Taxes, Agrochemicals, Food

On 19 December 2012 the Cabinet of Ministers of Ukraine (hereinafter – CMU) approved the Action Plan for the promotion of foreign investors activity by its the Decree № 1074-r. This document is supposed to implement a number of initiatives and proposals submitted by the European Business Association in order to resolve long-lasting issues business community in Ukraine is concerned about.

Among the most pressing and urgent problems that should be solved by implementing this Action Plan are: setting the rules and procedures for transfer pricing, improvement of the state registration of foreign investments mechanism, refining the legislation on currency regulation and currency control, copyright issues, food safety regulations and more.

The European Business Association endorses the approval of the Action Plan for the promotion of foreign investors’ activity and hopes that this will be a real step towards the optimisation of business in Ukraine, as this paper demonstrates the readiness of the Government to promote sound and transparent rules and procedures of the regulatory environment in every way.

In particular, we would like to outline the developments concerning:

• Transfer pricing

The Draft Law of Ukraine “On Amendments to the Tax Code of Ukraine (regarding transfer pricing),” the updated version  thereof was published on the website of the State Tax Service of Ukraine on 11 January 2013, has already been approved at a meeting of 16 January 2013.

The Association has appealed to the top state authorities with the proposals to the Draft Law.  Moreover the Tax Committee of the Association created a working group under its auspices to discuss the practical application of the provisions on transfer pricing and improve the legislation in this area. This is due to the key points that are fixed in the Draft Law, and which will be faced by representatives of the business community, in particular concerning:

• the list of controlled transactions, the definition of “related persons”;
• the introduction of 5 control methods for transfer pricing;
• the introduction of taxpayers’ reports on their controlled operations during the year etc..

• IPR protection & empty container treatment in the agrochemical sector

After more than five years of persuasion by the EBA Agrochemical Committee the Government of Ukraine has finally recognized the need to improve IPR protection in the area of pesticides and agrochemicals as well as to enhance the mechanisms and practices of empty agrochemical container treatment in Ukraine.

This Decree enacts inter alia the Ministry of Ecology and Natural Resources of Ukraine and the State Service for Intellectual Property Rights to draft the proposals aimed at legislative framework improvement. The changes will be related to the area of intellectual property rights protection of developers (owners) of pesticides and agrochemicals, registration of crop protection products, as well as will enhance the circulation and treatment of agrochemical containers. The relevant proposals are to be submitted for the consideration of the Cabinet no later than February 2013. On multiple occasions the EBA Agrochemical Committee shared all its ideas and proposals in the area of both IPR protection and container management system with the Government of Ukraine. Some of these proposals have been already taken on board by the Ministry of Ecology and Natural Resources. These include a draft internal order of the Ministry of Ecology and Natural Resources which upgrades the application form for the registration of crop protection products and sets out the provisions aimed at ensuring due protection of intellectual property rights of patent holders in the agrochemical sector. Another initiative considered by the Ministry of Ecology is a draft internal order allowing regular publication of the Plan of State Trials of Crop Protection Products.

• Establishment of conditions for the effective system of copyright protection in Ukraine

The Decree stipulated requirements of the relevant state authorities to develop and submit the Drat CMU Resolution on introducing amendments to the Resolution of 27 June 2003 № 992 by 1 May 2013 to the CMU and accompany the Draft Law of Ukraine “On Amendments to Some Legislative Acts to Resolve the Issues of Copyright and Related Rights” № 6523 of 15 June 2010 in the Verkhovna Rada of Ukraine.

The members of the EBA Consumer Electronics Committee have for a long time emphasized the need to establish a reasonable rate of tax and a specific list of equipment and blank media that are subject to deductions. Also the Association in its proposals to the respective Draft Law calls for the introduction of the delayed payments of levies after completion of customs clearance in order to avoid delays in customs clearance.

Consumer Electronics Committee of Association has expressed its position on the Draft Regulation, in particular concerning the amendments to the list of equipment and material delivery systems to be objects of royalties and the payment procedure royalties’ importers under article 42 of the Law of Ukraine “On Copyright and Related Rights”.

The Association opposes the implementation of the certificate of payment of royalties for the customs clearance of goods, and hence the complexity of customs procedures. The introduction of additional documents required for customs clearance will be a step aside from the declared state deregulation of business activity in Ukraine. Back in May 2012, the Association and the State Service for Intellectual Property of Ukraine agreed the proposals to be submitted to the CMU’s Resolution № 992 from 27 June 2003, so we hope that thanks to the such decision of the Government the State Service for Intellectual Property of Ukraine will speed up the drafting of the alteration to the CMU Resolution for further coordination and approval.

• Safety and quality of food

On 21 May 2012 the Draft Law “On Amendments to Certain Legislative Acts of Ukraine on Food Safety” was registered in Verkhovna Rada of Ukraine under No 10495. This Draft Law provided that all powers of state control over food safety will be concentrated in a single authority (the State Veterinary and Phytosanitary Service of Ukraine). Also it is stipulated the decrease in number of permits for circulation of food products, as well as introducing of the concept of “traceability” for the entire chain from cultivation to consumption.

According to the Verkhovna Rada of Ukraine Regalement, the Draft Law was withdrawn when the term of the 6th convocation of Verkhovna Rada of Ukraine was over. However, the updated document has been already published on 4 January on the website of the State Veterinary and Phytosanitary Service of Ukraine for public discussion. The EBA generally supports this version, although there are some provisions that should be refined during the relevant discussion.

