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New Tax Compromise: More Preferences for Taxpayers

29.12.2014 Author: Valentyn Gvozdiy
Source: Business
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On December 25, 2014 the Verkhovna Rada of Ukraine adopted the draft law "On Amendments to the Tax Code of Ukraine as to the Peculiarities of Specifications of the Tax Liabilities on the Corporate Income Tax and the Value Added Tax in case of a Tax Compromise” dd. December 24, 2014 under No. 1071-d (hereinafter referred to as the Draft Law).

Thus, the Draft Law proposes to establish the procedures of specification of the tax liabilities on the income tax and the value added tax in case of a tax compromise. For this purpose it is supposed to complement Section XX “Transitional Provisions” of the Tax Code with a new clause 91 “Peculiarities of Specifications of the Tax Liabilities on the Corporate Income Tax and the Value Added Tax in case of a Tax Compromise”.

According to the provisions of the Draft Law, a tax compromise shall mean a regime of discharge of taxpayers and/or their officials (employees) from any legal liability for an understatement of tax liabilities on the corporate income tax and/or the value added tax for any tax periods up to April 2014 taking into account the limitation periods as provided in Article 102 of the Tax Code of Ukraine.

It should be immediately noted that a discharge from legal liability shall mean a discharge from any criminal, administrative and financial liability by making amendments to the Administrative Offense Code of Ukraine, the Criminal Code of Ukraine, the Criminal Procedure Code of Ukraine and the Administrative Court Procedure Code of Ukraine.

The principal idea of the Draft Law is to give the persons who avoided tax payment the possibility to show their real incomes up to April 01, 2014 and to pay only 5 percent of the amount of such understated tax liability on the corporate income tax and/or the value added tax, at that 95 percent of the amount of such understated tax liability on the corporate income tax and/or the value added tax shall be deemed to be
repaid, no fine sanctions shall be applied, no penalty shall be charged.

The persons who are ready to come to a tax compromise shall have 90 calendar days from the date of this Law to file specific calculations related to tax liabilities on the corporate income tax and/or the value added tax to a controlling agency.

The procedure of coming to a tax compromise shall take not more than 70 calendar days from the day following the date of filing of specific calculations. The taxpayer’s filing of specific calculations for the periods for which no documentary inspection was carried out may be the grounds for an ad hoc documentary inspection according to the procedure of tax compromise. Within 10 business days from the day following
the date of filing of specific calculations a controlling agency shall take decision as to the necessity of such ad hoc documentary inspection. The result of such inspection may be, if any violations of tax laws by the taxpayer discovered, a tax decision notice, and if no such violations discovered, a certificate confirming the legality of the amounts of tax liabilities in specific calculations.

As to the contractors of a taxpayer who agreed to a tax compromise, according to clause six of the Draft Law, the taxpayer’s specifications of tax liabilities by filing specific calculations shall not affect the amount of tax liabilities of his/her contractors.

But, to my mind, the wording “shall not affect” does not meet the principle of legal definition, obviousness and unambiguousness of legal norms, as it does not contain a completed legal mechanism of its realization that does not exclude an unlimited interpretation in law enforcement practice.

A positive thing is that in the Draft Law they repaired a defect of a previous draft Law "On Amendments to the Tax Code of Ukraine as to the Peculiarities of Specifications of the Tax Liabilities on the Corporate Income Tax and the Value Added Tax in case of a Tax Compromise” dd. May 26, 2014 under No. 4930 which was adopted on June 19, 2014 by the Verkhovna Rada of Ukraine in the first reading.

Thus, clause 10 of the Draft Law provides that an action made by a taxpayer or his/her officials (employees) which led to understatement of his/her tax liabilities on the corporate income tax and/or the value added tax, if such tax liabilities are specified according to the procedure of tax compromise and paid to the budgets,

shall not be deemed to be wilful evasion from tax, duty payment (obligatory payments). In the Draft Law dd. May 26, 2014 under No. 4930 they have not solved the issue of discharge from criminal liability for evasion from tax payment by making amendments to the Criminal Code of Ukraine, they have only made amendments to the Tax Code of Ukraine.

However, it is not sufficient as, according to the provisions of the Criminal Code of Ukraine, a person who has committed a crime including that related to the violations of tax payment laws, may be discharged from criminal liability only as provided in the Criminal Code. In the adopted Draft Law this issue has been solved, namely Article 212 of the Criminal Code of Ukraine and Article 284 of the Criminal Procedure Code of Ukraine have been amended.

Not least important is the fact that the Draft Law provides for the possibility of application of the procedure of conciliation of the parties within the administrative court procedures while applying a tax compromise at any stage of the proceeding.

The adopted Draft Law is aimed at the improvement of the tax system, the establishment of a dialogue between the State and taxpayers as to the assurance of tax and duty receipts, payments to the budgets, and the increase of revenues in the budgets.
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