With Tax Amnesty Law coming into effect on 17 January 2015, the final details of Ukrainian tax amnesty program have become public.

Taxpayers who turn in and pay a small fraction of additional tax (5%) are entitled to relief from the remaining 95% of tax, as well as from the full amount of penalties and interest and from prosecution on tax evasion against company management.

1. Which taxes and violations are covered?

The amnesty covers Corporate Profit Tax (tax deductions only) and VAT (input VAT only).

Other taxes (e.g. payroll taxes, land taxes), as well as other CPT or VAT violations (underreporting income or output VAT) are outside the scope.

2. What periods are covered by amnesty?

Tax periods prior to 1 April 2014 within 3-year period of tax statute of limitation, whether already audited by tax office or not.

3. Who is eligible? Is amnesty possible during tax audit or litigation?

Persons (businesses) willing to make voluntary disclosure for past periods and pay part of the tax due, may apply for amnesty.

Amnesty is also possible in respect of (1) issues covered by ongoing or completed tax audit where tax office has not yet issued assessments, and (2) tax assessments challenged by taxpayer through administrative appeal procedures or in courts, provided the tax has not yet become due and payable.

4. How do you apply?

Taxpayer shall submit an application for voluntary disclosure (special adjustment to tax return) plus a list/description of relevant business transactions to the local tax office.

5. When applications can be made?

The timeline for applications is from 17 January 2015 till 17 April 2015 (90 days).

6. How applications are reviewed by tax office?

Tax office reviews application within 10 business days and notifies the taxpayer whether or not a tax audit is required for his application.

7. How much additional tax shall be paid?

The applying taxpayer shall pay 5% of either:

(1) the amount of tax indicated in taxpayer’s application for voluntary disclosure (adjustment), or

(2) the amount assessed during audit conducted within amnesty proceedings.

The remaining 95% of additional tax are deemed settled with no interest and penalties.

The burden is significantly less, compared to standard amounts payable during voluntary adjustments (100% of tax + 3-5% penalty) or assessment by tax office (100% of tax + penalty of up to 50%).

8. When tax shall be paid?

5% payment shall be made during 10 calendars days following receipt of notice from tax office that no audit is required; or of tax assessment, if there was a tax audit. Payment completes amnesty procedure.

9. How tax amnesty affects criminal prosecution?

The fair reading of the law suggests that if taxpayer makes 5% payment, then criminal investigation on tax evasion charges cannot be opened against such taxpayer or its management, and any open investigation shall be closed either by the investigator or the court.

10. Any downsides, risks or uncertainties with regard to tax amnesty?

Relief from criminal prosecution applies only to tax evasion charges. Based on Ukrainian previous experience, there is a risk that in tax-related cases, criminal investigation can be opened on charges not covered by relief (e.g. money laundering, neglect of duty, document forgery, sham business activity, etc.)

Tax Amnesty Law also fails to provide specific relief from confiscation of money or other assets received in pursuance of transaction which violates public order. This type of sanction is provided by the Civil Code and occasionally applied in tax-related cases.

Depending on circumstances, the above 2 issues can be deal-breakers. These issues can be resolved later through amendments or official interpretation of the new law.

CALL FOR ACTION

Ukrainian businesses who wish to participate in the tax amnesty program are advised to:

• review their past operations to determine transactions with high level of tax risks;
• verify whether criteria for relief are met (tax periods, types of taxes and violations);
• consult with adviser to make sure that the application is properly drafted and timely filed, to determine whether there are any additional risks (criminal prosecution or other) due to such application.