Tax Practice

Reform calm

Taxation is one of the most sensitive subjects for business. But most of the initiatives that have been actively discussed this year have not yet been implemented. Meanwhile, there is a shift in priorities in current law-enforcement practice from mass disputes with the tax authorities to transfer pricing. Businesses and their tax advisors are also preparing for inevitable change due to the implementation of the BEPS Action Plan, but the update of this issue depends entirely on Ukrainian lawmakers


Continuing the good tradition, lawyers specializing in tax law saw in 2018 studying the new specific legislation: on December 7, 2017, the Ukrainian Parliament adopted the Law of Ukraine No. 2245-VIII "On Amendments to the Tax Code of Ukraine and Certain Legislative Acts of Ukraine Regarding Securing of Budget Revenues in 2018".

In this legislation, the special attention of taxpayers was attracted by changes in the procedure for suspending registration of tax invoices in the Tax Invoices Risk Assessment Criteria and Value Adjustment Monitoring System (RACMS). It has been stipulated that until the adoption of the new procedure by the Cabinet of Ministers of Ukraine, the suspension of tax invoices registration/adjustments calculations in the Unified Register of Tax Invoices (URTI) will not be carried out. The new by-law was not long in coming, and from  the end of March, this year, Resolution of the Cabinet of Ministers of Ukraine No. 117 "On Approval of Procedures for Suspension of Registration of Tax Invoices/Adjustment Calculations in the Unified Register of Tax Invoices" came into force, as developed by the Ministry of Finance in cooperation with the State Fiscal Service. The establishment of a "3% cut off–criterion" and a monthly scope of the supply threshold amounting to UAH 500,000 is among the key innovations. Indicators of a positive tax history for small and medium businesses were introduced. At the same time, it is also stipulated that registration of tax invoices for a risky transaction for taxpayers with a positive tax history will not be suspended.

Furthermore, a number of significant amendments in the area of transfer pricing were made to Law No. 2245-VIII. The first thing taxpayers paid attention to was control over transactions between a non-resident and its permanent representation. Such transactions are considered controlled provided that their volume exceeds UAH 10 million for the corresponding fiscal (reporting) year. At the same time, the amount of annual income that the permanent representative office of a non-resident received in the reporting year will not matter.

The criteria for recognition of persons as associated ones were also improved. In fact, legislators restored the provisions of the Tax Code of Ukraine that were in force in 2013–2014: legal entities are recognized as associated ones if the same person exercises the powers of a single executive body of such legal entities. In addition, if an individual is recognized as associated with other persons, such persons shall be recognized as associated ones.

The law also established new criteria for the formation of low–tax jurisdictions list. In particular, the application of a 30 percent adjustment to transactions with non-residents the legal forms of which are defined in the relevant list and approved by the Cabinet of Ministers of Ukraine in its Resolution No. 480.

In addition, among the changes in the area of TP, experts give a positive assessment to the prospect of independent adjustment of the amount of tax liabilities prior to October 1 without charging penalties.


Official emphasis

The outgoing year was memorable for the discussion of reform of the State Fiscal Service of Ukraine in terms of its transformation into a service provider with minimum direct contact with business.

"Reform of the SFS is our priority. There are many good developments that need to be completed in this area. We see that it is not possible to merge the Customs Service and SFS into a single legal entity. Therefore, our task now is to divide the SFS into three equally important bodies and to reform each body separately: 1) the body that administers taxes; 2) the body that administers payments of customs duties and levies; 3) the body that conducts financial investigations. At the same time, reform of the SFS should not affect the sustainability of receipts to the State Budget, since we have crucial points as to repaying international loans", Serhiy Verlanov, Deputy Minister of Finance says, explaining the logic of reform. However, he notes that the process of merging the Customs Service and the SFS has not been completed and, therefore, everything that can be implemented under current legislation without introducing new draft laws will be implemented before the end of the year via resolutions issued by the Cabinet of Ministers.

"Reduction in administrative pressure on taxpayers conducting honest and transparent activities is the ultimate objective of reform of the SFS. At the same time, the fiscal authorities should focus their efforts on new approaches to their work: prevention of non-payment and provision of early responses, intensive international cooperation with partners in exchanging information and preventing cross-border abuses, as well as transfer pricing issues", the Deputy Minister of Finance adds.


Global attack

As for global tax trends, all attention is still focused on the implementation of the BEPS Action Plan. This year, Ukraine signed the convention on the implementation of measures relating to taxation agreements with the aim of combating base erosion and profit shifting (multilateral instrument (MLI)). Working in unison, the Ministry of Finance and the National Bank of Ukraine developed the draft Law of Ukraine "On Amendments to the Tax Code of Ukraine for Implementing the Plan on Base Erosion and Profit Shifting". The document is aimed at implementation into national legislation of the eight steps of the BEPS Action Plan instead of the four steps that Ukraine has committed itself to implementing. The last word rests with the Ukrainian Parliament, but Ukraine is slowly but steadily approaching world tax standards and taxpayers should, year by year, prepare more responsibly for the new rules on taxation.


Average withdrawal

Ukraine should refrain from taking steps that will lead to a significant reduction in revenues or increase in budget expenditures, since the tax fiscal gap against peak payments on government debt in 2019–2020 will put the country's macro-financial stability at risk. According to the Ministry of Finance, budget losses in case of imposition of a tax on withdrawn capital (TWC) for all existing corporate tax payers from January 1, 2019 will amount to UAH 46.7 billion. In addition, the Ministry of Finance anticipates that State Budget losses will be significant in 2020. They can be compensated only by increasing other taxes or reducing government spending. The expenditure side of the 2019 State Budget does not contain such items that can be quickly and painlessly reduced without affecting socially important areas like medicine, education and defense.

