The White Business Law and Other Legislative Changes

On July 25, 2024, the Law of Ukraine No. 3813-IX, titled "On Amendments to the Tax Code of Ukraine Regarding the Peculiarities of Tax Administration During Martial Law for Taxpayers with a High Level of Voluntary Compliance with Tax Legislation" (hereinafter referred to as "the Law"), was published.

Danylo Hetmantsev, Chairman of the Verkhovna Rada Committee on Finance, Tax, and Customs Policy, tells what is  the primary goal of this Law : "I want to emphasize once again that the state and white businesses are absolute allies in the fight against the shadow economy and corruption. It is through this alliance that we will effectively combat and overcome both the shadow economy and corruption. We must walk this path together, step by step."

The Law aims to simplify and optimize tax administration, particularly under martial law conditions, while also enhancing voluntary tax compliance among taxpayers. Below are the key provisions and proposed changes:

1. Administration of taxes:

•  A new clause establishes that the procedures for administering taxes, fees, customs payments and the single contribution are governed exclusively by tax legislation and the legislation on the single contribution.

2. Taxation of Residents and Non-Residents (clause 14.1.159):

• Income received by a resident from a non-resident must constitute at least 75% of the total income to become a subject to tax administration.
• The cost of goods purchased from a non-resident must be at least 75% of the total cost of goods purchased from non-residents.

3. Tax Risks and Compliance:

•  The definition of tax risk has been updated (clause 14.1.221: tax risk (compliance risk) is defined as the probability of a taxpayer failing to fulfill their tax obligations, including registration as a taxpayer, registration for certain types of taxes, submission of tax reporting, full and timely declaration and payment of taxes, and compliance with other legislation monitored by the supervisory authority). New terms, such as compliance risk and compliance, have also been introduced (subsections 14.1.221-1 and 14.1.241-1), outlining measures to increase voluntary compliance with tax obligations.

4. Changes in Installment and Postponement Procedures:

• Subsections regulating the terms for installments and postponements of tax obligations have been revised (clauses 17.1, 19-1.1). These changes clarify the terminology regarding monetary obligations and tax debt.

5. Controlled Operations:

•  The rules for determining the organizational and legal forms of non-residents and the criteria for listing states as offshore zones or jurisdictions that do not comply with international recommendations have been updated (subsection 39.2.1).
•  Changes have been made to the list of states and territories where controlled operations are conducted. Criteria for determining such states include their inclusion in the list of offshore zones or failure to comply with international anti-money laundering recommendations.
• Revisions have been made to the definition of business transactions with non-residents.
• It has been determined that income and expenses of a foreign company with non-residents must adhere to the "arm's length" principle. 

6. Tax Risk Management:

• It is stipulated that controlling authorities may manage tax risks within their powers. Given the lack of specific details, reference is made to the CMU Resolution No. 854 of July 25, 2024, which approves the PROCEDURE for implementing an experimental project on the functioning of the tax risk (compliance risk) management system  within the State Tax Service. This, in turn, requires the adoption of several documents by the State Tax Service and the Ministry of Finance.

7. Changes in Reporting and Accounting:

• Changes have been made to reporting, particularly concerning controlled foreign companies, transactions with non-residents, and the reflection of these transactions in tax reporting.

8. Other Changes:

• Adjustments have been made to terms regarding administrative-territorial units.
• Provisions related to the licensing of excise taxpayers have been clarified.
• The rules concerning the taxation of accountable funds and the use of electronic money during business trips have been clarified.

9. Income Taxation Changes:

• One of the significant changes is the addition of  point/clause 33 to subsection 1 of Chapter XX "Transitional Provisions," which specifies that taxable income does not include the value of housing provided free of charge to internally displaced persons by their employer. This applies to employees working in the field of defense production and services, given that the housing is located in Ukraine and was provided during martial law.

10. Changes in the Accounting of Fixed Assets

• Subchapter 4 of Chapter XX has been amended with new provisions relating to fixed assets placed in service during martial law. Specifically, paragraph 43-1 has been expanded with clauses that allow enterprises involved in defense procurement to depreciate fixed assets, even if these assets were previously used. This amendment helps enterprises maintain financial stability and continue operations under challenging conditions.

11. Taxpayers with a High Level of Voluntary Compliance with Tax Legislation

• Identification of Compliant Taxpayers: Legal entities and individual entrepreneurs must meet several criteria to be identified as taxpayers with a high level of voluntary compliance, including the absence of a tax debt exceeding 3,000 of non-taxable minimums, no arrears on the single contribution, timely submission of reports, and other conditions.
• Formation and Publication of the List: The central executive authority will compile a List of taxpayers with a high level of voluntary compliance based on established criteria. This List will be published on the official government website.
• Features of Tax Administration: For taxpayers included in the List, certain audits will not be initiated, audit deadlines will be shortened, individual tax consultations will be provided, and a compliance manager will be appointed to oversee their case.
• Interaction with Taxpayers: Taxpayers on the List have the right to communicate with the compliance manager either verbally or through remote means. They will also receive information about tax risks and advice on how to mitigate them.
• Information Notices: The central executive authority will notify taxpayers of their inclusion in or exclusion from the List via their electronic cabinet.

In the Final Provisions of the Law it is noted that the various clauses will come into effect at different times. Additionally, there is a recommendation from the Cabinet of Ministers of Ukraine (CMU) to make amendments that allow automatic reservation of up to 25 percent of conscripted employees that work for taxpayers that included in the List of taxpayers with a high level of voluntary compliance with tax legislation.

As we can see, this Law introduces a series of significant changes to the tax legislation. However, these changes appear somewhat disjointed, so further amendments and clarifications are anticipated.