Tax Practice

Following matter

While domestic tax reform once again finds itself at the stage of legislative initiatives, Ukrainian business is keeping a close eye on international trends in the tax field. After all, the country announced the European vector of development and this means that Ukrainian tax law should be brought up to international standards


International background

Changes in international tax law recently caused bewilderment in Ukrainian business, supported by the belief that the day when global trends would come to Ukraine is still far away. But the situation is changing rapidly and today, within the latest tax reform, both business and legislators are keeping a close eye on events on the international scene and developing mechanisms to implement innovations.

The recent world trend in the area of taxation is implementation of the Base Erosion and Profit Shifting (BEPS) Plan. According to Svetlana Musienko, partner and head of DLA Piper Ukraine ILF, the main essence of corresponding measures is to ensure that taxes paid comply with the economic essence of business.

"The scandal with the Panama Papers triggered further discussion in Ukraine about BEPS reforms. In May, a working group, created at the initiative of the President, presented the concept of future BEPS reform. But the initiative did not get any further, and an official draft bill was not submitted to the Verkhovna Rada. However, In September 2016, Valeria Gontareva, the Governor of the National Bank of Ukraine, called the BEPS Plan as one of the prerequisites for currency liberalization", — notes Svetlana Musienko.

In his turn, Sergiy Verlanov, partner at Sayenko Kharenko, explains that Ukraine has already joined the Convention on Mutual Administrative Assistance in Tax Matters and concluded a number of corresponding bilateral agreements. However, in recent years, the OECD developed the Common Reporting Standard (CRS). Implementation of CRS provides for the signing of a special multilateral agreement on the basis of the aforementioned Convention and the amending of national legislation.

"In April 2016, the compiling of a 'black list' of states and jurisdictions that do not cooperate in the area of international exchange of tax information was discussed at the meeting of the Ministers of Finance and Chairmen of central banks of G­20 countries. Later, it became known what criteria would be taken into account when including one or another country in this 'black list': these are the country's rating according to the EOIR standard that is not below the category 'corresponds to a significant extent', undertaken obligations to implement CRS, participation in the Convention or availability of a sufficiently wide information exchange network (both upon request and automatic). The country's meeting of at least two of the three criteria will be sufficient to recognize it as a cooperating country at the beginning. However, some jurisdictions that improperly fulfill their obligations on the information exchange shall correspond to all three criteria simultaneously.

However, Ukraine does not belong to such jurisdictions at the moment, our country meets only one criteria – participates in the aforementioned Convention", — Mr. Verlanov says.

The expert also notes that at the moment Ukraine does not fully meet the criteria set out by the OECD. It is planned to introduce the "black list" from July 2017, which means that both the government and Parliament have time to improve the situation. "Otherwise, Ukraine runs the risk of facing quite serious problems if the country were to be recognized as a 'non-cooperative' one. Let us recall: the last precedent of our country's finding itself on a  similar 'black list' lasted from the end of 2002 to February 2004, when Ukraine failed to bring legislation into compliance with the FATF Group recommendations in time", — Mr. Verlanov states.

Thus, according to experts, global trends have not had a direct impact on Ukrainian business and the market yet, but in the near future Ukrainian tax legislation will be brought into compliance with international standards.

"There are tectonic shifts in international tax planning that have changed the approaches to understanding of the banking secrecy transparency as well (the latter will probably soon disappear completely). That is why Ukrainian business should prepare for the fact that in the foreseeable future the tax authorities will be able to obtain information from foreign banks as a result of automatic exchange of tax information. The chances are that  information on controlled foreign companies shall be disclosed as well (CFC rules). The existing solutions connected to foreign assets may lose their effectiveness after the implementation of BEPS reforms in Ukraine. Lawyers should be prepared to propose efficient, but transparent solutions to their clients. The offshore era is coming to an end. And finally, "si vis pacem, para bellum", — Svetlana Musienko says, summing up.

Administration Ukrainian style

"The key task of tax reform in Ukraine is to improve the administration of taxes" – in recent years, such statements can be heard from experts, business representatives and from legislators who, on an all too regular basis, are "cheering up" taxpayers with their initiatives.

This year, traditionally, is no exception. Business has received other changes in tax legislation "under the Christmas tree". These are piecemeal changes, related to issues of administration, and, first and foremost, to VAT. I am talking about the Law of Ukraine "On Amendments to the Tax Code of Ukraine and Some Other Legislative Acts of Ukraine Concerning the Revenue to Balance the Budget in 2016", which was adopted on December 24, 2015, and entered into force on January 1, 2016.

While last year the Electronic System of VAT Administration (ESA) was a novelty and gave rise to unfavorable criticism on the part of taxpayers, this year, the aforementioned Law has introduced amendments that have partially made the lives of taxpayers easier. Thus, in case of return of the overpaid VAT liabilities, monetary funds are subject to return exclusively on the account of taxpayer in ESA.

At the same time, the novelties related to the introduction of registers of applications for the return of an amount of budget VAT refund were perceived ambiguously. It should be noted that this provision came into force on February 1 2017. Two registers were created: the Register of applications for return of amount of budgetary refund to the taxpayers that comply with the criteria of paragraph 200.19 of Article 200 of the Tax Code (TC) of Ukraine, and the Register of applications for return of amount of budgetary refund to the taxpayers that do not comply with the criteria of paragraph 200.19 of Article 200 of the TC of Ukraine.

The draft law providing for introduction of one unified public register of applications on budgetary refund instead of two, was submitted almost immediately to Parliament for consideration. Moreover, experts state unanimously that if the registers were united and the process of budgetary refund was made more transparent, a number of issues in this area would probably become a thing of a past. In particular, the issue here is about the corruption element that arises at the stages of filing an application on refund before the tax authority approves a decision on refund. Nevertheless, the amendments have not been introduced to date.


