On April 3, 2018 the Ministry of Finance issued its order No. 400 “On the Approval of Summarizing Tax Consultations Concerning Some of the Issues in Regard to the Application of the Corporate Profit Tax and Personal Income Tax”: 4 summarizing tax consultations have been issued clarifying the issue of bad debts, calculation of limits for bank reserves and several issues regarding debt cancellation. Thus, the Ministry of Finance continues to explain taxation issues as part of the project “Podatky Prosto” (“Taxes Simply Made”).
What’s it about?
Summarizing tax consultations pose an effective tool significantly reducing the number of reasons for administrative and court disputes between taxpayers and tax authorities.
So far, the Ministry of Finance has approved four summarizing tax consultations:
1) Filing a request to the court to acknowledge debts as irrecoverable.
If a debt meets criteria as per sub-paragraph “a” of sup-paragraph 14.1.11 of paragraph 14.1 in art. 14 of the Tax Code of Ukraine, a tax payer is not obliged to examine this debt for compliance with other criteria stipulated in the sub-paragraph 14.1.11 of paragraph 14.1 of art. 14 of the Tax Code of Ukraine.
2) Application of paragraph 139.3 of art. 139 of the Tax Code of Ukraine regarding the treatment of exceeded reserves.
- defines the procedure for the calculation of the limit set by sub-paragraph 1 of sub-paragraph 139.3.3 of paragraph 139.3 of article 139 of the Tax Code of Ukraine (in the version valid before January 1, 2018) and the further calculation of reserves exceeding this limit for taxation purposes in tax (reporting) periods before January 1, 2018;
- regulates the write-off (refund) of debts using the reserve sum by which the financial result before taxes was increased due to the exceeded reserve limits; it also regulates how to capture declared reserves which exceed the limit and how to use them for taxation purposes in tax (reporting) periods before January 1, 2018.
3) Necessary correction of the financial result before taxes due to the use of reserves for debt cancellation by a financial organization.
The financial result before taxes shall be increased by the sum of the used reserves in tax (reporting) periods before January 1, 2018, if cancellation is agreed for the debts of private persons who are affiliated with the creditor or have/had employment relations with the creditor and the period between the date of employment termination and the date of such persons’ debt cancellation is no longer than 3 years.
4) Proper notification of a debtor (private person) about debt cancellation.
This consultations specifies the application of sub-paragraph “d” of sub-paragraph 164.2.17 of paragraph 164.2 of art. 164.2 of the Tax Code of Ukraine for the notification of an indebted private person about debt cancellation. If a register brief with a delivery notification is sent, the successful notification of a debtor can be confirmed by a document proving the fact that the notification was sent (including the payment receipt issued at the post office).
What’s the benefit?
Clarifications regarding these issues will help remove different interpretations of the tax regulations.
“Podatky Prosto” is the initiative of the Ministry of Finance aimed to consolidate efforts in search for solutions to improve tax administration procedures.
What comes next?
The Ministry of Finance acts in accordance with the Tax Code of Ukraine and the Procedure for Summarizing Tax Consultations and will make all possible efforts to continue summarizing tax consultations for all issues which need clarification.