The Ministry of Finance has been receiving complaints from tax payers lately regarding the biased interpretation of Tax Code regulations by the State Fiscal Service of Ukraine (SFS). One of the issues mentioned is the profit tax credit resulting from prepayment on dividends. Another issue which is often subject to disputes are the conditions of use of the simplified taxation system in 2016.
To prevent the arbitrary interpretation of the legislation of Ukraine, the Ministry of Finance had a joint working meeting with representatives of the State Fiscal Service on January 20, 2016. It was agreed to withdraw the respective instructions/letters of the State Fiscal Service and to review them.Credit related to the prepayment of profit tax
The letter of the DFS No. 102/7/99-99-19-02-01-17 dated January 04, 2016, states that the Tax Code in its current edition does not allow to shift to next reporting (fiscal) periods the remaining sums of prepayments effected as dividends which were not acknowledged as a profit tax credit in regard to the profit stated in the declaration for the respective reporting (fiscal) year.
The Ministry of Finance can’t agree with such a statement for below reasons:
According to the current Tax Code regulations (for instance, sub-clause 57.11.2 of article 57), profit tax prepayments effected along the dividends payment are to be acknowledged to reduce the payable tax amount on the profit shown in the declaration for the respective reporting (fiscal) year. Hence, the Tax Code in its current edition does not contain clear instructions on which period (previous or the current one) should be considered in regard to the mentioned prepayments made along with the dividends payment.Thus, the Ministry of Finance’s opinion is that the remaining sum of prepayments which was not included in the tax credit in previous years can be acknowledged to reduce the tax obligations in the current reporting (fiscal) years, till this is completely used.
Use of the simplified taxation system in 2016
The statement made in the letter of the SFS No. 1527/7/99-99-17-02-02-17 dated January 18, 2016, is that due to amendments to the Tax Code which came into force on January 1, 2016, all payers of the single tax whose declared revenues for 2015 exceeded UAH 5m should switch to the general taxation system.
The Ministry of Finance can’t agree with this interpretation for below reasons:
According to clause of 292.16 of article 292 of the Tax Code, the simplified taxation system can be used in the next calendar year by single tax payers whose revenues in the previous calendar year did not exceeded the threshold set for the respective category of single tax payers. The threshold revenue for single tax payers of category III in 2015 which could not be exceeded within a calendar year amounted UAH 20m.
The DFS did not take into consideration regulations stated in sub-clause 298.2.3, clause 298.2 of article 298 of the Tax Code which contain the exhaustive list of cases when single tax payers should switch to the general taxation system. For single tax payers of category III the obligation to switch to the general taxation system comes into effect, if they exceeded the threshold revenue in the respective calendar year.
Apart from the above mentioned sub-clause, the Tax Code does not contain any other restrictions regarding the use of the simplified taxation system. In accordance with the above explanation and article 58 of the Constitution of Ukraine on the irreversibility of law, single tax payers whose revenues did not exceed UAH 20m in 2015 and who complied with other Tax Code regulations related to the use of the simplified taxation system are entitled to use the simplified taxation system in 2016.
The DFS provided the above explanations in accordance with clause 52.1 of article 52 of the Tax Code entitling tax authorities to provide free-of-charge explanations to tax payers on their request which refer to the practical use of tax regulations.
At the same time, the Ministry of Finance is not entitled to repeal biased explanations provided by the SFS. However, the Ministry of Finance can issue generalizing explanations on taxation as well as direct and coordinate the activities of the State Fiscal Service.
Taking the above into consideration, the Ministry of Finance is requesting the SFS to refer to clause 56.21 of article 56 of the Tax Code which states the following: if the regulations of the Tax Code can be interpreted in different ways in regard to the rights and duties of tax payers or tax authorities resulting in a possibility to decide in favor of a tax payer as well as in favor of a tax authority, the respective decision is to be made in favor of a tax payer.
As a central body of executive power entitled to direct and to coordinate the activities of the State Fiscal Service, we ask the SFS to rigorously observe the above regulation of the Tax Code and to engage the Civil Council at the SFS of Ukraine when preparing explanations on tax regulations.
We also ask tax payers to inform the Ministry of Finance promptly on cases of arbitrary interpretation of tax regulations by the SFS of Ukraine and to send the copies of received explanations to the Ministry of Finance.
The Ministry of Finance, in its turn, makes use of clause 52.6 of the Tax Code and will be issuing general conclusions on tax explanations which concern a significant number of tax payers or a significant sum of tax obligations and publishing them on its official website.