08/ 07/ 2014

On 1 July 2014, the generalized tax consultation settling the issue of the taxation of costs on warranty repairs (services) or guaranteed replacement of goods was adopted by the Order of the Ministry of Revenue and Duties of Ukraine No366 (hereinafter – the Order No366 and Ministry respectively).

Background: Over a long period of time, the European Business Association (hereinafter – the EBA) repeatedly sent requests to the Ministry and systematically drew attention to the ambiguity of understanding over the current tax legislation regarding reflection of enterprises’ costs for warranty repairs (services/replacement) of goods (which were sold to legal entities), in the gross expenditures of enterprises.

Due to the EBA’s efforts, the Order No366 clarified the practical application of the norms of sub-paragraph “є”, sub-paragraph 138.10.3., Paragraph 138.10., Article 138 and sub-paragraph 140.1.4., Paragraph 140.1., Article 140 of the Tax Code of Ukraine. In particular, the Order No366 provided that “costs on the warranty repair (services) or guaranteed replacement of the goods (under which the liabilities of a taxpayer are published) shall be counted while determination of the subject of the profit tax by the taxpayer/seller with the condition of maintaining of the proper record of the customers (no matter legal or natural persons), who received such warranty repair, services or replacements”. Such warranty costs shall be confirmed by the primary documents.

Besides, the Order No366 stated, that the term “published” means information distributed via advertising, technical documentation, contracts or other documents regarding the seller’s liabilities concerning terms and conditions for warranty services. Moreover, as prescribed by the Order No366, the procedure for the warranty repair (services) or guaranteed replacement of goods, as well as the list of goods, is determined by the Resolution of the Cabinet of Ministers of Ukraine No506, dated 11 April 2002.

The EBA wishes to express our gratitude to the Ministry for their cooperation and attention to these important issues as well as to all member-companies for their active participation and persistence in solving this problematic issue.

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