White business club – what does the law provide for?

On April 24, 2024, the Verkhovna Rada of Ukraine voted in favor of Draft Law No. 11084 “On Amendments to the Tax Code of Ukraine on Peculiarities of Tax Administration during Martial Law for Taxpayers with a High Level of Voluntary Compliance with Tax Legislation” (hereinafter also referred to as the Law).

The Law was signed by the President of Ukraine on July 24 and published on the official website of the Verkhovna Rada of Ukraine.

It should be noted that the text of the Law does not contain any mention of the “white business club”. This unofficial name was given to it by the authors of the draft law themselves, possibly to emphasize the importance of this legislative novelty for the entire business community.

The adopted amendments are intended to provide taxpayers who have a high level of voluntary compliance with tax legislation with a number of advantages in the administration of taxes, fees and charges.

The peculiarities in the administration will take effect from October 1, 2024, and will last until the termination or lifting of martial Law in Ukraine.

To be included in the list of such taxpayers, business entities must meet certain requirements and criteria. The latter are set out in new subparagraphs 69.41.1 and 69.41.2, which the Law includes in Section XX of the Tax Code of Ukraine.  

Requirements and criteria for taxpayers with a high level of voluntary compliance with tax legislation

Legal entities and individual entrepreneurs will be included in the list of taxpayers with a high level of voluntary compliance with tax legislation if they simultaneously meet the following requirements

• the tax debt and/or arrears of other payments, the collection of which is the responsibility of the controlling authorities, does not exceed UAH 51,000 and no more than 30 days have passed since their occurrence.
• absence of arrears (arrears, fines, penalties) in the payment of a single contribution to the obligatory state social insurance. 
• compliance with the criteria set forth in sub-clause 69.41.2 of this clause, depending on the chosen taxation system (for more details on this criterion, see below);
• absence of facts of violation by the taxpayer of tax obligations to submit reports and/or documents (notifications);
• absence of tax notices-decisions on violation of the deadlines for settlements for export and/or import of goods within the last 12 months.
• absence of a decision on the taxpayer’s compliance with the criteria of riskiness of the value added tax payer. 
• no initiated procedure for the termination of a legal entity or business activity of an individual entrepreneur; 
• no bankruptcy (insolvency) proceedings have been initiated against the taxpayer;
• absence of a decision on the application of special economic and other restrictive measures (sanctions) against the taxpayer and/or its founders (participants), ultimate beneficial owners in accordance with the procedure established by the Law of Ukraine “On Sanctions”;
• the taxpayer and/or its founders (participants), ultimate beneficial owners do not have the citizenship of a state that carries out armed aggression against Ukraine (except for citizens of such a state who were granted the status of a combatant after April 14, 2014);
• absence of persons among the founders (participants), ultimate beneficial owners of the taxpayer whose place of residence (location) is a state that carries out armed aggression against Ukraine;
• no changes in the main type of economic activity made to the Unified State Register of Legal Entities, Individual Entrepreneurs and Public Organizations in respect of the taxpayer during the last 12 consecutive calendar months.

It should be noted that some of these requirements relate to the taxpayer’s absence of unified social contribution arrears, risk criteria, being in the process of termination or bankruptcy, the application of economic sanctions, and changes in the main KVED within the last 12 months. Several of the criteria relate to restrictions imposed by the aggressor country.

There is also a requirement that the taxpayer must not have received any tax notices or decisions on violation of the deadlines for settlements for export and/or import of goods within the last 12 months. However, not all taxpayers can meet this requirement. After all, the armed aggression against Ukraine by the Russian Federation has been going on for the past 12 months, which, accordingly, complicates the logistics and compliance with the deadlines for payments for import/export of goods. 

Among other things, clause c) requires that the taxpayer meet the criteria set out in sub-clause 69.41.2 of clause 69.41 of Section XX of the Tax Code of Ukraine. Compliance with such criteria depends on the chosen taxation system. 

For example, for individual entrepreneurs of the general taxation system, as well as single tax payers of the 3rd group, compliance with the following criterion is required: the average monthly salary accrued and/or paid by the tax agent – individual entrepreneur – for the last 4 reporting periods is not less than the average salary in the relevant industry and region, multiplied by the coefficient 1,1.

Thus, a taxpayer who meets the requirements set forth in subparagraph 69.41.1 of the Tax Code of Ukraine and the criteria set forth in subparagraph 69.41.2 of the Tax Code of Ukraine is subject to inclusion in the list of taxpayers with a high level of voluntary compliance with tax legislation.

How will the list work?

