Tax Reform 2020: Penalties Increased

26/ 06/ 2020

Tetiana Sheremet. Tax Expert of Accountor Ukraine The Law of Ukraine “On amendments to the Tax Code of Ukraine regarding improvement of tax administration, elimination of technical and logical inconsistencies in tax legislation” (hereinafter - “Law #466”) entered into force on May 23, 2020. Of course, this tax reform could not but affect changes in penalties. Although during quarantine, moratorium is imposed on penalties for tax offenses (except for some exceptions for VAT, excise tax and rent payments) committed from 01.03.2020 to the last calendar day of the month of quarantine, i.e. at least until the end of July, you need to be prepared for tax changes today in order to foresee possible consequences. Accountor Ukraine proposes to take a look at the most important changes which entered into force along with Law #466: Offense Before Now TCU paragraph 1. Offenses against the procedure of registration with the supervising body UAH 170 (for self-employed persons); UAH 510 (for legal entities) UAH 340 (for self-employed persons); UAH 1020 (for legal entities) § 117.1 2. If a non-resident party (foreign law firm, organization) conducts business activities via a separate unit, including a permanent representative office, without registering with tax authorities UAH 510 UAH 100 000 (for non-residents) § 117.4 3. Failure to submit / late submission of form # 1DF, or mistakes in form # 1DF UAH 510 UAH 1 020 § 119.1 4. Failure to indicate the identification code of a resident natural person, or indicating wrong identification code* in documents on taxation of natural persons UAH 170 UAH 340 §119.2 *If mistakes in the Tax Identification Number of an individual are corrected independently or within 30 calendar days from the date when information about the mistake was received from supervisory authorities, the penalty shall not apply. 5. Failure to submit reports or late submission of reports UAH 170 UAH 340 § 120.1 6. Untimely registration of compensatory, distributive, exempt and zero (with 0% rate) tax invoices / adjustment calculations 0 2 % scope of supply (VAT excluded), but no more than UAH 1020. §120.1 7. Failure to register compensatory, distributive, exempt and zero (with 0% rate) tax invoices / adjustment calculations 0 5 % scope of supply (VAT excluded), but no more than UAH 3400 § 120.2 8. Failure to preserve documents, failure to provide documents to supervisory authorities during tax control UAH 510 UAH 1 020 §121.1 9. Untimely payment of tax liabilities (effective from January 1, 2021). - up to 30 days of delay inclusive: - more than 30 days of delay: 10 % 20% 5% 10% § 124 However, not everything is quite clear with §9, which is coming into force on January 1, 2021. If tax authorities prove the intent in case of late tax payment, the fine increases to 25% in case of non-payment for up to 90 calendar days, and 50% if for more than 90 calendar days. The fact of intent must be proved by the tax authorities, but there is a high chance that in practice, tax authorities will categorize all non-payments as intentional, and the taxpayers will have to prove that it was unintentional, and appeal the tax decision. E.g., from 01.01.2021, taxpayers will have the right to voluntarily provide tax authorities with evidence of unintentional offenses committed by them. The changes that will come into force on January 01, 2021: the approach to calculating interest is changing; the list of cases when the payer is exempt from penalties is expanded; a silver lining” is the mitigation of liability if mitigating circumstances are proved: the amount of penalties is 50% of the amount of the fine established by the relevant norm of the TCU. Mitigating circumstances include: committing an act as a result of threat, coercion or due to financial, employment-related or other dependency; committing an act at the time of coincidence of difficult personal or family circumstances; if the payers inform about the offense committed by them (except for the offenses in Articles 123 and 125 of the TCU). as well as other circumstances which can be defined as mitigating and which are not foreseen by this Law.

Tetiana Sheremet

Tax Expert of Accountor Ukraine

The Law of Ukraine “On amendments to the Tax Code of Ukraine regarding improvement of tax administration, elimination of technical and logical inconsistencies in tax legislation” (hereinafter – “Law #466”) entered into force on May 23, 2020. Of course, this tax reform could not but affect changes in penalties. Although during quarantine, moratorium is imposed on penalties for tax offenses (except for some exceptions for VAT, excise tax and rent payments) committed from 01.03.2020 to the last calendar day of the month of quarantine, i.e. at least until the end of July, you need to be prepared for tax changes today in order to foresee possible consequences.

Accountor Ukraine proposes to take a look at the most important changes which entered into force along with Law #466:

Offense	Before	Now	TCU paragraph
1. Offenses against the procedure of registration with the supervising body	UAH 170 (for self-employed persons); UAH 510 (for legal entities)	UAH 340 (for self-employed persons); UAH 1020 (for legal entities)	§ 117.1
2. If a non-resident party (foreign law firm, organization) conducts business activities via a separate unit, including a permanent representative office, without registering with tax authorities	UAH 510	UAH 100 000 (for non-residents)	§ 117.4
3. Failure to submit / late submission of form # 1DF, or mistakes in form # 1DF	UAH 510	UAH 1 020	§ 119.1
4. Failure to indicate the identification code of a resident natural person, or indicating wrong identification code* in documents on taxation of natural persons	UAH 170	UAH 340	§119.2
*If mistakes in the Tax Identification Number of an individual are corrected independently or within 30 calendar days from the date when information about the mistake was received from supervisory authorities, the penalty shall not apply.
5. Failure to submit reports or late submission of reports	UAH 170	UAH 340	§ 120.1
6. Untimely registration of compensatory, distributive, exempt and zero (with 0% rate) tax invoices / adjustment calculations	0	2 % scope of supply (VAT excluded), but no more than UAH 1020.	§120.1
7. Failure to register compensatory, distributive, exempt and zero (with 0% rate) tax invoices / adjustment calculations	0	5 % scope of supply (VAT excluded), but no more than UAH 3400	§ 120.2
8. Failure to preserve documents, failure to provide documents to supervisory authorities during tax control	UAH 510	UAH 1 020	§121.1
9. Untimely payment of tax liabilities (effective from January 1, 2021). – up to 30 days of delay inclusive: – more than 30 days of delay:	10 % 20%	5% 10%	§ 124

However, not everything is quite clear with §9, which is coming into force on January 1, 2021. If tax authorities prove the intent in case of late tax payment, the fine increases to 25% in case of non-payment for up to 90 calendar days, and 50% if for more than 90 calendar days. The fact of intent must be proved by the tax authorities, but there is a high chance that in practice, tax authorities will categorize all non-payments as intentional, and the taxpayers will have to prove that it was unintentional, and appeal the tax decision. E.g., from 01.01.2021, taxpayers will have the right to voluntarily provide tax authorities with evidence of unintentional offenses committed by them.

The changes that will come into force on January 01, 2021:

the approach to calculating interest is changing;
the list of cases when the payer is exempt from penalties is expanded;
a “silver lining” is the mitigation of liability if mitigating circumstances are proved: the amount of penalties is 50% of the amount of the fine established by the relevant norm of the TCU.

Mitigating circumstances include:

committing an act as a result of threat, coercion or due to financial, employment-related or other dependency;
committing an act at the time of coincidence of difficult personal or family circumstances;
if the payers inform about the offense committed by them (except for the offenses in Articles 123 and 125 of the TCU).
as well as other circumstances which can be defined as mitigating and which are not foreseen by this Law.