Chronicles and faces

On May 4, 2022, an online discussion of the UBA Tax and Customs Law Committee devoted to taxation during martial law took place.

This is the first online meeting of the Committee members since the beginning of the russia’s invasion of Ukraine. During this time a number of laws have been passed which aimed at the functioning of the state during martial law. In two months it is already possible to see the effect of the relevant changes and what to work on next.

Yuliia Kryvomaz, ’s Senior Of Counsel, made a report on “How is the VAT system working during martial law?” And this once again has raised important question: Isn’t it time to abolish this tax at all?

“The VAT administration system isn’t working and is out of balance. For many taxpayers the rules of the game have changed significantly, many exclusions have arisen, VAT refund is blocked as well as the registration of tax invoices that leads to uncertainty about the right to tax credit for buyers. And the biggest burden of VAT falls on the poorest population, most of whose incomes goes to everyday consumption”, – notes Yuliia.

As VAT still exists, let’s move on through the main changes. Yuliia drew attention that the legislator has introduced new rules on exemption from self-assessment of VAT in case of destruction / damage of goods due to the force majeure circumstances. However, since the Tax Code does not regulate the list of documents confirming the destruction of property the issue of documenting the fact of such destruction / damage should be approached responsibly (the recommended list of documents can be found in the Yuliia’s presentation by the link below).

We hope for a more liberal approach of the tax authority to the requirements for conducting an inventory to write-off destroyed / damaged goods, fixed assets, as conducting an inventory may be associated with a number of risks for commission members (unexploded ordnance and mines, destruction of damaged structures).

But, if the damages aren’t directly related to the fighting? If, for example, the product has become substandard due to the inability of the buyer to perform the contract not directly through fighting (buyer’s staying in combat zone, changing market needs). According to Yuliia, in such cases it is rather a matter of a significant change of circumstances for the parties to the contract that leads to the deviation from contractual obligations / loss of products as there is no causal link between loss of property and the force majeure circumstances. Therefore, there is reason to say that VAT is not subject to accrual in this case. But once again we emphasize that the taxpayer must approach the documentation of property loss correctly.

More on these issues can be found in Yuliia’s presentation by the link.

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