Statement of the American Chamber of Commerce in Ukraine on Draft Law #7115 regarding ensuring proper VAT administration

On September 15, 2017, Members of Parliament of Ukraine registered Draft Law #7115 at the Verkhovna Rada of Ukraine, which provides for the introduction of a number of important changes in the functioning of the System of monitoring of the compliance of tax invoices / calculations of adjustment with the risk assessment criteria sufficient for suspense of its registration (System) in the Single Register of Tax Invoices.

Member Companies of the American Chamber of Commerce in Ukraine (Chamber) recognize that today the work of the System is not perfect and needs to be amended. At the same time, the System is aimed at improving value added tax (VAT) administration, increasing the transparency of the electronic register of applications for VAT refund and reducing unlawful tax evasion schemes. Work of the System proves its effectiveness in practice. According to the information published by the Ministry of Finance of Ukraine and the State Fiscal Service of Ukraine in official sources, the work of the System contributes to reducing fake VAT, which is an important prerequisite for increasing state budget revenues.

Therefore, the main change envisaged by Draft Law #7115, namely – return to the test regime of the work of System (without actual suspense of the registration of risk tax invoices), is a step back in the fight against the shadow economy. In addition, according to the Chamber Member Companies’ experts, the Draft Law contains a number of other amendments that will have negative impact on the work of transparent business and will offset the achieved improvements in tax administration and lead to corruption risks. Namely:

  • possibility of suspense of the registration of any tax invoices / calculations of adjustment by the heads of fiscal authorities (except for state tax inspections) despite the approved risk criteria, which envisages the possibility of "manual" interference to the work of the System at the regional level of the State Fiscal Service of Ukraine and incites corruption risks;
  • suspension of the norm of the Tax Code of Ukraine, which is aimed at protection of the interests of bona fide taxpayers regarding the impossibility of cancellation of a tax credit under a properly registered tax invoice / calculation of adjustment, which may lead to the return of problems with timely VAT refund.

Chamber Member Companies are grateful to the Verkhovna Rada of Ukraine Committee on Tax and Customs Policy for their understanding and assistance in solving the urgent problems of the business community, constant open dialogue, and always support legislative initiatives aimed at improving the business climate in Ukraine. At the same time, taking into account the negative consequences of the adoption of Draft Law #7115 “On Amendments to Paragraph 2 of Chapter XX of the "Transitional Provisions" of the Tax Code of Ukraine regarding Blocking of Registration of Tax Invoices / Calculations of Adjustments in the Single Register of Tax Invoices”, the Chamber does not support the adoption of the Draft Law in its current wording and considers that it is necessary to focus on improvement of the work of the System by working out the most effective criteria in order to take into account and correct all identified problems.