Legislation analyst

A Single Account for Customs Payments Started Functioning


From April 16, all customs clearance of enterprises’ goods will be carried out solely through a single account.
The introduction of a single account was foreseen by the Procedure for transferring customs and other payments to the state budget entered into/during the customs clearance, which came into force on December 19, 2017.

The new procedure for transferring payments to the customs budget should reduce the time of customs clearance of goods, since the funds will be accounted for in one card – a personal account of the subject of foreign economic activity. Such innovation is welcomed by the business, as there will be no need to submit several declarations to different customs offices, to transfer funds to various customs, which had different accounts before.

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From now on, all customs will have a single account and declarations will be served in any customs office.

Nearly two years have passed since the adoption of the relevant resolution, but according to the SFS, a separate unit has been set up to ensure the functioning of a single account,
modern software for direct communication between the SFS and the Treasury has been developed. This is done to control funds both during the process of receiving funds from enterprises and during transferring funds to the budget.

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The Supreme Court Changes the Practice of Simultaneous Applying Fines and Penalties Once Again


The resolution of the Supreme Court from 02.04.2019 confirmed the possibility of simultaneous charging a fine a penalty for obligation violations. We should recall that the position of the Court has changed several times before, but the Court insisted on the impossibility of simultaneous penalty enforcement more often, as it was considered a violation of the Constitution of Ukraine, Article 61 of which prohibits double prosecution for the same offense.
In a new decision, the Supreme Court states that the simultaneous charging a penalty from a participant in a business relationship that breached an economic obligation under the agreement does not violate Article 61 of the Constitution of Ukraine, since, in accordance with Article 549 of the Civil Code, penalties and fines are forms of a penalty, and accordingly to Article 230 of the Civil Code of Ukraine – different types of penalties.

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That is, a fine and a penalty are not separate types of legal responsibility, and a different set of sanctions can be applied within the limits of one type of responsibility.

Regardless of the latest practice of the Supreme Court which still allows the imposition of a fine and a penalty at the same time, we should remember that today’s Court does not have stable judicial practice, and everything may change again very soon.

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Explanations of Undeclared Staff on Salaries “in the envelope” are Not a Proof for Charging Additional Taxes


April 2, 2019, the Supreme Court ruled in the administrative case No. 808/434/16 on the suit of a private entrepreneur to the Pology State Tax Inspectorate in the Zaporizhia region, which established that the only explanations of officially undocumented workers are not enough to prove the salaries payments “in the envelope” for charging additional taxes.

The court refused to satisfy the complaint of taxpayers, as all decisions and claims of the defendant were made based on the fact that he paid the income to individuals without registering their labor relations. The conclusions of the tax authority regarding the revealed violations are based only on the written explanations, however, the amounts indicated in the act are not confirmed, they are actually based on assumptions, which proves the unlawfulness of the taxpayer’s liability to the plaintiff on personal income tax, military fees and unified social tax.

The courts noted that the explanations of these persons actually contain information on the actions of the plaintiff or his inactivity, which may be characterized as the violation of the legislation of Ukraine on labor. However, the issuance of a tax notice – a decision in the absence of any evidence confirming the amount of the assessed taxes and fees is illegal.

A similar case was considered in an appeal, which appealed the order of the State Labor Administration on the results of the inspection of a business entity, which, according to them, started labor relations with employees as civil relations.

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In the case No.1140/2746/18, Kirovograd District Administrative Court acknowledged that the State Labor Administration has no legal grounds for conducting business inspections. Thus, according to the courts, the inspections of the State Labor Administration were carried out in accordance with the Law of Ukraine “On the Basic Principles of State Supervision (Control) in the Field of Economic Activity”. Still, the requirements of Part 4 and 5 of Article 2 of the Law stipulate that the control measures carried out by the state supervisory authorities and control over observance of the legislation on labor and employment of the population in accordance with the procedure established by this Law, taking into account the peculiarities determined by the laws in the relevant areas and international agreements.

Since there is no law in Ukraine which would specify the procedure for conducting inspections by the State Labor Administration, the whole inspection is assumed illegal. So, the order of the State Labor Administration issued on the basis of the unlawful inspection results is also illegal.