Therefore, the real possibility for introducing a TWK without the threat to fiscal stability is its application to small and medium businesses with an annual income of up to UAH 200 million and the use of a compensator in the form of conditional advance payment of TWC in the amount of 50% of the amount of tax liabilities under corporate income tax for 2018 only for this group of payers. In such case, 98% of companies will pay the TWC and benefit from this tax. About 4,500 companies with an annual income of over UAH 200 million, which declared in unison 85% of the total amount of corporate income tax raised, will remain payers of corporate income tax.

Such a taxation model was discussed with the IMF and, after a series of difficult negotiations, was agreed upon as a possible one. Ukraine can avoid default of its debt obligations only if it continues to cooperate with the IMF.


RE: Structuring

The signing by Ukraine of the Multilateral Instrument on implementation of the action plan to prevent base erosion and profit shifting (BEPS) and the coming into force of this document after it was ratified by the Verkhovna Rada of Ukraine in February 2019, will affect companies carrying out transactions at the moment or those lining up their corporate structures with an international element in order to minimize or evade taxes.­ Accordingly, those Ukrainian companies that bear risks of not applying the Instrument to certain transactions or risks of recognizing taxable permanent representation under the new rules should analyze and optimize their business structures and transactions, improve them where possible, or prepare arguments in case of disputes with regulatory authorities. Measures to increase the level of business presence in a foreign jurisdiction (so-called substance), as well as confirmation of other, different from exclusively tax goals of establishing such companies are, among other things, recommended legal steps that should be taken in order to restructure business structures in accordance with the requirements of this Instrument. In this regard, some of the structures traditionally used by Ukrainian business to plan operating activities from the perspective of tax efficiency and security of transactions, will now become more costly and their operation will require more attention from owners. Taxpayers will have to exert more effort to justify economic feasibility (so-called business reasons).







AMOUNT, US Dollars


supporting dispute



Appeal lodged by Imperial Tobacco Ukraine against the application of financial sanctions imposed in connection with the alleged violation of legislation of Ukraine on the licensing of wholesale trade in tobacco products


137 mln


Vasil Kisil and Partners




Appeal lodged by ArcelorMittal Kryvyi Rih PJSC against a number of tax assessment notices and penal sanctions


100 mln


Lexwell & Partners




Appeal lodged by ArcelorMittal Kryvyi Rih PJSC against the decisions of local authorities on increasing rent, land tax, and additional charges imposed by environmental authorities


53 mln


Lexwell & Partners




Appeal lodged by JV Poltava Petroleum Company against tax assessment notices on the additional charge of rental payments; the dispute on cancellation of tax assessment notices and collection of tax debt


26.8 mln


Ilyashev & Partners




Dispute between PJSC Odessa Port Plant and the Odessa Department of the Major Taxpayers Office of the State Fiscal Service on the recognition of tax assessment notices as unlawful and their cancellation


22.2 mln


MG Group




Judicial dispute between ArcelorMittal Kryvyi Rih PJSC and the Dnipropetrovsk Specialized Large Taxpayers State Tax Inspectorate of the Interregional General Division of the Ministry of Revenue and Duties of Ukraine on the cancellation of tax assessment notices


17.2 mln


Ilyashev & Partners




Legal dispute between LINIK PJSC and bodies of the SFS regarding appeal against decisions following the results of a scheduled inspection


15.2 mln


EUCON Law Group




Appeal lodged by VERNON SHIPPING LLC against tax assessment notices of the General Division of the SFS in Odessa Region


15.2 mln






Dispute between Kvant Plant JSC and the General Division of the SFS in Kyiv regarding the imposition of tax lien on all assets


12.5 mln


Gramatskiy and Partners




Appeal lodged by OLIMPEX COUPE INTERNATIONAL LTD against tax assessment notices of the General Division of the SFS in Odessa Region


10.5 mln






Vladimir Kotenko (EY Ukraine)


Alexander Minin (KM Partners)


Tax litigation




KM Partners








Vasil Kisil & Partners




Sayenko Kharenko













EY Ukraine




KPMG Law Ukraine


Moris Group


PwC Legal




Gramatskiy & Partners


Ilyashev & Partners


Sokolovskyi & Partners





Yaroslav Romanchuk (EUCON)




Hennadiy Voytsitskyi (Baker McKenzie)




Alexander Shemiatkin (KM Partners)




Serhiy Verlanov (Sayenko Kharenko)




Sergey Popov (KPMG Ukraine)


Tax consulting




KM Partners




EY Ukraine




KPMG Law Ukraine




Baker McKenzie




DLA Piper Ukraine


Другие известные юридические фирмы*













KPD Consulting


PwC Ukraine


Sayenko Kharenko


Ilyashev & Partners






Larysa Antoshchuk (KPMG Law Ukraine)


Serhiy Chuyev (EQUITY)


Igor Davydenko (Dentons)


Viktoriya Fomenko (INTEGRITES)


Valentyn Gvozdiy (GOLAW)


Iryna Kalyta (EY Ukraine)


Alexey Khomyakov (Asters)


Dmytro Korbut (Sayenko Kharenko)


Natalia Kurilenko (Sokolovskyi & Partners)


Denis Lysenko (AEQUO)


Vadim Medvedev (AVELLUM)


Vitaliy Patsyuk (KPD Consulting)


Andrey Pronchenko (PwC Legal)


Volodymyr Rak (MORIS GROUP)


Eugene Shkrebets (Shkrebets & Partners)


Vladyslav Sokolovskyi (Sokolovskyi & Partners)


Andriy Stelmashchuk (Vasil Kisil & Partners)


Illya Sverdlov (DLA Piper Ukraine)


Volodymyr Vashchenko (VB PARTNERS)


Oleg Vdovychen (Vdovychen & Partners)


Slava Vlasov (PwC Ukraine)