Tax & Legal Digest #2

The summer season, as well as the beginning of the fall, were marked by important changes in the legal area. Employees of Deloitte Tax & Legal Ukraine have compiled for you a digest of the most interesting news for the period from July to September 2024, which should definitely not be overlooked.

Given below is a brief overview of those news and comments from Deloitte specialists.

“White Business Club”

On 24 July 2024, the so-called Law on the White Business Club was signed.

On 1 October 2024, the main provisions of this Law entered into force, in particular, regarding introduction of a list of taxpayers with a high level of voluntary compliance with the tax legislation and benefits in tax administration, which taxpayers included in such a list will be able to use during the martial law.

The Law also amended the transfer pricing (TP) rules, in particular, additional criteria were introduced for recognizing transactions as controlled. Changes in part of the TP will take effect from 1 January 2025, i.e. they will apply to the transactions performed in 2025 and subsequent periods.

In more detail with the main changes introduced by the relevant Law, you can get acquainted in the earlier published Alert.

Launch of the Land Bank Project

The State Property Fund of Ukraine successfully transformed SE “Fund of Agrarian Investments” into LLC “State Land Bank”, which became the first corporatization of a SE into an LLC in the history of Ukraine.

The Land Bank Project is not related to opening of the agricultural land market. The role of this Project is to bring state agricultural lands out of the shadows and introduce them into commercial circulation.

LLC “State Land Bank” is going to function as a state operator of agricultural lands. State agricultural land plots will be accumulated on the operator’s balance sheet for further sales of their lease rights at competitive, transparent, and open auctions.

On 1 October 2024, the first 16 online auctions already took place in the Prozorro. Sales System. According to the results of the first auctions, the total amount of funds to be paid by winners in auctions exceeded UAH 35 million.

The implemented Project will provide additional revenues to the state budget, and will also become an additional incentive for the development of agribusiness in Ukraine.

We would like to remind you that the moratorium on the purchase and sale of agricultural land was cancelled effective from 1 July 2021 for individuals and from 1 January 2024 for legal entities. The moratorium remains in force for foreigners.

New Judicial Practice: Representative Offices of Non-Residents Are Deprived of the Opportunity to Appeal to Court

This is exactly the conclusion that the Supreme Court arrived at on 25 July 2024 in Case No. 640/31489/21, where it indicated that only legal entities have such a right.

Under the circumstances of the case, the representative office (RO) contested the tax notice-decision by proving that its activities do not have features of a permanent establishment. The Supreme Court has left the lawsuit without consideration, as it believes that it should have been filed by the parent company (non-resident).

At the same time, the court found that:

• The Regulation, on the basis of which the RO operated, indicated that the RO acted in all cases on behalf of and in the interests of the non-resident;
• Attorneys and the non-resident parent company as represented by the RO concluded an agreement on the provision of legal assistance which defined the authorities of lawyers to file the lawsuit.

Such a conclusion of the court may have significant consequences on practices of resolving tax disputes, in particular, other lawsuits filed on behalf of non-resident ROs may already be questioned and left without consideration for the same reasons.

Such a position of the court also adds technical difficulties for non-residents in legal disputes, in particular, in relationships with the tax authorities Now, when an RO itself cannot represent the interests of a non-resident in court, it is advisable to change the tactics of representing non-residents in legal proceedings.

New Terms for Storing Documents Related to Transactions with Non-Residents

Effective from 1 July 2024, documents related to tax control of transactions with non-residents should be kept for at least 2,555 days.

I.e. taxpayers making income payments to non-residents and non-residents conducting their activities in the territory of Ukraine through separate divisions, in particular, permanent establishments, are required to store documents whose storage limitation period has not expired as at 1 July 2024, according to the new terms, during 7 years.

The new terms may apply, in particular, to the following documents:

• Documents confirming transactions with non-residents;
• Financial documents reflecting tax obligations on those transactions;
• Documents related to the transfer pricing compliance.

The legislative changes also relate to the limitation period for performing tax audits on transactions with non-residents, which, accordingly, have been increased to 2,555 days (7 years).

Financial Monitoring News

A range of important events in the area of financial monitoring took place in August-September:

First, on 6 August 2024, Regulation on Financial Monitoring by the Initial Financial Monitoring (IFM) Entities the State Regulation and Supervision of Whose Activities Is performed by the Ministry of Finance came into effect.