The State Tax Service of Ukraine (hereinafter referred to as the “STSU”) shall compile and approve the list of taxpayers with a high level of voluntary compliance with tax legislation no later than the last business day of March, May, August and November. In other words, the STSU will update this list on a quarterly basis and publish it on its official website.

The list includes the name (for individual entrepreneurs – full name), tax number or series and passport number of the taxpayer in the absence of a tax number (for individual entrepreneurs).

At the same time, the STSU may not publish in the list information about taxpayers who have submitted a notice of refusal to disclose taxpayer data.

A taxpayer will be excluded from the said list if the controlling authority finds that: (g) decisions on the application of special economic sanctions, (h) the taxpayer and/or its participants, ultimate beneficial owners are citizens of the russian federation, (i) the taxpayer’s participants, ultimate beneficial owners are persons whose place of residence is the russian federation.

What benefits will taxpayers with a high level of voluntary compliance with tax legislation have?

The declared purpose of such amendments to the legislation is to provide taxpayers with a high level of voluntary compliance with tax legislation with certain preferential conditions of tax administration during martial Law.

First, a moratorium on certain inspections by the controlling authority is introduced. Thus, if the taxpayer is on the specified list, the tax authorities shall not initiate:

• actual inspections on licensing of fuel storage activities exclusively for own consumption and/or industrial processing;

• documentary unscheduled inspections, except for inspections:
  • conducted solely at the request of the taxpayer;
  • conducted on certain grounds specified in paragraph 78.1 of Article 78 of the Tax Code;
  • taxpayers in respect of whom tax information has been received that indicates that the taxpayer has violated the requirements of currency legislation in terms of compliance with the deadlines for the receipt of goods under import operations and/or foreign exchange earnings under export operations; 
• taxpayers engaged in the production and/or sale of excisable goods, organization and conduct of gambling in Ukraine (gambling business), taxpayers providing financial and payment services; 

• documentary scheduled audits, except for audits of taxpayers engaged in the production and/or sale of excisable goods, organization and conduct of gambling in Ukraine (gambling business), taxpayers providing financial and payment services.

The term for conducting desk and documentary audits of a taxpayer specified in subparagraphs 200.10 and 200.11 of Article 200 of the Tax Code of Ukraine has been reduced from 30 and 40 calendar days to 5 and 10 business days, respectively. 

The MPs did not ignore the possibility of such taxpayers to receive privileged feedback from the tax authorities.

Thus, individual tax consultations are provided to the taxpayer within 15 calendar days from the date of application without extending the term for its consideration. This period is 10 days shorter than for taxpayers who are not members of the so-called “white business club”. 

Taxpayers are also given the opportunity to send a request to the supervisory authority and receive a response within five days regarding the tax information available to them that may indicate tax risks in the activities of such a taxpayer, as well as advice on how to eliminate such risks.

Another interesting decision is that such taxpayers will have personal consultants. Thus, the taxpayer will be assigned an official of the territorial body of the State Tax Service of Ukraine responsible for interaction with the taxpayer (compliance manager).

The compliance manager will advise the taxpayer on issues related to the fulfillment of its tax obligations.

In addition to the peculiarities of tax administration, such taxpayers may also receive certain preferences in the process of booking persons liable for military service for the period of mobilization and wartime.

In particular, Section II of the Law recommends that the Cabinet of Ministers of Ukraine ensure that taxpayers included in the list of taxpayers with a high level of voluntary compliance with tax legislation automatically book up to 25 percent of their employees who are liable for military service.

Conclusions

Traditionally, a “white business” is a business that does not evade taxes, officially employs employees and pays official wages. 

However, it would be incorrect to consider those business entities that are not included in the list of taxpayers with a high level of voluntary compliance with tax legislation as not being representatives of “white business”.

For example, if we take into consideration an individual entrepreneur on the third group single tax, such an entrepreneur must meet the criterion of having income for the tax (reporting) period exceeding UAH 5 million.

It is obvious that legal entities and individual entrepreneurs who are representatives of micro-entrepreneurship will not be able to meet this criterion not because they are not “white business”, but because of the low profitability of their business activities.

The quarterly revision of the list by the State Tax Service is also a cause for concern, so taxpayers will have to check their presence on the list in the second month of each quarter.

In addition, the effectiveness of the compliance managers of each of the “members” of the “white business club” looks unclear, as well as whether the privileges for booking employees from military service during mobilization, during a special period, will actually be introduced.

However, given that Ukrainian business now needs state support more than ever, any initiative aimed at this can be viewed as positive.

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