23/ 11/ 2011

On 10 November 2011 the Verkhovna Rada Committee on Finance, Banking, Tax and Customs Policy issued a letter No.04-39/10-1160 on tax losses carryforward. The analysis conducted by the Verkhovna Rada and its position taken in this regard implicates that the Tax Code of Ukraine does not contain the ban on the inclusion of the losses incurred till 1 January 2011 into tax reports of the years 2011 and 2012. (Namely, Paragraph 3 of the Subsection 4, Section XX “Transitional Provisions” of the Tax Code of Ukraine). Therefore, tax losses calculated before January 1, 2011 can be considered as the expenses of the current tax periods as progressive total to the full repayment of negative value.

BACKGROUND Earlier state tax authorities claimed that the CPT taxpayers could include into gross expenditures for the second quarter of the current year only the expenditures incurred in the first quarter of 2011, excluding the negative value of the tax object calculated by results of 2010.

Such interpretation of the tax legislation is laid down, in particular, in such STSU letters as № 828/3/15-1212 of 08.09.2011 and № 24240/7/15-1217 of 08.09.2011.

The European Business Association has repeatedly addressed top officials the concern related to the non-inclusion of tax losses emerged in the previous tax periods. The ban on tax losses carryforward use is in fact the non-recognition of investment expenditures made in 2011 and therefore the deprivation of taxpayers’ and investors’ rights.

Currently the EBA works out the proposals and amendments on tax losses carryforward method to the newly-published Draft Law on Amendments to the Tax Code of Ukraine. We would like to mention the existence of court practice demonstrating loyalty to the applicants’ cases for tax losses carryforward.

We hope that such position of the Verkhovna Rada Committee will be an incentive for the State Tax Service of Ukraine to reconsider their position and elaborate the mechanism appropriate both for state and business.

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