+ 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.

 

The Ministry of Reintegration adopted the List of territorial communities which are located in the area of fighting or are under temporary occupation, encirclement (blockade) – is it applicable for tax purposes?

04 May, 2022 Newsletters

Owing to hostilities in Ukraine, a number of tax exemptions have been introduced, in particular regarding assessment and payment of taxes on land and on real estate (more information in our newsletter “Property tax: what to do if there is no access to land plot or real estate?”). According to the Transitional Provisions of the Tax Code of Ukraine (the Tax Code), the main ground for the application of such exemptions is the location of objects in the territories where hostilities take (took) place or in the territories temporary occupied by armed forces of the Russian Federation.

Recently, the Order of the Ministry of Reintegration of the Temporarily Occupied Territories of Ukraine as of April 25, 2022, No. 75 “On approval of the List of territorial communities which are located in the area of fighting or are under temporary occupation, encirclement (blockade) as of April 30, 2022” (the Order of the Ministry of Reintegration) has appeared in public access.

By this Order the Ministry of Reintegration approved the list of territorial communities which are located in the area of fighting or are under temporary occupation, encirclement (blockade) as of April 30, 2022. The Order lists some territorial communities of a number of regions, in particular Dnipropetrovsk, Donetsk, Zaporizhzhia, Luhansk, Mykolaiv, Odesa, Kharkiv and Kherson regions.

As one can see, the list does not include the territorial communities of Kyiv, Chernihiv and Sumy regions, where hostilities and temporary occupation have also taken place. Since there are a lot of businesses in this area that have been affected by consequences of the fighting and occupation, we will try to understand whether the Order of the Ministry of Reintegration can be used for tax purposes, in particular for assessment and payment of taxes on land and on real estate.

1.

We would like to remind that both para. 69.14 and para. 69.22 of sub-section 10 of the Transitional Provisions of the Tax Code, which prescribe the peculiarities of assessment and payment of taxes on land and on real estate, now provide that the relevant taxes shall not be charged and paid if the objects are located in the territories where hostilities take (took) place or in the territories temporarily occupied by armed forces of the Russian Federation.

Both para. 69.14 and para. 69.22 of sub-section 10 of the Transitional Provisions of the Tax Code directly state that:

The list of territories, where fighting take (took) place and the territories temporarily occupied by the armed forces of the Russian Federation, shall be determined by the Cabinet of Ministers of Ukraine”.

As one can see, only the list determined by the Cabinet of Ministers of Ukraine should be used for tax purposes, as it is directly defined in the Tax Code.

Although the Ministry of Reintegration is a part of the Cabinet of Ministers of Ukraine, it is still a separate body of state power. Thus, the Cabinet of Ministers of Ukraine has the status of the highest executive body in accordance with Article 113 of the Constitution of Ukraine and the Ministry of Reintegration is one of the central executive bodies.

In addition, non-applicability of the Order of the Ministry of Reintegration for purposes of both para. 69.14 and para. 69.22 of subsection 10 of the Transitional Provisions of the Tax Code follows from the name of the Order. Thus, the Order of the Ministry of Reintegration adopted “The list of territorial communities which are located in the area of fighting or are under temporary occupation, encirclement (blockade) as of April 30, 2022”.

That is, this is the List of territories which are located (in the present tense) in the area of fighting or are under occupation as of a specific date (as of April 30 according to the name of the Order). Thus, the List of territories that were (in the past tense) in the area of fighting has not been approved by the Order of the Ministry of Reintegration.

For their part, para. 69.14 and para. 69.22 of sub-section 10 of the Transitional Provisions of the Tax Code directly state that the List should include not only territories that are in the area of fighting but also those where fighting took place. That is, in order to be applied for the purposes of the Tax Code, the List should also include those territories that were in the area of fighting (in the past tense).

