Tax and Legal headlines, 25 December 2013
Ukrainian Verkhovna Rada Accepts a Tax Code Amendment Law
Given below is a brief overview of the principal amendments to the Tax Code of Ukraine (hereinafter, the “Tax Code”).
• The VAT rate reduction to 17% is postponed until 1 January 2015
• The CIT rate to be reduced from 19% to 18% in 2014, from 18% to 17% in 2015, and from 17% to 16% in 2016
• Excise tax rates for specific goods are increased
• The VAT exemption for grain transactions that previously was introduced by the Transitional Provisions of the Tax Code to have effect only by 1 January 2014 is now included in the General Provisions of the Tax Code as part of the VAT exempt transactions (Article 197)
• The VAT exemption for transactions related to natural gas import into the customs territory of Ukraine is cancelled
• Losses from transactions with securities accumulated as at 1 January 2014 can not be used to calculate profit/loss for 2014
• From 1 January 2014, if the Law takes effect, export of certain grain crops by agricultural producers and by companies that purchased grain from such producers will not be subject to VAT exemption
• The VAT exemption of supply of scrap metal and raw skin or leather is extended until 1 January 2015
• Supply of paper and cardboard for recycling (waste paper) is VAT exempt until 1 January 2015
Despite expectations, the tax load will not decrease in 2014, due to the above amendments. However, there are some positive aspects. Notably, many companies will not have to change their current business and tax planning models given that the VAT rate is not reduced. This is particularly important to grain trading companies provided the VAT exemption of grain transactions has been extended and included in the general provisions of the Tax Code.
Ukrainian Verkhovna Rada Approved a Draft Law on Consolidated Tax Groups in Ukraine.
In general, the anticipated introduction of the consolidated tax group concept is a very positive move of the government which is in line with the foreign countries’ practice. Tax consolidation will allow for a legal and transparent transfer of losses within the same group of companies. Moreover, it will let the companies simplify significantly the pricing and administration of intragroup transactions provided the companies are not required to comply with the transfer pricing requirements.
We believe, however, the current requirements a group of companies need to comply with to apply the tax consolidation mechanism are too rigid (e.g., the CIT paid for the previous year should amount to UAH 4 billion as a minimum). Only the largest groups of companies will benefit from this initiative. We hope the requirements will be softened during further analysis of the Draft Law so that more taxpayers can benefit from the tax consolidation.