Taxation

From 1^st of  January, 2017 the amendments to the Tax Code of Ukraine came into force, which significantly affected the taxation of agricultural producers. In particular, they have finally abolished the special regime of VAT taxation for enterprises in agricultural sector. Instead, subsidies for certain types of agricultural activities were introduced. Some other taxes and fees have been changed as well.

The group 4 unified tax

The group 4 unified tax – a tax that is collected per unit of land area as a percentage of its normative monetary valuation index; payment of this tax replaces the following taxes and fees:

• Income tax for businesses, including the advance payments by payment of dividends;
• Land tax on land, which is used for agricultural commodities production;
• Rent payments for specialized use of water.

All other taxes and fees are paid as usual, including the unified social tax for social insurance.

Prerequisites for the group 4 unified tax eligibility:

• Production of agricultural products and / or fish breeding or fishing in lakes, ponds or reservoirs; processing of these products on owned or rented facilities, including processing of own raw materials under tolling schemes;
• Use of owned or leased farmlands;
• The share of agricultural commodities produced must be not less than 75% of previous year, while the share of agricultural production equals the share of income of agricultural producer generated from the sale of agricultural products of own production and processing in total revenue.

Not eligible for the group 4 unified tax are the enterprises, which:

• Have received over 50% of their income from the sale of ornamental plants, wild animals and birds, and furs and fur products (with some exceptions);
• Produce or sell excisable goods (exception: sale of grape and wine raw materials by wineries; generation of electricity, generated by qualified cogeneration heat plants (CHP) and / or from renewable energy sources, under conditions that income from electricity generation does not exceed 25% of total income);
• As of January 1 have tax debt (arrears), except for the hopeless tax debt, which arose as a result of force majeure.

An object of the group 4 unified tax is a farmland which used by agricultural producers. There are following types: arable land, hayfields, pastures and perennial plants, water fund areas (inland waters, ponds, reservoirs etc.)

The tax base of the group 4 unified tax is normative monetary valuation index per hectare of farmland. NMV has to be indexed by the rules set for land tax, including the indexation coefficient.

According to the changes in tax legislation from 01.01.2017, by calculating the NMV index of farmland one has to include the CPI index for 2015 as 100%, or for 2017 as 112.4%.

The group 4 unified tax rates in 2017 in comparison to the previous year have increased by 17%.

The group 4 unified tax rates

• Arable lands, hayfields, pastures – 0.95% (in 2016 – 0.81%);
• Arable lands, hayfields, pastures located in mountain areas and in the Polissia region – 0.57% (in 2016 – 0.49%);
• Perennial plants – 0.57% (in 2016 – 0.49%);
• Perennial plants are located in mountain areas and the Polissia region – 0.19% (in 2016 – 0.16%);
• Water fund lands – 2.43% (no change)
• Agricultural lands which are used for greenhouses – 6.33% (n 2016 – 5.4%).

The general reporting period for the group 4 unified tax is the calendar year. The tax calculated on one’s own until 1 January.

The calculated amount is divided by quarters as follows:

I and II quarters – 10%;

III quarter – 50%;

IV quarter – 30%.

Quarterly tax amount is paid within 30 days after the end of the quarter to the relevant local budget account, depending on the location of the land piece.

Transfer pricing

There are transfer pricing rules, which are used for purposes of general taxing by the income tax. If an agricultural producer qualifies as a taxpayer of the group 4 unified tax the transfer pricing rules do not apply.

Starting from 01.01.2017, certain changes regarding the transfer pricing were introduced to the Tax Code of Ukraine, as a result the principle of “arm’s length” can be applied to controlled transactions, provided the taxpayer’s annual income exceeds UAH 150 mln., excluding VAT (previously UAH 50 mln.), and total transactions volume in the relevant tax year exceeds UAH 10 mln., excluding VAT (previously UAH 5 mln.), determined by official accounting rules.

Controlled operations are the following:

• with non-residents;
• with non-residents through nominal intermediaries;
• for acquisition/sale of goods/services through the non-residents;
• with non-residents from “low-tax” jurisdictions.
• with actors that don’t pay the income tax and/or are not the residents of country where they registered as legal entities.

The newest list of the low-tax countries was created by the Cabinet of Ministers’ decree No. 977 from 16 September 2015. It should be noted that in the latest version from the list were removed countries, like Switzerland, Luxembourg, Singapore, Malta, Georgia and others.

In controlled operations, taxpayers are required – for taxing purposes – to use only the methods for price calculation, specified in the Tax Code of Ukraine (in particular, the method of comparative uncontrolled price, resale price method, “cost plus” method, net profit method, profit distribution method).

With the changes to the Tax Code were also specified the rules for controlled transactions with stock exchange products under a forward contract, namely: the market price range is determined on the basis of forwards prices for the decade prior to the contract, but under the condition the tax subject will notify (in the fixed form) the legal authority about the creation of such forward contract within the 10 days the contract initiated.

The CMU’s decree No.616 from 08.09.2016 has specified the list of stock exchange commodities and commodities exchanges which come under the transfer pricing rules.

• Stock agricultural commodities: corn, wheat, wheat-rye mix, barley, oats, rice, canola, soybeans, soybean oil / palm oil (sunflower oil is not on the list);
• Commodity exchanges for agricultural goods: Euronext, Chicago Mercantile Exchange (CME), Dalian Commodity Exchange (DCE, China), National Commodity and Derivatives Exchange (NCDEX, India), Tokyo Commodity Exchange (TOCOM) etc.

The mentioned changes to the Tax Code have set a new deadline for the report on controlled transactions – until the October 1 of the following year (previously until the May 1). If requested by the central tax authority the taxpayer is obliged to provide relevant documents on transfer pricing within the 30 calendar days. This is the mentioned above principle of “arm’s length”.

Also the Tax Code set fines for:

• Not submitting a report on controlled operations: UAH 413 400 + UAH 1378 per day of delay.
• Not complete reporting of transactions: 1% of a controlled operation, but not more than UAH 413 400;
• Not filling out papers on transfer pricing: 3% of a controlled operation, but not more than UAH 275 600 + UAH 2756 per day of delay.
• Not submitting a report after 30 days of paying a fine: UAH 6890 per day of delay.