpayers and the State Tax Service (hereinafter – the STS) due to unsettled nature. Now, this controversial moment is settled.
Scheduled tax inspections
According to this Law amendments to the schedule of documentary inspections for the current year are allowed no more than once in the first and once in the second quarter of the year (except when changes are associated with a change the name of the taxpayer that has already been included in the schedule or/and the correction of technical errors).
Corporate income tax
The size of the income criterion for applying the differences from Section III of the Tax Code and the annual reporting period has been changed. Now, in order not to apply the differences from Sec. III Tax Code (except for the difference in the number of tax losses of previous years), it is enough for the payer to keep his income within not 20, but 40 million UAH.
Non-Resident Income Tax
Also, the changes affected the tax on non-resident income with the source of its origin from Ukraine. From the date of entry into force of the Law, the list of taxpayers of tax on non-resident income with the source of its origin from Ukraine has been updated with the following subjects:
- business entities – legal entities and individuals who have chosen a simplified taxation system;
- individual entrepreneurs (except for those who have chosen a simplified taxation system);
- individuals who carry out independent professional activities.
Controlled foreign companies (CFC)
The Law introduced the concept of profit taxation of controlled foreign companies. Any legal entity registered in a foreign state or territory, which is recognized as being under the control of a natural person – resident of Ukraine under the rules set by the Tax Code of Ukraine will be considered as a controlled foreign company. If the CFC does not fall under the tax exemptions provided by law, the retained earnings of the CFC will be taxable in Ukraine at the level of the controller (tax resident of Ukraine who owns or controls the CFC) PIT or income tax, respectively.
There is a possibility of voluntary recognition of a foreign company as a tax resident of Ukraine according to the criterion of effective management in Ukraine. A foreign company that takes advantage of this opportunity will be able to avoid applying CFC rules to it. Besides, the income of such a foreign company from sources outside Ukraine will not be subject to taxation in Ukraine.
The law introduced a three-level documentation structure for international groups of companies, which includes transfer pricing documentation (local file), global documentation (master file), and country-by-country reporting (CbCR). First reporting period – 2021; cost criteria for reporting: master file – 50 million euros, (CbCR – 750 million euros).
Additional requirements for the content of TP documentation were introduced. In particular, it is necessary to indicate information about the beneficiaries, the value chain, as well as to justify the economic feasibility of operations, for transactions for the purchase of works/services, NMA, other items of transactions that are not goods.
Moreover, the Law introduced taxation with an income tax of 15% on payments of non-residents equated to dividends (so-called “constructive” dividends), including the number of adjustments according to the TP methodology for transactions for the purchase/sale of goods (works, services) and income in the form of payments for securities (corporate rights).
Transactions of Ukrainian taxpayers with non-residents
The definition of dividends is expanding. In addition to the adjustments under the TP rules mentioned above, dividends for tax purposes are equated with certain types of payments in favor of non-residents. For example, the return of funds to a non-resident in connection with the withdrawal of a participant or redemption of shares, reduction of authorized capital, as well as in similar transactions in the amount that reduces the retained earnings of the taxpayer – legal entity.
The rules for determining the object of taxation for corporate income tax for permanent establishments have changed significantly. From now on, the only method of determining the amount of income tax will be the “direct” method, according to which the object of taxation of the representative office must be determined according to TCU rules and correspond to the profit of an independent enterprise carrying out the same or similar activity, representation of which it is.
Also, the changes affected the single social contribution, personal income tax, the appeal of decisions of State fiscal service, and depreciation of fixed assets.
How can SCHNEIDER GROUP help?
If you would like more information regarding recent changes to the tax legislation of Ukraine, please do not hesitate to contact us. Tax and legal experts of Ukrainian office of SCHNEIDER GROUP will be ready to discuss potential risks for your business associated with the new legislation and ways to avoid them. We are going to provide more analysis of amendments brought by the Law # 466 in our further publications.