Analytics

The State Tax Service expressed its position on some issues considered in our analytical material “All non-residents/permanent establishments are required to [re]register with the tax authorities” in the Newsletter No. 19, which is currently available on the official website of the State Tax Service of Ukraine.

The full version of the Newsletter is also available in the “Useful Documents” section.

Here we will comment only regarding the fact that, as noted in our previous material, the procedure for proper registration of non-residents, including those acting through permanent establishments, is still not defined in the subordinate legislation (which should be developed by the Ministry of Finance, as provided by the Tax Code). It is expected to be done by the Ministry of Finance by amending the Procedure on Registering and Accounting of Taxpayers No. 1588  (“the Procedure 1588”).

By the Newsletter, the tax authorities, although not directly, but indicate that registration by non-residents shall be carried out, despite the absence of appropriate changes which should have been introduced into the Procedure 1588. Such a position can be traced from the following paragraph of the Newsletter:

“7. WHERE SHOULD NON-RESIDENT SUBMIT DOCUMENTS FOR REGISTRATION AS THE PAYER OF INCOME TAX?

Prior to the entry into force of amendments to the Procedure on registering and accounting of taxpayers, approved by the order of the Ministry of Finance of Ukraine dated 09.12.2011 No. 1588, registered in the Ministry of Justice of Ukraine on 29.12.2011 No. 1562/20300 (as amended by the order of the Ministry of Finance of Ukraine dated 22.04.2014 No. 462 with changes) we recommend to comply with the rules as follows.

A non-resident shall be registered as an income tax payer based on the grounds that arose earlier…”.

Thus, in fact, according to the State Tax Service of Ukraine, non-residents conducting business activity in Ukraine shall submit documents for registration as an income tax payers by April 1, 2021, despite the absence of properly established procedure for implementing such registration by subordinate legislation (as required by law – the Tax Code of Ukraine).

In this regard, it should be recalled that under Art. 19 of the Constitution of Ukraine, no one shall be forced to do what is not envisaged by legislation, and bodies of state power and their officials are obliged to act only on the grounds, within the limits of authority, and in the manner envisaged by the Constitution and the laws of Ukraine. In particular, there is no obligation to act according to the recommendations of one state body, while the law provides for action in accordance with the procedure, which (as the relevant by law) must be properly established by another body by law.

So the question remains whether non-residents should be in a hurry when the state (its body) itself is in no hurry to establish the procedure, as explicitly provided by law.

And the question is not limited to those aspects that are given in the above-mentioned “recommendations” of the tax authorities. For example, if a non-resident acting through a representative office, which has been registered earlier, is going to be registered with the tax authorities at the end of the quarter, how and who shall report on income tax and for what period?

A similar issue, due to the cancelation of one of the procedures for taxation of permanent establishments by the Law 466 in the middle of the last year, has not been satisfactorily resolved at the regulatory level. And that led to the fact that the relevant changes were actually canceled for the last year.

Will the same happen here?

And what about the observance of the principle of stability – subpara. 4.1.9 of the Tax Code of Ukraine? It stipulates that changes to any elements of taxes shall not be made later than six months before the start of the new budget year.

And yet the taxpayers are one of the mandatory elements of the tax (subpara. 7.1.1. Article 7 of the Tax Code of Ukraine). Let us remind that the issue of (re)registration arises, in particular, because previously permanent establishments were treated as separate category for the purposes of the income tax, and now such a category is eliminated. Instead, the Tax Code considers non-resident entities, conducting their business in Ukraine through permanent establishments, as a relevant taxpayers.

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.

Kind regards,

© WTS Consulting LLC, 2021

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