EBA met with the leadership of the VRU Committee on Finance, Taxation and Customs Policy

25/ 01/ 2023

Today, the European Business Association met with Danylo Hetmantsev and Yaroslav Zheleznyak, Chairman and First Deputy Chairman of the Verkhovna Rada Committee on Finance, Taxation and Customs Policy, to discuss plans for the tax system in 2023. At the beginning of the meeting, Danylo Hetmantsev made a presentation on the State Tax Service Digitalization Reform 2023. Details can be found in the presentation here. Then participants discussed the issues that currently concern businesses, namely the program for the reconstruction of Ukraine. Thus, it was informed that the format, budget, etc. are currently being agreed upon, so we hope that details/specific programs will be announced in the near future. Regarding the state support of critical sectors, Mr Hetmantsev noted that there is a draft plan, which is publicly available, and it refers to such industries as energy, defence, agriculture, and so on. Thus, certain decisions are already being made, such as stimulating the creation of industrial parks and expanding the 5-7-9 program. At the same time, the country is currently quite limited in its budget, so the first step is to determine the recovery plan, sources of funding, etc. and then develop support programs in more detail. The participants also discussed draft laws to regulate the alcohol market. Thus, business is against the introduction of a bottle-by-bottle approach to alcohol accounting, like the Russian one. After all, tracking each bottle in the supply chain will require significant additional resources – both human and financial, logistical and operational. The community has already made a corresponding appeal and called for the revision of these draft laws (No. 8286, 8287) in order to develop and implement an effective mechanism that would help solve current problems in the market and not create unreasonable burdens and difficulties for producers and importers of alcoholic beverages. In their current version, these draft laws do not consider the interests of business in the fight against illegal alcohol products and still need to be harmonized with EU standards (as the system works differently there). At the same time, Danylo Hetmantsev informed that, conceptually, this system has already been agreed upon and urged the community to work on the technical component of its functioning in business. The community raised the issue of draft law No. 7611 and the extension of the preferential VAT regime for the IT industry, namely for the transactions with the supply of software products, as well as for those for which the payment is not considered royalties. As of January 1, this benefit was cancelled due to the principled position of the Ministry of Finance on this issue. At the same time, it was agreed that the community would share its proposals with the Committee, particularly in terms of approximating Ukraines tax legislation to the EU to determine the status of the supply of services and, accordingly, determine the obligation to pay VAT on services (including IT) outside Ukraine. The VRU Committee leaders also explained to businesses that the legal collision is being resolved which has arisen regarding the use of tax benefits that are tied to the list of occupied territories or those where military operations have taken place. The Tax Code states that the list of territories is approved by the Cabinet of Ministers, but now we have an order from the Ministry of Regional Development. Therefore, tax officials believe that additional amendments to the Tax Code or the CMU Resolution are needed. At the same time, businesses will soon have to submit their annual reports, and companies still cannot use their benefits. Therefore, we ask the VRU Committee on Finance, Taxation and Customs Policy to take the initiative in solving this problem for businesses that have suffered the most from the war. At the same time, businesses regularly report problems with the registration of tax invoices and delays in VAT refunds. Despite the entry into force of the latest amendments to CMU Resolution No. 1165, the automatic unblocking of tax invoices is not yet operational. We agreed that the EBA Tax Committee will routinely submit specific cases of companies to the relevant Committee of the Verkhovna Rada of Ukraine for legislative regulation of systemic problems. In the context of draft law No. 4366 on licensing of the electronic payments market (to extend the term for obtaining a license), the participants were informed that the document had been sent to the President of Ukraine for signature and assured that there would be no collapse in the payment services market! During the meeting, the grain industry representatives noted that there are many risks for business and budget revenues in connection with the recently adopted draft law No. 8166-d On Amendments to the Tax Code of Ukraine and Certain Other Legislative Acts of Ukraine on the Application of the Export Security Regime for the Period of Martial Law and the State of Emergency. It was also proposed to consider the initiative to separate the determination of the 7% VAT rate for the supply and import of active pharmaceutical ingredients (APIs), which are the main component for the manufacture of medicines. This will reduce the administrative and financial pressure on domestic manufacturers of medicines in Ukraine, as well as bring Ukraine closer to the EU regulations in this area. Besides, the EBA Health Care Committee called on the Verkhovna Rada Committee to prioritize the preparation and consideration in the second reading of draft law No. 5737 on taxation of transactions by business entities providing compassionate use medicines to patients. Also, there was a discussion on tax residency, startup taxation in the legal regime of Diia City, CFCs, etc. On behalf of business, we sincerely thank Danylo Hetmantsev and Yaroslav Zheleznyak for their constant dialogue with business, and willingness to support important initiatives, and sincerely look forward to further cooperation!

