Andrii ZABLOVSKYI | How the Law №466-IX should not be “improved” or why attempts at its “cosmetic” revision do not help

Despite numerous appeals from business and the expert community, the scandalous tax draft №1210, which entrepreneurs called “tax terror”, became Law №466-IX and came into force after its signing by the President on May 23, 2020.

Signing this contradictory law, the President of Ukraine addressed the Cabinet of Ministers with a proposal to prepare with the involvement of business representatives, experts and MPs proposals for systematic improvement and simplification of tax and fee administration procedures, ensuring clarity of tax rules, unification and clarity of terminology. That is, it was a matter of trying to correct some of the scandalous norms and provisions that remained in Law №466-IX.

One such attempt (as it later turned out to be “cosmetic” and frankly unsuccessful), the revision of the odious provisions of Law №466-IX. It was the story of amendments to the draft №2524. Despite the development of relevant amendments to the Tax Law № 466 in the framework of the working group set up at the initiative of the President with the participation of business. The further practice of considering these amendments in parliament proved the impossibility of such attempts by the Ukrainian business community.

Moreover, the proposals of MPs included in the comparative table before the second reading by the profile committee. Proposed by the draft Law №2524 amendments to the Law of Ukraine №466-IX were made in violation of Article 116 of the Rules of Procedure of the Verkhovna Rada of Ukraine on terms and essence of proposals. However, despite this fact, the draft №2524 was still voted in the second reading on July 14, 2020. They did not take into account a number of previously agreed with the business amendments to the entry into force of Law №466 and other conflicting rules. In particular, there are a number of economically unreasonable and risky norms that need immediate regulation and are clearly harmful to business in the current economic crisis, namely:

1. Introduction of “constructive” dividends or taxation. That is 15% income tax on non-residents of payments equated to dividends, including the amount of adjustment according to the transfer pricing methodology for transactions for the purchase / sale of goods (works, services) and income in the form of payments for securities ( corporate rights);
2. Introduction of the concept of “guilty liability” of taxpayers, which expands the field for fraud against unscrupulous taxpayers;
3. A change in the rules of “thin capitalization”, namely the application of restrictions on the deduction of interest expenses, if the liabilities to any non-residents (not only related) exceed equity by 3.5 times;
4. Raising the rent rates for iron ore from 8,00 to 11,00 and 12,00, respectively, and the adjustment factor from 0,7 to 0,95;
5. Increase of the excise tax rate on tobacco-containing products for electric heating by 4 times, which will be an additional burden for the tobacco industry, etc.

It is obvious that in the context of the coronavirus pandemic and the corresponding economic shocks, there is only one way to minimize the negative consequences for business from Law №466-IX – not to try to “improve” it by cosmetic revision of its individual rules and regulations, but only to cancel this law. In addition, to establish a moratorium on such tax changes, at least until the end of the economic crisis in the country.

Andrii Zablovskyi, Head of the Secretariat of the Council of Entrepreneurs under the Cabinet of Ministers.

Translated by Yuliia Sachuk