Improving appeal

Administrative appeals against the decisions of the tax authorities is another issue in which business takes considerable interest.

A reminder that in January 2016, the Order of the Ministry of Finance of Ukraine came into force which establishes the Procedure for execution and filing of the taxpayers’ claims and their consideration by regulatory authorities. This procedure provides for moving to a more transparent procedure, expanding the scope of taxpayers rights, and improved standard of correctness of decisions, adopted as a result of consideration of complaints. But the most important, according to experts, is the possibility to move to a one-tier system of administrative appeal (only at the level of the SFS central office).

In August of this year, draft amendments to the aforementioned Order providing for introduction of additional tools for ensuring objectivity of complaint consideration came into existence. In particular, the representatives of the Ministry of Finance of Ukraine, the State Regulatory Service, the Commissioner for Entrepreneurship at SFS and the Business Ombudsman Council representatives will be able to take part in the complaint consideration.

Guarantees on the transparency of complaint consideration are also being introduced. Among them is the opportunity to make an application on open consideration of a complaint or on the presence of media representatives during  consideration of a complaint involving a taxpayer. It also provides for the right to carry out technical recording of the session using photo and video recording, sound recording and to study materials on the inspection and administrative appeal in electronic and written form, make copies of them as well as excerpts with the use of technical means.

One significant change is connected with the obligation of the lower level regulatory authority to send all the documents in electronic or written form related to the complaint's consideration to the regulatory authority of higher level (which is considering the claim).

Judicial failure

The latest trends of judicial practice in 2015-2016 are disputes regarding VAT administration. Changes in judicial practice have taken place in connection with the recent judgments of the Supreme Court of Ukraine revising a number of established legal opinions.

"First and foremost this concerns the assessment of the reality of the taxpayers' relations with counterparties, whose officials were convicted under Article 205 of the Criminal Code of Ukraine (sham business). The judgment approving admission of guilt or exemption from criminal responsibility agreements for non-rehabilitating reasons, leads to the same result: an administrative court does not recognize the tax consequences of all transactions of such a counterparty, which means that you have to say goodbye to the costs and tax credit. A big wake-up call is the judgment in case No. 21-2187а16, dated October 04, 2016, in which the same conclusion was made on the basis of the record of interrogation in criminal proceedings", — Sergei Varlamov notes.

According to him, there is also a trend towards significant increases in the amounts of  additional tax charges. This is due not only to objective reasons. For example, with the change in the currency rate exchange, but with a peculiar hunt on the part of the SFS for big additional charges. Remarkable cases in point are disputes involving Kyivstar PJSC, Philip Morris Ukraine PJSC, Ukrzaliznytsia JSC and SE Energoatom. 


While business is waiting for the adoption of tax reforms at legislative level, which, by the way, has been already approved by the Government, experts are making forecasts for the immediate future.

As noted by Natalia Radchenko, partner of the Juscutum LF tax practice, the practice of rising tax liabilities charges as additional income and application of punitive sanctions against beneficiaries in the case of the sale of goods below their cost price is expected to continue in 2017.

"Furthermore, in the light of recent statements by the President regarding the considerable savings of enterprises on the unified social tax payment, it is not improbable that  next year there will be complaints against employers calculating payroll to a minimum and lower. Enterprises carrying out controlled transactions in terms of transfer pricing still remain in the risk zone of transfer pricing audits", — she says.

Talking about planned tax innovations, Mrs. Radchenko notes that introduction of the capital transfer tax from January 01, 2018, is amongst the most radical changes, which will significantly change the income tax structure and approaches to the expenditure side.

"Among the positive changes, the launch of the fully-fledged taxpayer's e-account with access to all his tax information, allowing the carrying out of verifications of budget settlements, administration of overpaid amounts, etc. should be noted. Anyway, all the  taxation trends will become apparent no earlier than at the end of 2016 – beginning of 2017", — the expert ­concludes.

It should be noted that work on the latest amendments to the Tax Code of Ukraine with the involvement of business and experts in this area and approved by the Cabinet of Ministers document are a kind of compromise between the Government and business. However, there will be no  radical changes and the proposed provisions are more "correction of errors" and are aimed at the elimination of mechanisms giving rise to corruption.

Parliament will definitely have the last word, but business representatives hope that these provisions will hold their ground.







WTS Tax Legal Consulting/ KM Partners




EY Ukraine





KPMG Ukraine




DLA Piper




Baker & McKenzie






WTS Tax Legal Consulting/ KM Partners










Ilyashev & Partners




Marchenko Danevych




PwC Legal




Volodymyr KOTENKO

(EY Ukraine)


Alexander MININ

( WTS Tax Legal Consulting/ KM Partners)











(DLA Piper)





(Marchenko daNEVYCH)





(Baker & McKenzie)





( Jurimex Law Firm)











(Sayenko Kharenko)


Valentyn GVOZDIY







(Baker & McKenzie)



(Sayenko Kharenko)



( Sokolovskyi & Partners)


Oleksandr MAYDANYK

( Egorov Puginsky Afanasiev & Partners Ukraine)


Volodymyr MISECHKO

( Misechko & Partners)



( OMP)



( Poberezhnyuk & Partners)


Sergey POPOV

( KPMG Ukraine)



(PwC Legal)



( Gramatskiy & Partners)



(DLA Piper)



( Sokolovskyi & Partners)



( Vasil Kisil & Partners)






(ICF Legal Service)












( KPMG Ukraine)






( WTS Tax Legal Consulting)



( Shkrebets & Partners)