UGA sent to Parliament critical remarks to the norms of the draft law №5600

The Ukrainian Grain Association sent to the parliament critical remarks from business on certain norms of the draft law №5600 “On Amendments to the Tax Code of Ukraine and Certain Legislative Acts of Ukraine to Ensure Balance of Budget Revenues” adopted in the first reading. UGA addressed a corresponding letter to the Speaker of the Verkhovna Rada of Ukraine Dmytro Razumkov and the Chairman of the Committee on Finance, Tax and Customs Policy of the Verkhovna Rada of Ukraine Danylo Hetmantsev.

A number of proposed norms in the draft law are of deep concern as they significantly worsen the conditions for doing business in Ukraine. In particular, the draft law provides critical restrictive changes to the VAT refund on purchased goods / services (p.200.4), in particular: the amount spent for the purchase of services (administrative, sales, other) is not subject to budgetary VAT refund, the restrictions are implemented on VAT refund for purchased goods / services, the cost of which is included in the cost of processing, VAT is refundable only on goods exported outside the customs territory of Ukraine. Thus, exporters-large taxpayers will lose an important competitive advantage over intermediary companies operating in the domestic Ukrainian market, because by buying goods in elevators and selling them in the port, they will be able to credit the VAT asset from all services against VAT liability selling their goods. The regulation also substantially increases the period for VAT refunds on goods purchased but not yet exported and stored in warehouses.

The draft law significantly expands the possibilities of applying a tax lien and, as a result, abuse by the State Tax Service, namely, the possibility of imposing a tax lien in case of a disagreed amount of tax liabilities (paragraph 56.15, paragraph 89.1.4). The practice of legal cases shows that about 70% of all tax disputes reviewed by courts are resolved in favor of taxpayers. During legal cases, the STS always submits appeals and cassations, which delay the process for up to 3-5 years. Usually large companies are simultaneously involved in a number of pending legal cases, while the amounts of taxes accrued by the tax authorities are completely unreasonable, as the STS mostly pursues the goal to charge additional taxes not because there are legal grounds for that but in order to fulfil the established plans to increase budget revenues. The granting tax authorities the right to impose tax lien in case of taxpayer’s appeals, tax decision in administrative and/or judicial proceedings in practice may lead to additional “pressure” on taxpayers.

Thus, there is a high risk that Ukrainian entrepreneurs will face the problem with freezing of large amounts of money for a long time, which could lead to their bankruptcy.

In addition, if a company has a tax debt, its management may be restricted in the right to leave Ukraine (p.91.3). Such a provision is a matter of concern, as in the event of abuse by the authorities, a person may be restricted in the constitutional right of free movement for a long period, which is a direct violation of human rights and freedoms under the Constitution of Ukraine. Furthermore, the lack of liability for illegal actions by the supervisory authority may lead to unreasonable “pressure” on the taxpayer.

Also large companies by the draft law are limited in carrying over tax losses of previous years (paragraph 140.4.4) by fifty percent. The proposed change contradicts the principle of equality of all taxpayers before the law and the prevention of any manifestations of tax discrimination (paragraph 4.1.2 of the TCU), as it makes possible to count expenses for income tax purposes depending on the value of the tax object of another taxpayer. Usually such losses arise from exchange rate losses in case of foreign currency loans. Thus, the state panelizes companies- investors in the Ukrainian economy for the decrease of the national currency exchange rate, on which the state has a direct influence.

UGA addressed parliamentarians with a proposal to amend the adopted draft law #5600, so that the innovations do not lead to increased tax pressure on honest taxpayers and do not create new corruption threats.

In addition, UGA called on all members of parliament to comply with Ukrainian law, amend the legislation by informing businesses in advance, and discuss changes with them so that businesses can submit their proposals and related amendments to the draft laws.