{"id":574,"date":"2014-04-07T10:10:12","date_gmt":"2014-04-07T08:10:12","guid":{"rendered":"https:\/\/kmp.ua\/?p=574"},"modified":"2018-01-25T17:42:03","modified_gmt":"2018-01-25T15:42:03","slug":"pdv-vvezennya-likarskykh-zasobiv","status":"publish","type":"post","link":"https:\/\/kmp.ua\/en\/analytics\/infoletters\/pdv-vvezennya-likarskykh-zasobiv\/","title":{"rendered":"VAT on import of medicines and medical products: 20% or 7%"},"content":{"rendered":"

The Law of Ukraine as of 27.03.2014 No.\u00a01166-VII1<\/sup>\u00a0amended\u00a0 the provisions of the Tax Code of Ukraine on VAT applicable to transactions with \u00a0medicines and medical products2<\/sup> (hereinafter together \u2013 “medicines”), in particular, introduced 7% rate of VAT on supply<\/strong> of medicines.<\/p>\n

As regards the importation<\/strong> of medicines \u00a0into the customs territory of Ukraine, according to para. 206.2 of Article 206 the VAT rate set in subpara. 194.1.1 of Article 194 of the Tax Code of Ukraine is to be used, which at the moment provides for two rates \u2013 20%<\/strong> and 7%<\/strong>. As such, the transaction on import of medicines is subject to VAT either<\/strong> at a rate of 20% or<\/strong> 7%.<\/p>\n

It is logical to assume that 7%<\/strong>\u00a0 rate of VAT should be applied, since subpara. 194.1.1. of the Tax Code of Ukraine was amended simultaneously with the cancellation of respective VAT exemptions on import of medicines.<\/p>\n

At least, in this case there is a unclear provision of the Tax Code of Ukraine, which provides for ambiguous (multiple) interpretation of the rights and responsibilities of taxpayers, namely which VAT rate should be chosen during importation of medicines. According to subpara.\u00a04.1.4 and para.\u00a056.21 of the Tax Code of Ukraine in such case the decision should be made in favor of the taxpayer.<\/p>\n

The letter of the Ministry of Revenues and Duties of Ukraine<\/span><\/a> as of April 4,\u00a02014 No. 7822\/7\/99-99-19-05-01-17 evidences the ambiguity of the norm in question, by which the Ministry is trying to \u201csolve\u201d <\/em>the situation by interpreting the provisions of the Tax Code of Ukraine not<\/strong> in favor of taxpayers, i.e. ignoring the rule of conflict of interests. Thus, the Ministry of Revenues and Duties of Ukraine <\/span>made a conclusion about the application of 20% VAT rate on importation of medicines into the customs territory of Ukraine completely ignoring the rate of 7%.<\/p>\n

Had the legislator intended to tax different types of transactions at different tax rates, \u00a0i.e. supply at the rate of 7% and importation into the customs territory of Ukraine\u00a0 at the rate of 20%, such approach would have no economic grounds and would lack logic. If such approach is followed, the state budget will have to reimburse to the importers the difference between input VAT on importation and VAT obligations on subsequent supply of medicines, which might reach up to 13% of import VAT.<\/p>\n

In such case, it is necessary to amend the Tax Code of Ukraine in order to specify the rules of taxation with VAT the importation of medicines into the customs territory of Ukraine.<\/p>\n

Follow-up as of April 15, 2014<\/strong><\/p>\n

The issue of the VAT rate on importation of medicines was resolved through adoption of the Law of Ukraine “On Amending the Tax Code of Ukraine and some other Legislative Acts of Ukraine regarding Elimination of Certain Discrepancies of Legislative Norms<\/span><\/a>“<\/span>.<\/p>\n

Thus, according to the wording of the draft law available at the official website of the Verkhovna Rada of Ukraine, subpara. \u201cB\u201d of para. 193.1 of the Tax Code of Ukraine is being amended and directly stipulates, that 7% rate of VAT shall also be applied to transactions on importation of medicines into the customs territory of Ukraine.<\/p>\n

The aforementioned Law was adopted on April 10,\u00a02014 and it was passed to the President for signing on April 14,\u00a02014, i.e. there is no final wording of the Law yet.<\/p>\n

As such, the issue from which moment such amendments should enter into force still remains open: either it is starting from the day following the day of its official publication (as it is mentioned in the text of the draft law) or starting from April 1, 2014 (as it is mentioned in comparative table to the draft law).<\/p>\n

However, in any case the amendments introduced to the Tax Code of Ukraine evidence that 7% rate of VAT should have been applied by importing of medicines starting from April 1, 2014 (the legislator\u2019s intention was precisely this).<\/p>\n

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.<\/strong><\/em><\/p>\n

Footnotes:<\/em><\/p>\n

1<\/sup>The Law of Ukraine \u201cOn Prevention of the Financial Catastrophe and Creation of the Grounds for Economic Growth in Ukraine\u201d as of March 27,\u00a02014 No. 1166-VII.<\/em><\/p>\n

2<\/sup>Meaning medicines, allowed for production and use in Ukraine and listed in the State Register of Medication (including by pharmacies), as well as medical remedies in accordance with the list, adopted by the Cabinet of Ministers of Ukraine. <\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

