White Business Club. President of Ukraine signs the Law

On 24 July 2024, the President of Ukraine signed the Law “On Amendments to the Tax Code of Ukraine regarding the Specifics of Tax Administration during Martial Law for Taxpayers with a High Level of Voluntary Tax Compliance (hereinafter, the “Law”), also known as the Law on the White Business Club.

The law introduces a list of taxpayers with a high level of voluntary tax compliance, who will have a number of tax administration benefits during martial law.

Taxpayers demonstrating a high level of voluntary tax compliance will be entitled to the following benefits:

• No tax audits of fuel storage licenses
• No scheduled (and some unscheduled) documentary audits (this benefit does not apply to excise tax payers, taxpayers engaged in the gambling business, and taxpayers providing financial or payment services)
• Shortened terms of desk and documentary audits regarding claims for VAT refund (5 days and 10 days, respectively)
• Shortened terms of providing individual tax rulings (up to 15 calendar days without extension)
• Assigned compliance manager to consult the taxpayer on issues related to the fulfillment of its tax obligations
• Option to enquire the controlling body about any information that may be evident of tax risks in such taxpayer’s activities, and receive, within 5 days, such information as well as advice on how to eliminate such risks

In addition, the legislator recommends that the Cabinet of Ministers of Ukraine revise the employee reservation procedure and determine the procedure for the so-called “automatic” reservation of up to 25% of draftable employees of those taxpayers, who meet the criteria established by law. However, the implementation of this recommendation will depend on the CMU’s further actions.

The List of taxpayers maintaining a high level of voluntary tax compliance will include the taxpayers:

1) who meet certain quantitative criteria (pay taxes and wages at or above the industry average level).

For legal entities that are corporate income tax (CIT) payers:

• CIT/VAT paid in the last four quarters/12 months at or above the industry average level (the VAT criterion does not apply to exporters whose export operations exceed 25% of their total supply transactions)
• Average monthly salary paid in the last four reporting periods at or above the industry average level multiplied by 1.1
• Midmonth count of employees: at least five persons.

For legal entities – Diia.City residents:

• Taxes paid at or above the average tax payments of other Diya.City residents.

Similar criteria (with some modifications) are provided for legal entities – single tax payers (Group 3 and Group 4) and individual entrepreneurs using various tax regimes.

2) who do not meet any “negative” criteria, including:

• falling under the VAT payer risk criteria
• sanctions applied against the taxpayer, its founders and/or ultimate beneficial owners, including where such founders and/or ultimate beneficial owners are citizens of the russian federation or persons residing in the russian federation
• tax debt exceeding 3,000 non-taxable minimums for the last 30 days, unified social contribution tax arrears, non-submission of tax reporting
• tax assessment notice received within one year on exceeding the settlement deadlines in goods export/import transactions
• initiated taxpayer termination or bankruptcy procedures
• other grounds

Tax authorities will notify the taxpayer of their inclusion in/exclusion from the List of taxpayers with a high level of voluntary tax compliance by sending a relevant message to the taxpayer’s e-cabinet.

Other changes introduced by the Law in tax legislation include:

Tax compliance and control

• The Law clarified and extended the definition of “tax risk (compliance risk)” and introduced the concept of compliance which is a system of measures implemented by tax authorities aimed at increasing the level of voluntary tax compliance and reducing “tax risk (compliance risk)”.
• The Law additionally specified that if the taxpayer has a tax debt, the Tax authorities may apply to the court to suspend the taxpayer’s debit transactions from their electronic wallets as well.

Transactions with non-residents

• The related party criteria have been amended by introducing an additional criterion—significant volumes of sale or purchase of goods/works/services in transactions with a single non-resident; and by increasing the equity interest from 20% to 25% for the purposes of determining the related parties in case of indirect ownership.
• Certain changes have been made to the criteria used by the Cabinet of Ministers of Ukraine when determining the list of low-tax jurisdictions.
• Taxpayers’ transactions with non-residents registered in “special” organizational and legal forms are no longer considered controlled transactions for the Ukrainian transfer pricing purposes provided there are double tax treaties concluded with the countries of such non-residents (or all their participants/partners).

Taxation of fixed assets transactions

• During the period of martial law and until the end of the year when it will be suspended or lifted, taxpayers may apply accelerated depreciation periods to fixed assets of Group 3, Group 4, Group 5, and Group 9 that have already been in use, provided such fixed assets were commissioned after this Law entered into force.
• Taxpayers, which are manufacturers of defense goods or suppliers or contractors/co-contractors of works and services related to national defense, may apply accelerated depreciation periods to fixed assets that have already been in use and were commissioned during martial law before this Law entered into force (if certain conditions are met).
• Fixed assets, such as residential buildings/apartments/rooms purchased or constructed by the taxpayer during martial law are considered as intended for use in economic activities, if they were acquired in connection with the relocation of the enterprise or employees having the status of internally displaced persons from occupied territories or territories of hostilities.

How can Deloitte specialists help?

Deloitte tax specialists and lawyers have an extensive experience in the practical application of tax legislation. Our team will:

• Analyze whether your company meets the requirements and criteria to be recognized as a taxpayer with a high level of voluntary tax compliance
• Assess the risks that your business may be not included in the abovementioned list
• Help properly organize communication with tax authorities and support you during meetings with representatives of tax authorities
• Help prepare for a tax audit, pass it and, if necessary, challenge the results
• Help unblock suspended tax invoices or dispute the risk status.

If you need advice or have any questions, please contact our team of experts who will be happy to answer them.

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