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Deputies are Going to Take the Bill on the Tax on Withdrawn Capital as a Basis


The Verkhovna Rada committee on Taxation and Customs Policy recommends Verkhovna Rada adopting the Bill No.8557 on the tax on withdrawn capital, registered in July 2018, as a basis.
According to the explanatory note, the bill envisages the replacement of the corporate tax with the tax on the withdrawn capital. The use of corporate profit tax by banks is allowed upon their decision for 3 years (until December 31, 2021).
The object of taxation of the deductible capital is determined by transactions of capital withdrawal and operations equated with capital withdrawal.

Capital withdrawal operations which will be taxed:
– payment of dividends in favor of a non-taxpayer;
– payment of part of profit by state non-corporations or communal enterprises, the return of contributions to a non-taxpayer owner of corporate rights (in the amount exceeding the cost of the contribution made by a founder and/or an owner to the authorized capital of this legal entity), etc.

Operations equated with capital withdrawals which will be taxed:
– interest paid to non-resident related parties and non-residents registered in low-tax jurisdictions;
-payments under insurance or reinsurance contracts in favor of non-resident insurers (in some cases);
-financial assistance provided by a taxpayer to a non-taxpayer, which is not subject to return or provided to a related party;
– payment (transfer), carried out in connection with:
– transfer of funds from accounts in Ukrainian banks to taxpayer accounts abroad;
– the repayment of obligations arising out of contracts, the execution of which does not result in the transfer of funds to accounts of taxpayers in Ukrainian banks or before a taxpayer receives property, works, services;
– economic operations recognized as controlled by the rules of transfer pricing, if their conditions do not correspond to the principle of “arm’s length” in part of the amounts of funds assessed;
– operations on providing a non-payer with free property (except for certain cases);
– payments carried out due to investing in objects (including the acquisition of property) which are located outside the territory of Ukraine, purchasing works and services from a non-resident non-payer of a taxes, and/or transfer of property, provision of works, and services to a non-resident non-payer of taxes (if payments or provision of property, works, and services for the relevant transactions are not made in 360 days or other terms in accordance with the legislation);
– funds and/or the value of the property transferred to the statutory capital of a non-payer of taxes;
– funds and or the value of property paid in connection with the purchase of products and services from related individuals using the simplified taxation system;
– payment of royalties in amounts exceeding the limit and other individual cases.

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Payers of the tax on withdrawn capital are intended to identify residents (economic entities – legal entities carrying out economic activities both in the territory of Ukraine and abroad) and non-residents (legal entities carrying out activities specified in the Code in the territory of Ukraine, as well as permanent representations of non-residents which carry out activities in the territory of Ukraine).

It is proposed to apply the following tax rates on withdrawn capital:
15% – for operations regarding capital withdrawals;
20% – for operations equivalent to capital withdrawals (except for the following 5% tax deductible transactions);
5% – for funds paid for executing debt obligations by related non-resident parties. In case of exceeding the aggregate amount of debt obligations to all related non-resident individuals over own payers’ capital by more than 3.5 times (for financial institutions and companies engaged in only leasing activities – in more than 10 times) or registration of a non-resident in low-tax jurisdictions, the rate of 20% will be applied.

The bill raises a number of opposing assessments. In particular, business in Ukraine calls for the bill to be adopted immediately, which can be explained by numerous shortcomings of the current income tax. However, the IMF and Ukrainian economic experts are concerned not about the bill but the lack of a mechanism for its implementation. Without a compensation mechanism, the tax on withdrawn capital may become corrupted in several years. Moreover, according to the estimates of the Ministry of Economic Development and Trade, the adoption of the bill as it is can lead to losses of 1.2-1.3% of Ukraine’s GDP, which will negatively affect the state budget.

