Ukraine has introduced tax measures to help the country cope with the effects of the coronavirus, and a guidance letter explaining the VAT treatment of gratuitous transfers of assets.
COVID-19 Measures
Ukraine’s parliament on March 17 approved a law that exempts from VAT and customs duties imports of medications, medical devices, and medical equipment necessary for the prevention, localization, and elimination of COVID-19.
The law also extends the deadline for filing income tax returns to July 1, introduces a moratorium on tax audits from March 18 through May 18, and stipulates that no tax sanctions will apply to breaches of tax laws committed between March 1 and April 30.
Taxpayers (individuals and legal entities) also are exempted from land and real estate taxes for the period from March 1 to April 30, and individuals — including individual entrepreneurs and independent professional service providers — are exempted from the social tax from March 1 through April 30.
Guidance Letter 892/6/99-00-07-03-02-06/IPK
This VAT guidance letter (dated March 3 and made public the week of March 23) explains the application of VAT to transactions involving the gratuitous transfer of goods, works, or services.
Under Tax Code article 185, section 185.1, Ukrainian VAT applies to supplies of goods, works, and services in Ukrainian customs territory.
The State Fiscal Service (SFS) said that for VAT purposes, the term "supply of goods" means any transfer of the right to dispose of goods, including their sale, exchange, donation, or supply to a third party based on a court's decision.
The phrase "supply of services" means any supply that is not considered a supply of goods; any operation involving the transfer of intellectual property or other intangible assets or the granting of exclusive rights to that IP; or the provision of services used in the execution of a specific act or activity, the SFS said.
Goods, works, or services will be considered to have been provided for free if:
the goods are transferred under gift agreements or other agreements that do not provide for any monetary or other compensation for the value of the goods or their return, or that are provided without the conclusion of such agreements;
the works or services are performed or provided without claiming compensation for their value; or
the goods are transferred to a legal entity or individual for safekeeping and have been consumed by that entity or individual.
Referring to article 188, section 188.1, the SFS said the VAT base for transactions involving the supply of goods or the provision of services should be determined based on their agreed (contractual) value.
That value includes any amounts paid and the value of tangible and intangible assets transferred to the taxpayer directly by the buyer or through any third party in connection with compensation for the cost of the goods or services supplied.
However, if the goods were manufactured independently by the transferor, the VAT base cannot be lower than the usual price for those goods, the SFS said. Also, in transactions involving the supply of previously acquired goods, the VAT base cannot be lower than the initial acquisition price of the goods, it added.
In light of the foregoing, the SFS said transactions involving the gratuitous transfer of goods, works, or services to a third party are subject to VAT in Ukraine. In transactions involving the gratuitous supply of previously acquired goods or services, the VAT base will be the initial acquisition price of the goods or services. In transactions involving the gratuitous supply of independently manufactured goods or independently provided services, the VAT will not be lower than the usual market price applicable to those goods or services.
Iurie Lungu, lawyer, Montreal