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200% fine for abuse of tax incentives

Ukraine
10 Feb 2010

Effective 1 January 2010 a new 200% fine for the abuse of tax incentives is being applied in accordance with amendments to the Law of Ukraine "On Settlement of Tax Liabilities". Taxpayers (or company officers) who use tax incentives for purposes other than those for which they are designated and/or the conditions or objectives for granting such an incentive will be fined 200% of tax liability which would otherwise be due if the incentive was not applied. Taxand Ukraine discuss the confusion which surrounds the new legislation.

Taxand's Take


The new provision of the Law can hardly be called an example of perfect legislative draftsmanship. The wording is unclear and vague, with a potential for confusion and disputes with controlling authorities. One major defect is the lack of a statutory definition for the term "tax incentive".

Another defect of the law is confusion regarding the persons who could be penalised. For a corporate taxpayer it is unclear whether the fine is imposed on the company, its officers or both.

The imprecise wording of the law raises the risk of fines, resulting from tax or customs audits. Tax and customs authorities may be tempted to aggressively enforce such fines, i.e. they may try to apply a 200% fine in the widest possible range of situations and to as many persons as possible.

The State Tax Administration of Ukraine and the State Customs Service of Ukraine shall amend respective regulations regarding the application of the new fine.

Your Taxand contact for further queries is:
Vladimir Didenko
T. +380 44 492 8282
E. vdidenko@magisters.com

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Taxand's Take Author