Business met with the Head of the State Tax Service of Ukraine

15/ 04/ 2020

On April 14, the European Business Association met with Serhii Verlanov, Head of the State Tax Service of Ukraine. Thus, there was a discussion on changes in tax regulation for the period of quarantine, timely compensation for VAT refunds, tax breaks for business in the time of emergency, etc. At the beginning of the meeting, Mr. Verlanov noted that there was a tangible economic slowdown in March. The number of PPOs decreased by 30-40% compared to the usual situation in the country. Certainly, the specifics of tax administration and the fiscal system enable them to work by inertia. Thus, 95% of the tax collection plan was completed in March. At the same time, it is expected that the tax revenues for the quarantine period will decrease in May and June. As for business concerns, the EBA community was interested in the execution of a judgement regarding the registration of VAT invoices. It was said that at the beginning of its work, the renewed State Tax Service of Ukraine received about 10 thousand appeal cases against the decision to refuse the registration of tax invoices. The average term for the judgment execution is 14-21 days, however, under the new Order, the term will be reduced up to 7 days upon its receipt. When asked about inspections, it was reported that the number of scheduled inspections had been reduced by 20% from 5500 to 4400 last year. Accordingly, the inspections are being selected and will be done on a risk-based approach. Also, the business wanted to know how many claims for VAT refunds were filed in the first quarter of 2020 and the respective money equivalents. Thus, it was reported that in January-March, 32.6 billion UAH was claimed and 39.4 billion UAH was refunded. Mr. Verlanov noted that VAT procedure operates smoothly. Particular attention is paid to companies that employ many people that need cash flow to pay the salaries. Regarding the Provisional Register on old VAT amounts, the matter is within the competence of the Ministry of Finance. As for the possible tax reliefs for businesses to overcome the crisis (for example, reducing the tax burden on the Payroll Fund), Mr. Verlanov answered that the issue is being actively discussed. However, these issues are within the competence of the Government, Ministry of Finance, Mineconomy. At the same time, the Law on Amendments to the State Budget is a balance of proposals and opportunities (for example, creating a Special Fund to Fight Coronavirus, etc.). However, if required, a package of legislative changes, the so-called COVID-3, is likely to be adopted. At the same time, it is important that the business support package applies to all companies affected by the situation, not just SMEs. The business also asked about the application of penalties for late registration of tax invoices and adjustments to reduce the amount of tax credit. It was reported that, in general, this issue regulated in the Draft Law № 1210, which, according to the State Tax Service, has not yet been signed. Thus, in fact, the draft law introduces the mechanism that substantially reduces penalties. At the same time, according to the “Transitional Provisions”, penalties that are not consistent with the entry into force of the Law will be reviewed by the tax authorities. Therefore, this problematic issue remains unchanged within the current legislation. When asked if it is possible to suspend requests from the Tax Service to recognize relationships with counterparties for the period of quarantine, it was stated that these requests were related to VAT refunds. As it is important not to disrupt the frequency of VAT refunds, all procedures for checking the amount of a refund should be followed. Regarding the ban on the sale of the old excise tax stamps from May 1, it was noted that, on the whole, the State Tax Service supports a decision to continue issuing excise tax stamps of old form, but this issue needs to be regulated with the CMU Resolution, and therefore the Ministry of Finance should initiate the process. According to information on the website of the State Tax Service, all documents can be submitted electronically, but, for example, licenses for the sale of alcoholic drinks must have the respective stamps. Serhiy Verlanov offered to send a formal request to the Tax Service to confirm in writing that the mention in the register is a confirmation that the company has a license for the wholesale or retail alcohol trade even without a stamp on the license form. The business also raised the issue of preparing official clarifications for the territorial State Tax Service authorities regarding the VAT taxation of clinical research related services. Thus, it has been reported that this issue requires the preparation of a general tax consultation issued by the Ministry of Finance. At the same time, the State Tax Service of Ukraine, for its part, is ready to consider and provide individual tax consultation if requested directly by companies. Regarding the non-application of penalties for the payments to budgetary accounts (or local budget accounts of territorial communities) that have changed, the State Tax Service emphasized that there is one global solution, namely the introduction of a Single Account for tax payments, which is already provided on Monday, in the draft law № 1049 (preventing the reallocation of funds to the wrong account). The Single Account is expected to start operation as of January 1, 2021. The European Business Association thanks the representatives of the State Tax Service for constructive dialogue. We hope that such meetings will be held more often, at least every 1.5 months, for business and government to have a constant dialogue and the possibility to address existing issues in a prompt manner.

