Our Managing Partner, Volodymyr Chyzhykov commented on the digital vision of the modern consulting company for Ukrainskyi yuryst magazine. "IT infrastructure has one of the key roles both when starting a business and when the company is already scaling, so there is a need for systematization of accumulated data. We consider ourselves innovative. Many processes are integrated on the Zoho One platform, including CRM system, marketing, project management, accounting. The system is integrated with the site, telephony system, pages in social media. All processes and data are in the cloud on foreign servers. Also, a significant part of the company's document circulation is digitalized. The rest is in hard copies, but only because some partners prefer hard copies. In addition, the company's knowledge base is consolidated in the online knowledge management system A1 Knowledge Base, developed specifically for us by Codebridge Technology, Inc."
What type of taxes do we need?
Volodymyr Chyzhykov, Managing Partner at А1 Consulting, joined the survey of Yurydychna praktyka within the framework of Vox Populi, which was devoted to the tax issues in Ukraine, and commented on its results. "The results of the survey testify - there is no need for the new taxes, it is rather necessary to use effectively and under the defined purpose those revenues from taxes which have been implemented already. Although we can observe that in our country it becomes a trend - the constant changes to the Tax Code of Ukraine. Only during the last year, there were implemented provisions on BEPS, Diia City and gig-contractors, "Google tax," tax amnesty, moreover, the draft law #5600 is "coming" (that increases environmental taxes (air tax) and prohibits the management of companies to go abroad if they have tax debt (almost a type of tax on leaving home). Therefore, answering the question on what types of taxes we need, is rather obvious - those taxes that are transparently spent," Volodymyr has summed up.
Mykola Mishyn spoke at the BEPS Forum of the foreign companies' owners
Last week, Mykola Mishyn, Partner, Head of Transfer Pricing Practice at A1 Consulting, spoke at the BEPS Forum of the foreign companies' owners that was organized by the International Advisers Association. He shared his experiences and vision on the panel "Transfer Pricing and Disputes on Business Purpose". Mykola Mishyn presented his expert opinion on the draft Procedure for establishing compliance of the conditions of controlled transactions with raw materials based on the "at arm's length" principle. "Taking into account the possible changes to the Tax Code of Ukraine, we expect this order to enter into force as of January 1, 2023. In general, it contains important and useful methodological approaches. However, business should expect fiscalization of regulatory authorities to the control over such goods", Mykola said. TP remains one of the most discussed topics for the companies involved in foreign economic operations. No wonder, the panel attracted the attention of many experts who participated in the Forum. The panel participants discussed current burning issues, including justification of the business purpose in the controlled transactions of past periods, the risks for payers in royalty payments, as well as interest on loans. Promising novels included constructive dividends, commodities, and master files.
A1 Consulting partners are recognized in Ukrainian Law Firms
The results of Ukraine-wide research "Ukrainian Law Firms: A Handbook for Foreign Clients 2021" were published last week. A1 Consulting partners Volodymyr Chyzhykov and Mykola Mishyn were mentioned as Notable Practitioners in Transfer Pricing. The publication also mentioned the entry into the consulting market of A1 Consulting firm.
Tax updates: BEPS 2.0
The past week ended with historical events for the tax system of the whole world. On Saturday, June 5, this year, after years of negotiations and discussions, the ministers of finance of G7 and key international organizations agreed to begin global tax reform. Its necessity is dictated by the continuous globalization and digitalization of the world economy.
First of all, the reform will be pointed at companies operating in the global digital economy. Their business model, due to the high variety of the global "tax space" and the specifics of the technological business, allows paying taxes not where the activity is carried out and the cost is generated, but mainly in the country of registration (or leaving them in tax "harbors").
It is assumed that the reform will consist of two key components - "Pillar One" and "Pillar Two."
For example, within Pillar One, the largest and most profitable transnational corporations will have to pay tax not only in countries where they are registered and have a head office but in countries where they actually operate and generate value as well. The rules will apply to international companies with profitability of at least 10%. At the same time, 20% of any additional profits that will lead to an increase in profitability should be redistributed and taxable in those countries where such companies operate.
Therefore, within Pillar Two, the minimum corporate tax rate for transnational corporations is set at 15%, which should prevent the "flow" of profits to offshore jurisdictions and stop tax "races" between countries.
The next step in introducing new global tax standards should be their support during a meeting of G20 finance ministers and central bank executives in July this year. And we understand that given the agreed position of Great Britain, Germany, Italy, Canada, USA, France, Japan, EU (Eurogroup), and the OECD, this is inevitable.
