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Laws affecting Ukrainian business in 2013


By Oleksii Khrystoforov, Attorney at Law, Head of Ilyashev & Partners Kharkiv Office
Source: The Kompanyon

This year has seen 132 new acts and rules put in place to govern various groups of social relations in Ukraine. We have picked up four which, in our submission, best meet the criteria of absolute novelty and potential to affect Ukrainian business environment.

Introducing Corporate Liability as part of the implementation of EU-Ukraine Action Plan on Visa Liberalization (Act of Parliament No.314-VII dd. 23 May 2013)

The concept of corporate liability has now found its place in Ukrainian law.

Until recently, the countries of the former Soviet Union recognized that corporations as legal persons could be held liable under civil, commercial and administrative law only, while one of the pillars of Ukrainian criminal law was the personalization of crime and punishment.

Without prejudice to any expedient arguments in favour of this new law, I am afraid I must express concerns about the sweet expectations over its implementation (the Act will take effect on 1 January 2014). Under present conditions, this law is very likely to become yet another tool to exercise pressure on businesses.

Treasury Notes as VAT Refund (Act of Parliament No.407-VII dd. 4 July 2013)

In accordance with this Act which took effect on August 8 earlier this year, until 1 January 2014 exporters may opt to receive VAT refund in the form of treasury notes as alternative financial instruments. The issue of a treasury note will have the same effect as the money transfer from the budget.

VAT notes will have a cap maturity of 5 years and pay interest of 5% per annum. Interest will be paid at the time the notes are cashed.

It is supposed that the primary aim of the legislator was to legitimatize the delay of refunds from the public purse. But the uncertainty and inconsistency of certain provisions of the act creates favourable conditions for their arbitrary interpretation by the bodies of Ukraine’s Internal Revenue and Customs as well as by businesses themselves.

New Transfer Pricing Rules (Act of Parliament No.408-VII dd. 4 July 2013)

The Act took effect on September 1 earlier this year. This is yet another anti-offshore act, the main objective of which is combating tax minimization by way of monitoring transactions between related parties in Ukraine and foreign trade transactions involving companies domiciled in tax heavens and jurisdictions with low tax rates.

The act has introduced significant changes to the list of transactions that fall under the new transfer pricing rules. Now, companies that have carried out controlled transactions (the law provides for their definition) within the previous year will have to submit an electronic report on controlled transactions (bearing electronic signatures and seals) with the Ministry of Internal Revenue before May 1 of the next year. The Ministry of Internal Revenue may verify transfer prices if a taxpayer fails to submit reports and documentation in a due manner or include a controlled operation in its report.

Failure to submit a report will result in a 5 per cent penalty on the amount of the controlled transaction in question. The new Transfer Pricing Rules also introduced a tax audit of the controlled transactions. And if tax authorities discover that the price of a controlled transaction is largely different from market prices the taxpayer will be fined for 25% of tax payable on the amount of adjustment. However, until 1 September 2014 the penalty will be only UAH 1 regardless of the amount of adjustment.

Vehicle Scrappage and Environmental Levy Rules (Act of Parliament No.421-VII and Act of Parliament No.422-VII dd. 4 July 2013)

Starting from September 1, private vehicles produced abroad are levied with the recycling tax. This has resulted in significantly increased prices for almost all foreign-made cars for Ukrainian buyers.

Domestic manufacturers offering a full production cycle (including welding and painting) as well as enterprises engaged in SKD assembly of cars are exempt from recycling tax if they guarantee scrappage at own capacities.

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