• Exemption from VAT: transactions with supply of baby food

The Draft Law of Ukraine “On Amendments to the Tax Code of Ukraine (to stimulate the development of baby food)” is available on the website of the Ministry of Agrarian Policy and Food of Ukraine. The Draft supports baby food national production. Meanwhile, on 16 January 2013 EBA representatives participated in the meeting under the leadership of Agrarian Policy of Ukraine and made proposals on introduction of VAT exemption for imported baby food.

• The content of genetically modified organisms in food

On 12 December 2012 the Verkhovna Rada of Ukraine registered the Draft Law “On Amendments to Some Laws of Ukraine on Informing the Public about the Content of Genetically Modified Organisms in Food Products» No 0912. The Draft Law implies to amend certain laws according to which the label of the food must identify the information about the presence in food of genetically modified organisms (GMOs) in case the share of GMOs in food exceeds 0.9%, if such a presence is non-random or in case technically it was not possible to avoid it. However, there is no procedure to confirm the “non-randomly” evidence that could lead to an additional burden from state regulatory bodies. During the consideration of the Draft Law in the Verkhovna Rada of Ukraine, the Head of the Committee on Health Care, Ms Bakhteyeva supported the position of the Association and asked  to  exclude the  provision which contained the term “non-randomly.” Therefore, we hope that due to Decree № 1074-r  the proposed EBA’s  amendments shall be introduced into the Draft Law.

• State supervision and control of business activity

The Association works closely with the State Agency for Regulatory Policy and Entrepreneurship Development on the issues of eliminating overlapping functions of state supervision (control). We fully support the initiative of this Agency to establish the administrative liability of officials of state supervision (control), reduce administrative pressure on businesses by coordinating comprehensive planning activities of state supervision (control) and set an exhaustive list of state supervision (control).

We are grateful to members of the Association for providing information helpful to detect duplications or hidden functions of supervision and control exercised by state bodies. The Association also stresses on the need to improve the procedures for obtaining permits to simplify the order for issuing permits namely to:

• the reduction of the time to issue the documents;
• review timetable permitting centres;
• the establishment of additional permit centres etc.

• Reform of the licensing system in the field of environmental protection

The Association stressed the seamless procedure of getting permits for the extraction of groundwater, because actually water users are required to obtain two permits: a permit for special use of water and special permit for subsoil use. In addition, unfavourable to the introduction and development of the business is an onerous list of documents to be submitted in order to obtain the respective permits, the violation of the terms of their issue as well as the principle of non-acquiescence by relevant authorities that is set by the legislation in this field.

In our opinion it is necessary to:

• simplify the procedure for obtaining special permits for subsoil use by  means of reduction of the agencies where it is necessary to obtain the relevant approvals, as well as to review and reduce the list of required documents;
• settle the terms that are assigned for the consideration and approval of the appropriate set  of documents;
• implement the legislative mechanism for the sanctions against officials of the authorities that do not follow the statutory deadlines for the consideration of documents during the approval procedures;
• not to apply penalties to those business entities that have submitted documents to obtain the special permit for subsoil use in time, but have not received the necessary approval from the respective authorities because of inaction of the last ones and amend current regulations concerning adjustment of terms for the permit to subsoil use subsurface (groundwater only), which should be valid as long as the permit special use.

We hope that CMU Decree will be a push towards reforms and improvement in the licensing system in the field of environmental protection, management and sustainable use of natural resources and environmental safety and at the end will lead to the decrease of the regulatory burden on business.

• Implementation of the Directive 2001/80/EC on the limitation of emissions of certain pollutants into the air from large combustion plants.

In EBA we believe that problems with implementing this Directive in Ukraine mainly depend on the timing and the huge costs of its implementation in our country. In our view, a master plan for the implementation of this Directive should be developed at the national level, the proposals for which have already been developed by the EBA member companies.

• Improve legislation on currency regulation and currency control in the proceedings of foreign trade entities.

The Association has repeatedly drawn attention to the fact that today in Ukraine there is no separate Law for the settlement of currency relations, which in their turn nowadays are regulated by the National Bank of Ukraine and a number of sub-rules.

The legislative regulation by means of establishing more soft and flexible rules of capital controls concerning foreign investors would enable local individuals and legal entities to work effectively in international markets. Therefore, we emphasize the need to adopt a separate law “On Currency Regulation and Currency Control”.

This matter is important for business along with the issue of application of the settling foreign economic activities in terms of Ukrainian currency legislation. Namely the question of currency hedging is still not regulated by Ukrainian legislation, so we elaborated proposals to the National Bank of Ukraine to consider the scheme of currency hedging, which is acceptable and fully functioning in the European Union for further implementation into Ukrainian legislation.

• The introduction of electronic documents and electronic declaration.

Up to date central government authorities shall foresee the use of electronic customs declarations simultaneously with hard customs declarations (Resolution No 450 from 21 May 2012).

Problematic issues member-companies of the Tax and Customs Committees of the Association faced included:

• ensuring the coordinated work of Information and Telecommunication Systems from SCSU to STSU during transferring of electronic customs declarations, certified by digital signature;
• the application of digital signature, if customs clearance carried out by authorised person (representative, e.g., “Customs Broker”);
• the submission to STSU of the tax control hard cargo customs declarations (certified by signature and stamp of customs authority that performed the customs clearance) that were performed in electronic form etc.

These issues are important for taxpayers due to their reference to tax credit and the right to include into an expense (during sales/depreciation of imported goods/assets, etc.).

The European Business Association expresses it gratitude to the Government of Ukraine for its openness and willingness to cooperate and hopes that all useful and rational initiatives highlighted in the Action Plan, will be duly registered, regulated in compliance with European standards and practices, and, most importantly, properly implemented.