The King of Pop beats the tax authorities in court
How much do you think the image (or visually similar image) of The King of Pop, which remains the richest dead celebrity according to Forbes https://bit.ly/3hSUYoA and holds the 69-line list of the most popular artists of all time on Spotify https://bit.ly/3p2Fa4p?
It all began after the death of Michael Jackson and the payment of estate tax. The heirs removed the assessor who estimated everything at a huge $2,105, which was indicated in the tax statements. Tax authorities did not agree and made their estimate, according to which the value reached 434 million US dollars. The court faced a difficult task - to play for the "zero" or "go on a promotion", but they were not confused and invited alternative experts who considered their cost. The assessor of the heirs and the tax authorities made amendments to the preliminary calculations, presenting another alternative. In total, 5 alternative assessments were conducted, but the difference between the assessment of tax authorities and the judicial expert was $430 million. And all because of the inclusion of unforeseen benefits.
In other words, at the time of Jackson's death, and in his hands, these intangible assets were worth much less than what effective managers "turned" them into after his death. And as a finale: the cost was - 4.1 million US dollars (it would be spectacular if the judge announced it making a moonwalk).
of the UN TP Guide for Developing Countries was published.
The new version of the Guide still consists of four parts, but with certain changes.
🔸 Part A contains an overview of transnational companies, the features of their functioning, as well as the management of TP processes within such structures.
🔸 Part B describes the concept of the "arm's length" principle, comparability analysis, transfer pricing methods, and recommendations on pricing policies for certain types of transactions and contracts. In Part B of the Guide, the authors added a new section for financial transactions. Part B was also supplemented by provisions on central procurement functions and updated recommendations for the application of the profit-sharing method and comparability analysis.
🔸 Part C deals with the implementation of TP rules in developing countries.
🔸 Part D describes the practice of applying transfer pricing rules in selected countries, in particular Brazil, China, Mexico, South Africa, Kenya, and India.
It should be noted that Ukraine is a member of the UN, therefore the use of the Guide in the justification of transfer pricing can be positively perceived by both tax authorities and courts.
Five in one: foreign economic transaction at the crossroads of the tax target
The global trend of tax transparency and Law No. 466 stimulate additional attention to transactions with non-residents to avoid unplanned tax expenses.
Business target, beneficial owner, transfer pricing, "hidden dividends," main goal test, the permanent establishment - these and many other tax issues can easily turn into a "trap" for a successful business transaction.
According to the State Tax Service of Ukraine, during 2020, 332 special requests were sent to the competent authorities of other states, of which:
🔸 150 on transfer pricing; 🔸 182 on non-resident income.
It is expected that after processing the answers, Ukrainian taxpayers receive requests for the submission of information, transfer pricing documentation, will be included in the schedule, and/or they will begin checks on compliance with the "arm's length."
It is important to keep in mind that any information that the company provides to the request of the supervisory authority, in particular regarding the transfer pricing, the tax authorities can use to analyze and verify compliance with other legal requirements that are not directly related to the subject of the request.
Ukraine is the first country in the world where provided legitimate passport in a smartphone
On March 30, 2021, the Verkhovna Rada of Ukraine adopted a bill "On the Unified State Demographic Register and documents confirming citizenship of Ukraine, identity or special status".
As a result, from the moment the Law becomes effective, an e-Passport and a Travel e-Passport (the same ones that are displayed in the application "Diia") gain legal force similar to paper passports and can be presented instead of and without additional presentation of paper versions. A1 Consulting team most appreciated the possibility of using electronic copies of documents by scanning a QR code in the Diia app, instead of the notorious scanned copies.
However, it is necessary to add that e-Passport does not allow you to:
📍 cross the state border of Ukraine, except cases when it is necessary to confirm the identity of a citizen of Ukraine while entering Ukraine; 📍 enter and exit the temporarily occupied territory of Ukraine; 📍 enter, stay, reside or move within the border zone, exit to the territorial sea and inland waters of Ukraine.
Thus, if an e-Passport almost fully keeps the functionality of its paper "brother", then a Travel e-Passport is only an identity confirmation of a citizen of Ukraine, and does not perform a number of key functions of a paper one.
Dmytro Nosenko, Senior consultant at A1 Consulting
For 2020, companies should report on transfer pricing in a new form
On March 19, the order of the Ministry of Finance of Ukraine of 31.12.2020 No. 841 came into force, which enounced an updated version of the form and the Order of drawing up the Report on controlled operations.
Therefore, taxpayers who carried out controlled operations during 2020 must submit a corresponding report on a new form before 1 October 2021.