Therefore, the Order of the Ministry of Reintegration cannot indicate that the Cabinet of Ministers of Ukraine has defined the List of territories where fighting take (took) place and the territories temporarily occupied by the armed forces of the Russian Federation that would be applicable for the purposes of para. 69.14 and para. 69.22 of sub-section 10 of the Transitional Provisions of the Tax Code.

2.

Non-applicability of the Order of the Ministry of Reintegration for tax purposes is also seen from the grounds for its adoption (which are defined in the Order itself). Thus, the Order of the Ministry of Reintegration states that such Order is adopted:

“In accordance with the Decree of the Cabinet of Ministers of Ukraine as of April 16, 2022 No. 457 ‘On support of certain categories of the population that suffered in connection with the military aggression of the Russian Federation against Ukraine’”.

If we refer to the text of the Decree of the Cabinet of Ministers of Ukraine as of April 16, 2022 No. 457 “On support of certain categories of the population that suffered in connection with the military aggression of the Russian Federation against Ukraine”, one can see that the purpose of applying the Decree and the List of the Ministry of Reintegration is limited to the following:

“1. To establish that in order to support certain categories of the population that suffered in connection with military aggression of the Russian Federation against Ukraine, the following shall be provided:

1) internally displaced persons included in the Unified Information Database of internally displaced persons shall be provided with financial assistance for basic needs in accordance with the Procedure for providing financial assistance to internally displaced persons, approved by the Decree of the Cabinet of Ministers of Ukraine as of March 20, 2022 No. 332 “Some issues of payment of financial assistance for basic needs to internally displaced persons”;

2) persons evacuated from settlements located in the areas of fighting (possible fighting) to safe areas shall be provided with humanitarian and other assistance to the civilian population during the martial law in Ukraine in accordance with the Procedure for providing of humanitarian and other assistance to the civilian population during the martial law in Ukraine, approved by the Decree of the Cabinet of Ministers of Ukraine as of March 7, 2022, No. 220 ”Questions of provision of humanitarian and other assistance to the civilian population under the martial law in Ukraine” or assistance from international organizations;

3) persons living in the settlements liberated from occupation who do not have and did not have the status of internally displaced persons shall be provided with humanitarian and other assistance to the civilian population under the martial law in Ukraine in accordance with the Procedure for providing of humanitarian and other assistance to the civilian population under the martial law in Ukraine, approved by the Decree of the Cabinet of Ministers of Ukraine of March 7, 2022 No. 220”.

That is, as we understand, the List of the Ministry of Reintegration is applicable only for the purpose of supporting certain categories of the population that suffered in connection with the military aggression and is not applicable for tax purposes.

3.

So, the issue with the List of territories where hostilities take (took) place and the territories temporarily occupied by armed forces of the Russian Federation, which should be adopted by the Cabinet of Ministers of Ukraine, in particular for the purposes of application of para. 69.14 and para. 69.22 of sub-section 10 of the Transitional Provisions of the Tax Code, remains unsolved.

At the same time, the existence of the Order of the Ministry of Reintegration already indicates that the State recognizes at least a number of territories, which are identified in the List under such Order, as the territories which are located in the area of fighting or are under temporary occupation, encirclement (blockade).

The establishment of such a fact is relevant not only for the purposes of payment of assistance to the population, but also for other purposes, including tax purposes regarding exemptions from assessment and payment of taxes on objects located in such areas. In our view this position is strong enough, because if the area is recognized as occupied or of fighting for purposes of payment of assistance to the population, how can it be not recognized for tax purposes?

Therefore, the existing Order of the Ministry of Reintegration provides a substantial support in case of taking an alternative approach, as it is considered in the newsletter “Property tax: what to do if there is no access to land plot or real estate?”, regarding existence of grounds for applying exemption from assessment and payment of taxes on land and on real estate.

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

Footnotes:

1The list is constantly updated, so the date “as of April 30, 2022” may change.

Kind regards,

© WTS Consulting LLC, 2022

Views 16912

Comment