MPs propose that profit tax should be cut from 18% to 15% – draft tax reform

MPs have proposed that the basic rate of profit tax should be reduced to 15% from the current of 18%, and taxation of distributed profit and payments equaled to it should be introduced, according to a draft bill on tax reform registered in the parliament by 114 lawmakers on Monday.

It is proposed that profit in the form of accrued dividends paid in favor of individuals, those who do not pay profit tax, and nonresidents should be taxed; sums of tax paid during one year would be taken into account when the taxable sum at the end of the year is defined; the clear transition clauses – accumulated over-payment of profit tax as of January 1, 2016 should be taken into account in the sum of tax in following periods.

The MPs proposed imposing profit tax on payments equaled to it: exceeding the limit for interest rates under debt liabilities of affiliated nonresidents (exceeding 50% of the highest NBU rate on foreign borrowing under thin capitalization rules); sums in the prices defined under transfer pricing rules that exceed the agreement price in transactions with affiliated persons and nonresidents who are registered in low-taxation jurisdictions and offshore zones. Equaled payments also include a 100% royalty in favor of: nonresidents in offshore zones; nonresidents who are not real royalty recipients; nonresidents who are not taxed for royalties in the state where they reside; persons who do not pay profit tax as part of other taxes (apart from individuals); persons exempted from paying profit tax or who pay lowest rate.

The lawmakers proposed that profit tax should be imposed on payments in favor of not-profit organizations exceeding 0.5% of income of taxpayers; sums (100%) of payments for insurance (reinsurance) of resident insurers in favor of nonresident insurers (apart from mandatory insurance agreements, Green Card policies, agreements on transportation of passengers by air).

It is also proposed that tax should be imposed on sums that exceed the agreement prices in transactions to sell goods to non-payers of profit tax, including those who apply the simplified taxation system.

The MPs proposed that current criterion should be retained for non-profit organizations: non-targeted use of funds means the loss of their status.

As reported, the National Reforms Council in spring 2015 created the targeted group Tax Reform headed by Finance Minister of Ukraine Natalie Jaresko. In May-August, open communications platforms and sector platforms where the ministry and targeted groups discussed the tax reform concept with experts and business representatives were launched. It was planned that the reform will be voted on by early autumn, which would allow it to be launched at the beginning of 2016 and the new budget could be built on it.

However, a single plan was not drawn up. In early September several options of the concept were presented at a meeting of the National Reforms Council and it was decided to create a working group to work on the tax reform concept.