At the beginning of the meeting, Danylo Hetmantsev made a presentation on the State Tax Service Digitalization Reform 2023. Details can be found in the presentation here.

Then participants discussed the issues that currently concern businesses, namely the program for the reconstruction of Ukraine. Thus, it was informed that the format, budget, etc. are currently being agreed upon, so we hope that details/specific programs will be announced in the near future.

Regarding the state support of critical sectors, Mr Hetmantsev noted that there is a draft plan, which is publicly available, and it refers to such industries as energy, defence, agriculture, and so on. Thus, certain decisions are already being made, such as stimulating the creation of industrial parks and expanding the 5-7-9 program. At the same time, the country is currently quite limited in its budget, so the first step is to determine the recovery plan, sources of funding, etc. and then develop support programs in more detail.

The participants also discussed draft laws to regulate the alcohol market. Thus, business is against the introduction of a bottle-by-bottle approach to alcohol accounting, like the Russian one. After all, tracking each bottle in the supply chain will require significant additional resources – both human and financial, logistical and operational. The community has already made a corresponding appeal and called for the revision of these draft laws (No. 8286, 8287) in order to develop and implement an effective mechanism that would help solve current problems in the market and not create unreasonable burdens and difficulties for producers and importers of alcoholic beverages. In their current version, these draft laws do not consider the interests of business in the fight against illegal alcohol products and still need to be harmonized with EU standards (as the system works differently there). At the same time, Danylo Hetmantsev informed that, conceptually, this system has already been agreed upon and urged the community to work on the technical component of its functioning in business.

The community raised the issue of draft law No. 7611 and the extension of the preferential VAT regime for the IT industry, namely for the transactions with the supply of software products, as well as for those for which the payment is not considered royalties. As of January 1, this benefit was cancelled due to the principled position of the Ministry of Finance on this issue. At the same time, it was agreed that the community would share its proposals with the Committee, particularly in terms of approximating Ukraine’s tax legislation to the EU to determine the status of the supply of services and, accordingly, determine the obligation to pay VAT on services (including IT) outside Ukraine.

The VRU Committee leaders also explained to businesses that the legal collision is being resolved which has arisen regarding the use of tax benefits that are tied to the list of occupied territories or those where military operations have taken place. The Tax Code states that the list of territories is approved by the Cabinet of Ministers, but now we have an order from the Ministry of Regional Development. Therefore, tax officials believe that additional amendments to the Tax Code or the CMU Resolution are needed. At the same time, businesses will soon have to submit their annual reports, and companies still cannot use their benefits. Therefore, we ask the VRU Committee on Finance, Taxation and Customs Policy to take the initiative in solving this problem for businesses that have suffered the most from the war.

At the same time, businesses regularly report problems with the registration of tax invoices and delays in VAT refunds. Despite the entry into force of the latest amendments to CMU Resolution No. 1165, the automatic unblocking of tax invoices is not yet operational. We agreed that the EBA Tax Committee will routinely submit specific cases of companies to the relevant Committee of the Verkhovna Rada of Ukraine for legislative regulation of systemic problems.

In the context of draft law No. 4366 on licensing of the electronic payments market (to extend the term for obtaining a license), the participants were informed that the document had been sent to the President of Ukraine for signature and assured that there would be no collapse in the payment services market!

During the meeting, the grain industry representatives noted that there are many risks for business and budget revenues in connection with the recently adopted draft law No. 8166-d “On Amendments to the Tax Code of Ukraine and Certain Other Legislative Acts of Ukraine on the Application of the Export Security Regime for the Period of Martial Law and the State of Emergency”.

It was also proposed to consider the initiative to separate the determination of the 7% VAT rate for the supply and import of active pharmaceutical ingredients (APIs), which are the main component for the manufacture of medicines. This will reduce the administrative and financial pressure on domestic manufacturers of medicines in Ukraine, as well as bring Ukraine closer to the EU regulations in this area. Besides, the EBA Health Care Committee called on the Verkhovna Rada Committee to prioritize the preparation and consideration in the second reading of draft law No. 5737 on taxation of transactions by business entities providing compassionate use medicines to patients.

Also, there was a discussion on tax residency, startup taxation in the legal regime of Diia City, CFCs, etc. On behalf of business, we sincerely thank Danylo Hetmantsev and Yaroslav Zheleznyak for their constant dialogue with business, and willingness to support important initiatives, and sincerely look forward to further cooperation!