At the beginning of the meeting, Mr. Verlanov noted that there was a tangible economic slowdown in March. The number of PPOs decreased by 30-40% compared to the usual situation in the country. Certainly, the specifics of tax administration and the fiscal system enable them to work by inertia. Thus, 95% of the tax collection plan was completed in March. At the same time, it is expected that the tax revenues for the quarantine period will decrease in May and June.

As for business concerns, the EBA community was interested in the execution of a judgement regarding the registration of VAT invoices. It was said that at the beginning of its work, the renewed State Tax Service of Ukraine received about 10 thousand appeal cases against the decision to refuse the registration of tax invoices. The average term for the judgment execution is 14-21 days, however, under the new Order, the term will be reduced up to 7 days upon its receipt.

When asked about inspections, it was reported that the number of scheduled inspections had been reduced by 20% from 5500 to 4400 last year. Accordingly, the inspections are being selected and will be done on a risk-based approach.

Also, the business wanted to know how many claims for VAT refunds were filed in the first quarter of 2020 and the respective money equivalents. Thus, it was reported that in January-March, 32.6 billion UAH was claimed and 39.4 billion UAH was refunded. Mr. Verlanov noted that VAT procedure operates smoothly. Particular attention is paid to companies that employ many people that need cash flow to pay the salaries.

Regarding the Provisional Register on “old” VAT amounts, the matter is within the competence of the Ministry of Finance.

As for the possible tax reliefs for businesses to overcome the crisis (for example, reducing the tax burden on the Payroll Fund), Mr. Verlanov answered that the issue is being actively discussed. However, these issues are within the competence of the Government, Ministry of Finance, Mineconomy. At the same time, the Law on Amendments to the State Budget is a balance of proposals and opportunities (for example, creating a Special Fund to Fight Coronavirus, etc.). However, if required, a package of legislative changes, the so-called COVID-3, is likely to be adopted. At the same time, it is important that the business support package applies to all companies affected by the situation, not just SMEs.

The business also asked about the application of penalties for late registration of tax invoices and adjustments to reduce the amount of tax credit. It was reported that, in general, this issue regulated in the Draft Law № 1210, which, according to the State Tax Service, has not yet been signed. Thus, in fact, the draft law introduces the mechanism that substantially reduces penalties. At the same time, according to the “Transitional Provisions”, penalties that are not consistent with the entry into force of the Law will be reviewed by the tax authorities. Therefore, this problematic issue remains unchanged within the current legislation.

When asked if it is possible to suspend requests from the Tax Service to recognize relationships with counterparties for the period of quarantine, it was stated that these requests were related to VAT refunds. As it is important not to disrupt the frequency of VAT refunds, all procedures for checking the amount of a refund should be followed.

Regarding the ban on the sale of the old excise tax stamps from May 1, it was noted that, on the whole, the State Tax Service supports a decision to continue issuing excise tax stamps of old form, but this issue needs to be regulated with the CMU Resolution, and therefore the Ministry of Finance should initiate the process.

According to information on the website of the State Tax Service, all documents can be submitted electronically, but, for example, licenses for the sale of alcoholic drinks must have the respective stamps. Serhiy Verlanov offered to send a formal request to the Tax Service to confirm in writing that the mention in the register is a confirmation that the company has a license for the wholesale or retail alcohol trade even without a stamp on the license form.

The business also raised the issue of preparing official clarifications for the territorial State Tax Service authorities regarding the VAT taxation of clinical research related services. Thus, it has been reported that this issue requires the preparation of a general tax consultation issued by the Ministry of Finance. At the same time, the State Tax Service of Ukraine, for its part, is ready to consider and provide individual tax consultation if requested directly by companies.

Regarding the non-application of penalties for the payments to budgetary accounts (or local budget accounts of territorial communities) that have changed, the State Tax Service emphasized that there is one global solution, namely the introduction of a Single Account for tax payments, which is already provided on Monday, in the draft law № 1049 (preventing the reallocation of funds to the wrong account). The Single Account is expected to start operation as of January 1, 2021.

The European Business Association thanks the representatives of the State Tax Service for constructive dialogue. We hope that such meetings will be held more often, at least every 1.5 months, for business and government to have a constant dialogue and the possibility to address existing issues in a prompt manner.