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Possible corporate income tax exemption for the first quarter, or “if you’re drowning, you’re on your own” rule

authors: Alexander Minin, Mariia Kozlenko, Artem Shcherbyna

13 April, 2020 Exclusive


For the first quarter of 2020, perhaps, many companies were still “in the positive” with a profit. This means that under normal conditions, corporate income tax is expected to be paid.

In Ukraine the authorities still not able to make any decision to release, reduce or at least defer payment of this tax. At the same time companies themselves badly need this money for financing in the current severe conditions of the coronavirus and crisis.

In such circumstances, one says that cash (actually available money) is a king. And reducing expenses, including tax expenses, saving money for priority expenses – is one of the important tasks of the business now.

So if the authorities do nothing about it, then what can the business itself practically do?


To begin with, let us model the situation and expectations.

Despite the certain negative economic expectations, the macroeconomic indicators of 2019 weren’t bad in general. For example, according to the NBU real GDP has increased by 3.2%1 and according to the State Treasury Service of Ukraine revenues from corporate income tax have increased by 12,1% and have amounted UAH 117.3 billion2.

The expected revenues from corporate income tax of UAH 118.9 billion are recorded in the budget law for 2020. Fees for the first quarter (already paid) of this amount are based on the results of 2019. As of March 1, 20203 UAH 9.58 billion was received. At the time of writing this letter we haven’t seen more recent data regarding this issue on the website of the State Tax Service of Ukraine yet.

The economic indicators for the first quarter of 2020 remained still quite good. Of course, events of the March 2020 have already made some adjustments, but the first quarter's indicators in general were not significantly affected.

At the same time, in the second quarter of 2020 and further by the end of the year, a significant deterioration of the economic situation, the transition to "minus", is expected because of the coronavirus pandemic and the quarantine measures.

In the context of corporate income tax, this means “withdrawal” of a large portion of the working capital to pay corporate income tax by results of the first quarter of 2019. While already by the results of the first half of the year (in view of the expected loss of the second quarter, which may overlap the profit of the first quarter), or of 9 months of 2020 there will be no profit, but there will be a loss. This means that the tax paid for the first quarter of 2020 will be an overpayment, an excessively paid tax.

By law, companies have the right to return them on the basis of submitted application to the tax service. However! This right will arise not earlier than the submission of tax return for the second or, in the relevant part, for the third quarter. It means, that in a best-case scenario the process of returning funds by results of the first half of the year will be started in the second half of the third quarter, but funds need to be paid (as a tax for the first quarter) in the middle of the second quarter. In other words, when companies are most in need of funds, the state will withdraw them.

And will the state return funds, or return in time at least? Unfortunately, the experience of relations with the state in this regard is not very positive, especially in recent times. And who can be sure that the tax authorities will not delay the return "in the usual way", or the authorities will decide that they need the money more than companies at all, so they will not return them (we already have examples when government neglects, in the broad sense of the term, even constitutional provisions under the motto of combating the coronavirus, so why should we believe that the provisions of the Tax Code on taxpayers' rights will be respected more than the Constitution?).

Therefore, if does not expect "mercy" from the authorities on this issue, can the taxpayer somehow deal with this problem on the principle “the rescue of a drowning man is the drowning man's own job”? ...


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