The introduction of Exit Capital Tax (ECT), envisaged by the draft law “On amendments to the Tax Code of Ukraine regarding the ECT” (No. 8557), will draw the attention of tax authorities to companies engaged int foreign economic transaction.
Kateryna Kuzmina, a TP expert at Evris law firm, shared key points about TP issues with Interfax-Ukraine.
“Companies that engaged in foreign economic transactions will be under a special attention of tax authorities in case ECT is introduced. In view of the fact that ECT is focused on foreign economic transactions, the controlling authorities will pay closer attention to compliance with TP rules, since this will be one of the main instruments to ensure the payment of new tax,” she said.
The expert noted that since the ECT will have to be paid for each specific transaction, the tax authorities will no longer need to conduct long-term tax audits in respect of the correctness of determining the financial result, in theory, it will be enough for them to analyze bank statements and contracts.
“Thus, it is likely that the tax authorities will concentrate their entire attention on initiating and conducting TP audits,” Kateryna believes.
She noted a number of changes in TP rules that will occur after the alleged adoption of the ECT, in particular, medium and small taxpayers will be required to prepare TP documentation and report on controlled transactions, the taxpayers will not be able to use their accumulated losses or other expenses to compensate the obligation to pay the ECT to the budget, in addition, control over compliance with TP rules will be tightened.
Kateryna noted that the practice of ECT is unpopular in the world – similar taxes are introduced only in Estonia (since 2000), Georgia (since 2017), and Latvia (since 2018).
It is assumed that the introduction of ECT will stimulate Ukrainian companies to invest in the development, growth of their own business or production.
“This is due to the fact that if a company will reinvest the earned funds in the development of the company and not withdraw resources from the enterprise via dividend distribution, gratuitous financial aid, free provision of goods, works, services, royalties, interest and other transactions that lead to withdrawal of capital from the company, there is no ECT and the company will not pay the tax. Therefore, the importance of TP rules that regulate foreign economic transactions, rises significantly,” the expert summed up.