This Regulation applies, among other things, to accountants, as well as consultants and advising companies that provide services in accounting, tax, and real estate transactions.

It contains some innovations, such as an obligation for the IFM entities, on an ongoing basis, to prepare and maintain a list of clients with determined risk levels and facts of belonging to the PEP category. The Regulation also defines terms for periodic updating of customer data.

The Ministry of Finance of Ukraine has already emphasized that the relevant IFM entities covered by this Regulation should adapt their internal procedures to the new requirements.

Secondly, effective from 1 September 2024, the Procedure for Notifying the Unified State Register (USR) Holder on Identified Discrepancies between the Data Received by the IFM Entities as a Result of Due Dilligence and the Data Contained in the USR on the Ultimate Beneficial Owner (UBO) and/or the Ownership Structure of a Legal Entity came into effect.

Now, the IFM Entities have a defined procedure, according to which they should notify the Ministry of Justice about incompleteness, inaccuracy, or errors in the information about the UBO or the ownership structure contained in the USR.

With the entry into force of the above mentioned Procedure, the Ministry of Justice of Ukraine has received an additional tool for identifying violations in the area of information on the UBO, such as introducing deliberately false information, non-submission or late submission of information on the UBO. If they are detected, such violations shall entail the imposition of fines amounting from UAH 17,000 to UAH 340,000.

A Simplified Process for Obtaining Permits

Effective from 18 September 2024, within the framework of the e-Entrepreneur comprehensive service on the Diia Portal, the Unified State e-System of Permit Documents (ePermit) has started operating.

Currently, the system gives entrepreneurs access to one service: registration of a declaration of compliance of the material and technical base with the requirements of the labor protection legislation. The list of services is planned to be expanded.

According to the Government, the system analyzes submitted documents for completeness of data and accepts them only if there are no deficiencies. Thus, the application processing is automated, which should simplify and speed up permit procedures for businesses.

Eased Currency Requirements

The NBU continued the policy of gradual easing of currency restrictions by adding new exceptions to the general ban on purchasing foreign currency for cross-border transactions.

On 11 July 2024, the NBU, inter alia, made it possible to pay fees for the actions related to protection of intellectual property rights (including payment for the services of patent offices and patent attorneys).

Effective from 12 July 2024, the deadline for settlements on exports of certain types of agricultural products was increased from 90 to 120 days.

On 10 September 2024, changes also entered into force which, in particular, allowed that e-commerce entities purchase and transfer foreign currency abroad for VAT payment on transactions involving the purchase of goods of Ukrainian manufacturers by consumers from the EU countries.

A more detailed description of the September currency easings as provided by Deloitte experts is included in the Alert dated 11 September 2024.

A Temporary Cease in Applying Fines to a Failure to Submit CFC Reports

In July, changes to the Transitional Provisions of the Tax Code of Ukraine (TCU) relating to the requirements for preparing and submitting the Report on Controlled Foreign Companies (CFCs) came into force.

In accordance with the changes introduced, temporarily, effective from 1 January 2022 and during the martial law in Ukraine and six months after termination or cancellation of the martial law, fines shall not be applied to taxpayers for a delayed submission by a controlling party of the CFCs Report and for a failure to represent by the controlling party in relevant Reports of data and information on the existing CFCs.

Changes in the Procedure for Performing Tax Audits on VAT Refunds from the State Budget

In July 2024, changes to the TCU entered into force which affected the procedure for conducting audits by the tax authorities on refunds from the state budget. In particular, the deadlines for conducting audits to determine the amount of VAT subject to the state budget refunds were shortened.

Thus, effective from 1 July 2024, desk audits shall be performed within 20 calendar days after the deadline for submitting a VAT return, and documentary audits shall be performed within 40 calendar days. Earlier, desk audits needed up to 30 days, and documentary audits – up to 60 days. Corresponding changes will allow accelerating the process of the state budget VAT refunds and tax administration.

Subscribe to our Telegram channel "Deloitte Ukraine Voices" to stay tuned on the latest firsthand news, articles, podcasts, and other materials. Hear the voices of our experts!