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Foreign Companies Can Open Accounts in Ukrainian Banks


With Resolution No. 56 from April 1, a new version of the Instruction on the procedure for opening and closing accounts of banks’ clients and correspondent accounts of resident and non-resident banks were issues.
From now on, non-resident legal entities will be able to open accounts in Ukrainian banks.
A bank creates an account for a non-resident legal entity which does not have an account with this bank on the basis of the following documents:
1) a statement on opening an account with the mandatory indication of the purpose (for investing in Ukraine, for conducting business in Ukraine, for conducting operations without the entrepreneurial activity in Ukraine);
2) copies of legalized or certified with an apostille registry certificate of a foreign local authority which confirms the registration of a non-resident legal entity according to the legislation of Ukraine;
3) copies of legalized or certified with an apostille power of attorney in the name of a person who has the right to open an account or a document confirming that a person has the right to open an account without a power of attorney certified in accordance with the procedure established by the legislation of Ukraine.

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In case of issuance of a power of attorney by a non-resident legal entity on the territory of Ukraine, a copy of this power of attorney certified in accordance with the procedure established by the legislation of Ukraine must be provided.

A non-resident legal entity which uses hired labor and is a payer of the Unified social tax in accordance with the legislation of Ukraine must file a copy of the document confirming the taking of the non-resident legal entity for registration in the respective supervisory body as a payer of the Unified social tax in addition to the above-listed documents. Information about the fact that a non-resident legal entity does not use hired labor and is not a Unified social tax payer must be indicated during the account opening in the “Additional information” field.
At the same time, the new version of the Instruction cancels the need to provide a card with signatures of authorized persons to open and manage accounts.

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Ukrainian Banks Will Detect Shell Companies: New Changes in Financial Monitoring


On April 2, the NBU amended the Regulation on the implementation of financial monitoring by banks.
The changes are related to the fact that foreign non-resident legal entities now have an opportunity to open accounts in Ukrainian banks. Extension of these rights required additional control measures from the side of the banking system entities.
From this moment, banks will identify shell companies among non-resident legal entities using financial monitoring.
Under the new order, a “shell company” is a non-resident legal entity that does not carry out actual economic activity in the country of registration (there are no sufficient assets and/or employees to carry out the corresponding type of economic activity) and/or its ownership structure does not allow to find real beneficiary owners (controllers).

On the one hand, new powers of the NBU and banks are going to reduce the risk of money laundering and withdrawal with the use of foreign companies, on the other hand – will cause significant inconvenience for potential clients of banks.
Henceforward, a bank has to analyze the following documents and/or other information in order to prevent the use of its services for money laundering:
1) documents explaining the essence of the economic activity of a non-resident legal entity;
2) financial statements confirmed by an independent external audit which reveals the essence and content of financial transactions carried out by a client – a non-resident legal entity – and allows to establish the correspondence of profit (income) and turnover to its economic activity;
3) confirming the actual movement of goods, the provision of services, and the performance during conducting its economic activity;
4) confirming the economic activity of the main contractors of a non-resident legal entity;
5) confirming the payment of income tax by a non-resident legal entity;
6) confirming the hiring of a person under the terms of an employment contract (a contract for hiring staff or a contract for providing outsourcing services) by a non-resident legal entity, if their duties are organizing and ensuring the implementation of economic activity.

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The compliance of such duties with the type of activity of a non-resident legal entity, as well as volumes of its financial operations are taken into account;
7) confirming the availability of production/office buildings and other assets which a non-resident legal entity uses in the relevant type of economic activity (a legal document or a lease agreement for the premises/equipment).
The list of documents/information specified in the Regulation is not exhaustive. Banks have the right to independently determine the scope and list of necessary documents/information which is sufficient to confirm that a non-resident legal entity is not a shell company, taking into account risk-oriented approaches.
If necessary documents are not provided at all or not provided in full by a non-resident, a bank will be obliged to mark this company as one with an unacceptably high-risk level and take measures up to the termination of any business relationship with this company. In addition, the interests of the resident bank customers who have co-operated with this company (as counterparties) may also be affected, as the bank takes measures defined in paragraph 60 of Section V of the Regulation in relation to clients which are counterparties to a non-resident legal entity can’t confirm it is not a shell company. The bank will perform a thorough check of such counterparties and take other measures in the order to identify, verify and study the bank’s clients and compliance-risk management programs.

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