VAT on import of medicines and medical products: 20% or 7%<\/p>\n

<\/strong><\/p>\n

The Law of Ukraine as of 27.03.2014 No. 1166-VII1<\/sup> amended  the provisions of the Tax Code of Ukraine on VAT applicable to transactions with  medicines and medical products2<\/sup> (hereinafter together \u2013 “medicines”), in particular, introduced 7% rate of VAT on supply<\/strong> of medicines.<\/p>\n

As regards the importation<\/strong> of medicines  into the customs territory of Ukraine, according to para. 206.2 of Article 206 the VAT rate set in subpara. 194.1.1 of Article 194 of the Tax Code of Ukraine is to be used, which at the moment provides for two rates \u2013 20%<\/strong> and 7%<\/strong>.  As such, the transaction on import of medicines  is subject to VAT either<\/strong> at a rate of 20% or<\/strong> 7%.<\/p>\n

It is logical to assume that 7%<\/strong>  rate of VAT should be applied, since subpara. 194.1.1. of the Tax Code of Ukraine was amended simultaneously with the cancellation of respective VAT exemptions on import of medicines.<\/p>\n

At least, in this case there is a unclear provision of the Tax Code of Ukraine, which provides for ambiguous (multiple) interpretation of the rights and responsibilities of taxpayers, namely which VAT rate should be chosen during importation of medicines. According to subpara. 4.1.4 and para. 56.21 of the Tax Code of Ukraine in such case the decision should be made in favor of the taxpayer.<\/p>\n

The letter of the Ministry of Revenues and Duties of Ukraine<\/span><\/a> as of 04.04.2014 No. 7822\/7\/99-99-19-05-01-17 evidences the ambiguity of the norm in question, by which the Ministry is trying to \u201csolve\u201d <\/em>the situation by interpreting the provisions of the Tax Code of Ukraine not<\/strong> in favor of taxpayers, i.e. ignoring the rule of conflict of interests. Thus, the Ministry of Revenues and Duties of Ukraine <\/span>made a conclusion about the application of 20% VAT rate on importation of medicines into the customs territory of Ukraine completely ignoring the rate of 7%.<\/p>\n

Had the legislator intended to tax different types of transactions at different tax rates,  i.e. supply at the rate of 7% and importation into the customs territory of Ukraine  at the rate of 20%, such approach would have no economic grounds and would lack logic. If such approach is followed, the state budget will have to reimburse to the importers the difference between input VAT on importation and VAT obligations on subsequent supply of medicines, which might reach up to 13% of import VAT.<\/p>\n

In such case, it is necessary to amend the Tax Code of Ukraine in order to specify the rules of taxation with VAT the importation of medicines into the customs territory of Ukraine.<\/p>\n

Follow-up as of April 15, 2014<\/strong><\/p>\n

The issue of the VAT rate on importation of medicines was resolved through adoption of the Law of Ukraine “On Amending the Tax Code of Ukraine and some other Legislative Acts of Ukraine regarding Elimination of Certain Discrepancies of Legislative Norms<\/span><\/a>“<\/span>.<\/p>\n

Thus, according to the wording of the draft law available at the official website of the Verkhovna Rada of Ukraine, subpara. \u201cB\u201d of para. 193.1 of the Tax Code of Ukraine is being amended and directly stipulates, that 7% rate of VAT shall also be applied to transactions on importation of medicines into the customs territory of Ukraine.<\/p>\n

The aforementioned Law was adopted on 10.04.2014 and it was passed to the President for signing on 14.04.2014, i.e. there is no final wording of the Law yet.<\/p>\n

As such, the issue from which moment such amendments should enter into force still remains open: either it is starting from the day following the day of its official publication (as it is mentioned in the text of the draft law) or starting from April 1, 2014 (as it is mentioned in comparative table to the draft law).<\/p>\n

However, in any case the amendments introduced to the Tax Code of Ukraine evidence that 7%rate of VAT should have been applied by importing of medicines starting from 01.04.2014 (the legislator\u2019s intention was precisely this).<\/p>\n

Footnotes:<\/em><\/p>\n

1<\/sup>The Law of Ukraine \u201cOn Prevention of the Financial Catastrophe and Creation of the Grounds for Economic Growth in Ukraine\u201d as of 27.03.2014 No. 1166-VII.<\/em><\/p>\n

2<\/sup>Meaning medicines, allowed for production and use in Ukraine and listed in the State Register of Medication (including by pharmacies), as well as medical remedies in accordance with the list, adopted by the Cabinet of Ministers of Ukraine. <\/em><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[71],"class_list":["post-574","post","type-post","status-publish","format-standard","hentry","category-infoletters","tag-tax-pdw"],"_links":{"self":[{"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/posts\/574"}],"collection":[{"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/comments?post=574"}],"version-history":[{"count":8,"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/posts\/574\/revisions"}],"predecessor-version":[{"id":8235,"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/posts\/574\/revisions\/8235"}],"wp:attachment":[{"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/media?parent=574"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/categories?post=574"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/tags?post=574"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}