The start of application of the reduced rates of VAT and CPT will be postponed for 2015?
Paragraph 193.1 of Article 193 of the Tax Code of Ukraine (hereinafter – “TC of Ukraine”) establishes that the basic VAT rate is 17 per cent. Besides, in paragraph 10 of subsection 2 of Section XX “Transitional Provisions” of the TC of Ukraine it is specified that “… regarding VAT tax liabilities, which occurred: from January 1, 2011 till December 31, 2013 inclusive the tax rate is 20 per cent; starting from January 1, 2014 – 17 per cent”.
According to paragraph 151.1 of the TC of Ukraine the basic CPT rate is 16 per cent. The provisions of the abovementioned paragraph are applicable taking into account paragraph 10 of subsection 4 of section XX “Transitional Provisions” of the TC of Ukraine, which foresees gradual reduction of the CPT rate from 23 per cent to 16 per cent within 2011-2013 and beginning of application of the basic rate of 16 per cent starting from January 1, 2014.
The Draft Law of Ukraine “On State Budget of Ukraine for the Year 2014”, which official text is published on the web-site of the Verkhovna Rada of Ukraine, foresees postponement of application of 17 per cent VAT rate as well as gradual reduction of CPT rate staring from January 1, 2014 to 18 per cent, and starting from January 1, 2015 – to 16 per cent.
Thus, by subparagraph 7 of paragraph 6 of the Final Provisions of the Law of Ukraine “On State Budget of Ukraine for the Year 2014” it is proposed:
- in paragraph 10 of subsection 2 of Section XX “Transitional Provisions” of the TC of Ukraine “words and numbers “December 31, 2013″ to replace with words and numbers “December 31, 2014”, and words and numbers “January 1, 2014” to replace with words and numbers “January 1, 2015”;
- in paragraph 10 of subsection 4 of Section XX “Transitional Provisions” of the TC of Ukraine “in paragraph five words and numbers “from January 1, 2014 – 16 per cent” to replace with words and numbers “starting from January 1, 2014 till December 31, 2014 inclusive – 18 per cent”; to complete with paragraph six of the following content: “starting from January 1, 2015 – 16 per cent, and for entities of software industry, which apply taxation peculiarities, foreseen in paragraph 15 of subsection 10 of this section, – 5 per cent”;”.
According to paragraph 5 of Article 94 of the Constitution of Ukraine the law enters into force not earlier than the day of its publication. Thus, the draft law on the State Budget for the Year 2014 should be passed and published till January 1, 2014.
We note that according to paragraph 1 of Article 155 and paragraph 4 of Article 157 of the Law of Ukraine “On Regulations of the Verkhovna Rada of Ukraine”, the consideration of the draft law on the State Budget of Ukraine for the next year shall be considered upon the procedure of three readings, and in the first reading – upon the procedure of complete discussion. The Regulations of the Verkhovna Rada of Ukraine do not foresee the possibility to consider such draft law upon the reduced procedure.
Therefore, the question whether the draft law on the State Budget for the Year 2014 would be passed and published till January 1, 2014 and, accordingly, whether its provisions would enter into force starting from January 1, 2014 remains open.
However, if this draft law would be officially published in suggested wording already after January 1, 2014, then for the period from January 1, 2014 till the date of its publication the provisions of the TC of Ukraine would be applicable in wording, effective as of today. Accordingly, within this period new VAT rates and CPT rates – 17 per cent and 16 per cent respectively, should be applied. Such approach corresponds with the principle of supremacy of law, particularly with the legal certainty component: the enterprise cannot be governed by the paper, which has not became a law yet, and also corresponds with the provisions of Article 19 of the Constitution of Ukraine, according to which no one cannot be forced to do what is not foreseen by the legislation.
And the main thing is that the introduction of amendments to the TC of Ukraine by the law on the State Budget of Ukraine contradicts the provisions:
- of the Budget Code of Ukraine (Article 40, according to which taxes are not a matter of regulation of the law on the State Budget of Ukraine);
- of the Law of Ukraine “On Regulations of the Verkhovna Rada of Ukraine” (part 4 of Article 153, according to which the draft law on the State Budget of Ukraine cannot contain provisions on termination or introduction of amendments to laws);
- of the TC of Ukraine (subparagraph 4.1.9, according to which the principle of stability of tax legislation foresees that amendments in any components of taxes and duties cannot be introduced later than six months before the beginning of the new budget period, in which such new rules and rates would be effective).
Besides, introduction of amendments to the tax legislation by the law on the State Budget of Ukraine already was recognized by the Constitutional Court of Ukraine to be illegal. Particularly, in the Decision of the Constitutional Court of Ukraine in case No. 1-29/2007 of July 9, 2007 it is indicated that:
From the content of the stated provisions of the Constitution of Ukraine and of the Code it is seen, that the law on the State Budget of Ukraine as a legal act, which is clearly conditioned by the concept of budget as the plan of formation and disposal of financial funds, has a special subject of regulation, which differs from any other law of Ukraine – it concerns solely the establishment of state revenues and expenditures for social needs, including the expenditures for social protection and social maintenance, therefore this law cannot introduce amendments, terminate effective laws of Ukraine as well as cannot establish any other (additional) legal regulation of relations, which are the subject of other laws of Ukraine. Such provision is also set in part three of Article 27 of the Code.
5.Proceeding from the analysis of the abovementioned provisions of the Constitution of Ukraine, of the Code, practice of termination of other laws of Ukraine by the law on the State Budget of Ukraine, the Constitutional Court of Ukraineconcluded that termination by the law on the State Budget of Ukraine of other laws of Ukraine with regard to provision of privileges, reimbursements and guarantees, introduction of amendments to other laws of Ukraine, establishing other (additional) legal regulation of relations, other than it is foreseen by the laws of Ukraine contradicts Articles 1, 3, part two of Article 6, part two of Article 8, part two of Article 19, Articles 21, 22, paragraph 1 of part two of Article 92, parts one, two, three of Article 95 of the Constitution of Ukraine».
Further development of the issue
On December 19, 2013
Regarding application of reduced VAT and CPT tax rates we note that today the respective amendments to the TC of Ukraine were adopted by the Verkhovna Rada of Ukraine by the Law of Ukraine “On Introduction of Amendments to the Tax Code of Ukraine Regarding Rates for Certain Taxes”.
As you can see, the appropriate changes to the TC of Ukraine were adopted by a separate law on introduction of amendments to the TC of Ukraine. Probably, they have realized unconstitutionality and unlawfulness of adoption of amendments to other laws by a law on the State Budget.
Also we would like to inform, that apart from changes with regard the application of VAT and CPT rates, the aforementioned Law also prohibits the accounting of negative value of financial results from operations with securities, which appeared before January 1, 2014, upon the results of following reporting periods.
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.
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