+ Word must be in search result. - Words must not be in search result. * Word start/end on characters before/after symbol. ""Words in quotes will be searched as phrase.

 

VAT on import of medicines and medical products: 20% or 7%

07 April, 2014 Newsletters

The Law of Ukraine as of 27.03.2014 No. 1166-VII1 amended  the provisions of the Tax Code of Ukraine on VAT applicable to transactions with  medicines and medical products2 (hereinafter together – “medicines”), in particular, introduced 7% rate of VAT on supply of medicines.

As regards the importation of medicines  into the customs territory of Ukraine, according to para. 206.2 of Article 206 the VAT rate set in subpara. 194.1.1 of Article 194 of the Tax Code of Ukraine is to be used, which at the moment provides for two rates – 20% and 7%. As such, the transaction on import of medicines is subject to VAT either at a rate of 20% or 7%.

It is logical to assume that 7%  rate of VAT should be applied, since subpara. 194.1.1. of the Tax Code of Ukraine was amended simultaneously with the cancellation of respective VAT exemptions on import of medicines.

At least, in this case there is a unclear provision of the Tax Code of Ukraine, which provides for ambiguous (multiple) interpretation of the rights and responsibilities of taxpayers, namely which VAT rate should be chosen during importation of medicines. According to subpara. 4.1.4 and para. 56.21 of the Tax Code of Ukraine in such case the decision should be made in favor of the taxpayer.

The letter of the Ministry of Revenues and Duties of Ukraine as of April 4, 2014 No. 7822/7/99-99-19-05-01-17 evidences the ambiguity of the norm in question, by which the Ministry is trying to “solve” the situation by interpreting the provisions of the Tax Code of Ukraine not in favor of taxpayers, i.e. ignoring the rule of conflict of interests. Thus, the Ministry of Revenues and Duties of Ukraine made a conclusion about the application of 20% VAT rate on importation of medicines into the customs territory of Ukraine completely ignoring the rate of 7%.

Had the legislator intended to tax different types of transactions at different tax rates,  i.e. supply at the rate of 7% and importation into the customs territory of Ukraine  at the rate of 20%, such approach would have no economic grounds and would lack logic. If such approach is followed, the state budget will have to reimburse to the importers the difference between input VAT on importation and VAT obligations on subsequent supply of medicines, which might reach up to 13% of import VAT.

In such case, it is necessary to amend the Tax Code of Ukraine in order to specify the rules of taxation with VAT the importation of medicines into the customs territory of Ukraine.

Follow-up as of April 15, 2014

The issue of the VAT rate on importation of medicines was resolved through adoption of the Law of Ukraine “On Amending the Tax Code of Ukraine and some other Legislative Acts of Ukraine regarding Elimination of Certain Discrepancies of Legislative Norms.

Thus, according to the wording of the draft law available at the official website of the Verkhovna Rada of Ukraine, subpara. “B” of para. 193.1 of the Tax Code of Ukraine is being amended and directly stipulates, that 7% rate of VAT shall also be applied to transactions on importation of medicines into the customs territory of Ukraine.

The aforementioned Law was adopted on April 10, 2014 and it was passed to the President for signing on April 14, 2014, i.e. there is no final wording of the Law yet.

As such, the issue from which moment such amendments should enter into force still remains open: either it is starting from the day following the day of its official publication (as it is mentioned in the text of the draft law) or starting from April 1, 2014 (as it is mentioned in comparative table to the draft law).

However, in any case the amendments introduced to the Tax Code of Ukraine evidence that 7% rate of VAT should have been applied by importing of medicines starting from April 1, 2014 (the legislator’s intention was precisely this).

The above commentary presents the general statement for information purposes only and as such may not be practically used in specific cases without professional advice.

Footnotes:

1The Law of Ukraine “On Prevention of the Financial Catastrophe and Creation of the Grounds for Economic Growth in Ukraine” as of March 27, 2014 No. 1166-VII.

2Meaning medicines, allowed for production and use in Ukraine and listed in the State Register of Medication (including by pharmacies), as well as medical remedies in accordance with the list, adopted by the Cabinet of Ministers of Ukraine.

Kind regards,

© TOV "KM Partners", 2014

Views 3236

SIMILAR POSTS

The Grand Chamber of the Supreme Court has announced an adjournment in case on VAT budget reimbursement 07 November, 2018    699

Electronic administration system – VAT on manual control? 17 September, 2018    1778

The court ruling of the the Great Chamber of the Supreme Court as of June 26, 2018 on acceptance of the case No. 826/7380/15 to consideration 11 September, 2018    970

Resolution of the Supreme Court on transfer of the case on VAT refund to consideration by the Great Chamber 11 September, 2018    2360

How to dispose of the problems with VAT refund and more 15 August, 2018    1744

“The state has no responsibility for anything it does” (interview of partners at KM Partners for Yurydychna Gazeta) 21 June, 2018    2390

Penalties for the late registration of tax invoices, which are not provided to the buyer: the issue is still pending 15 June, 2018    7382

Block not. Inna Taptunova comments on functioning of the tax invoice blocking system 06 June, 2018    436

Judgment in case of Serkov v. Ukraine 15 March, 2018    865

The Procedure on installment of VAT payment when importing the equipment for own production came into force in Ukraine 28 February, 2018    1604

“Normal price” Vs. “Arm’s length price”. Is it possible to dot the i’s and cross the t’s? 16 January, 2018    739

Individual Tax Advice of the SFS “On procedure for determination of normal prices” as of June 12, 2017 16 January, 2018    499

Comment