How does the war affect the accounting of assets and what are the features of taxation of land and real estate tax?

04/ 06/ 2022

Since February 24, 2022, for many, unfortunately, the issue of accounting/writing off stocks and fixed assets that were destroyed/damaged by the armed aggression of the Russian Federation has become relevant. There are also certain features for VAT accounting of such transactions. So on June 2, 2022, at the Anticrisis Economics with EBA Odesa online meeting, we looked at these and other issues in more detail. The speakers of the event were Crowe Mikhailenko experts: Vitaliy Smerdov, Partner of Tax Practice and Victoria Vlasenko, Advisor of Tax Practice. We draw the attention of business to the following important nuances below. Currently, the State Tax Service imposes certain conditions and restrictions on the inclusion of the value of destroyed/damaged property in the costs, in particular, requires inventory and CCI certificate (even despite the letter of the CCI dated 28.02.2022 № 2024/02.0-7.1, which identified the armed aggression of the Russian Federation as circumstances of force majeure). Therefore, assets destroyed or damaged in the combat zone can be written off only after they have been physically accessed, inventoried and a commission set up to recover lost records. And after establishing the fact of liquidation of fixed assets, inventory and in the presence of a certificate of the Chamber of Commerce and Industry of Ukraine, confirming the occurrence of force majeure (force majeure) that took place on the territory of hostilities, the business entity has the right to display such liquidation in the financial and/or tax reporting. With regard to the revaluation of fixed assets and real estate to zero, there are no consequences of income tax on revaluation transactions (there are adjustments, but they usually do not lead to the need to pay income tax - costs and incremental adjustments will be reimbursed). Also, in accordance with the rules of accounting, the discount does not lead to an increase in income. In turn, the discount is not an event for VAT purposes, however, in practice, the auditors had other opinions. In accordance with the provisions of Law № 2120, which exempts businesses from paying for land, environmental tax for the duration of hostilities in Ukraine from March 2022. Temporarily, from March 1, 2022 to December 31 of the year following the year in which the martial law was terminated or lifted, the state of emergency shall not accrue or pay for: land (land tax and rent for land plots of state and communal property) for land plots (land shares), located in the territories where hostilities are taking place, or in the territories temporarily occupied by the armed forces of the Russian Federation, and are owned or used, including on lease, individuals or legal entities; (land plots (shares), defined by the regional military administrations as littered with explosives and / or on which there are fortifications). Thanks to the speakers for a useful practical excursion on a given topic!

We draw the attention of business to the following important nuances below.

Currently, the State Tax Service imposes certain conditions and restrictions on the inclusion of the value of destroyed/damaged property in the costs, in particular, requires inventory and CCI certificate (even despite the letter of the CCI dated 28.02.2022 № 2024/02.0-7.1, which identified the armed aggression of the Russian Federation as circumstances of force majeure). Therefore, assets destroyed or damaged in the combat zone can be written off only after they have been physically accessed, inventoried and a commission set up to recover lost records. And after establishing the fact of liquidation of fixed assets, inventory and in the presence of a certificate of the Chamber of Commerce and Industry of Ukraine, confirming the occurrence of force majeure (force majeure) that took place on the territory of hostilities, the business entity has the right to display such liquidation in the financial and/or tax reporting.
With regard to the revaluation of fixed assets and real estate to zero, there are no consequences of income tax on revaluation transactions (there are adjustments, but they usually do not lead to the need to pay income tax – costs and incremental adjustments will be reimbursed). Also, in accordance with the rules of accounting, the discount does not lead to an increase in income. In turn, the discount is not an event for VAT purposes, however, in practice, the auditors had other opinions.
In accordance with the provisions of Law № 2120, which exempts businesses from paying for land, environmental tax for the duration of hostilities in Ukraine from March 2022. Temporarily, from March 1, 2022 to December 31 of the year following the year in which the martial law was terminated or lifted, the state of emergency shall not accrue or pay for: land (land tax and rent for land plots of state and communal property) for land plots (land shares), located in the territories where hostilities are taking place, or in the territories temporarily occupied by the armed forces of the Russian Federation, and are owned or used, including on lease, individuals or legal entities; (land plots (shares), defined by the regional military administrations as littered with explosives and / or on which there are fortifications).

Thanks to the speakers for a useful practical excursion on a given topic!