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Old debts, or what to do with the overdue debts of non-residents in respect of which the mechanism of subpara.159.1.1 of the Tax Code was applied before January 1, 2015

authors: Elena Bukuyeva, Maksym Honcharenko

20 September, 2023 Exclusive

Some CPT taxpayers may still have debts in foreign currency (for goods delivered and services provided) that occurred up until 2015, which are unlikely to be repaid, yet cannot be written off in tax accounting until the debt is paid off. Such debt, if kept in the accounting records, shall be considered for the purposes of calculating exchange rate differences and may generate "income" that is not actually received, while tax liabilities increase.

Starting from January 1, 2015, the CPT rules have been changed, as well as the rules for accounting for debts. At the same time, para. 17 of subsection 4 of section XX of the Tax Code o Ukraine established special rules for accounting for bad debts for those taxpayers who, prior to January 1, 2015, applied the mechanism stipulated by subpara. 159.1.1 of the Tax Code o Ukraine in the wording prior to 2015 - filed a lawsuit against the debtor.

Such new special rules of tax accounting envisage that taxpayers should record "old" debt for tax accounting purposes until it is paid off or recognized as bad debt pursuant to the procedure established by para. 17 of subsection 4 of section XX of the Tax Code o Ukraine (i.e., when the buyer declared bankrupt has insufficient assets and the debt is written off according to the terms of the settlement agreement concluded in accordance with the bankruptcy law).

In case such debt was neither repaid nor recognized as bad debt as described above, we believe that there may be several approaches to tax accounting of such "old" debt.



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