Are the VAT liabilities accrued by the single tax payer at 2% income rate receiving funds to repay debts for the supply of goods / services during period of application of the cash method of tax accounting and being on the general taxation system?

Sub-paragraph 14.1.266 Paragraph 14.1 Article 14 of the Tax Code of Ukraine as of 02.12.2010 № 2755-VI with changes and amendments (hereinafter – TCU) stipulates that the cash method for tax purposes according to Section V of the TCU is a method of tax accounting, according to which date of occurrence of tax liabilities is defined as the date of crediting (receipt) of funds to the taxpayer's accounts opened in banks and / or bodies that provide treasury services to budget funds, to the taxpayer's cashier or the date of receipt of other types of compensation for the value of goods (services) supplied (or to be delivered) by the taxpayer; date of assignment of tax amounts to the tax credit is defined as the date of debiting funds from the taxpayer’s accounts opened in banks and / or bodies providing treasury services to budget funds, the date of issuance from the taxpayer's cashier or the date of granting other types of compensation for the value of goods (services) supplied (or to be delivered) to the taxpayer.

Sub-paragraph 9.5 Paragraph 9 Sub-section 8 Section XX "Transitional Provisions" of the TCU stipulates that the single tax payers of Group III, who use taxation peculiarities established by Paragraph 9 Sub-section 8 Section XX "Transitional Provisions" of the TCU, are exempted from an obligation to charge and pay the VAT for supply of goods, works and services place of supply of which is located in the customs territory of Ukraine and importing goods to the customs territory of Ukraine, as well as the VAT reporting, their registration as the VAT payer is also suspended. Suspension of registration as the VAT payer for purposes of Sub-paragraph 9.5 Paragraph 9 Sub-section 8 Section "Transitional Provisions" of the TCU means that for single tax payers of Group III, who use taxation peculiarities established by Sub-paragraph 9.5 Paragraph 9 Sub-section 8 Section XX "Transitional Provisions" of the TCU, rights and obligations established by Section V and Sub-section 2 Section XX of the TCU (including formation of tax credit) are suspended for a period of use of use taxation peculiarities established by Sub-paragraph 9.5 Paragraph 9 Sub-section 8 Section XX "Transitional Provisions" of the TCU.

As follows, if shipment of goods / provision of services were carried out during the stay of taxpayer - supplier on the general taxation system and use of cash method of the VAT tax accounting in this period, given that funds for such shipped goods / services provided by such supplier during a period of application of the simplified taxation system at 2% rate – such funds are included in income taxed at the single tax rate of 2% and the VAT liabilities, accordingly, are not accrued. Herewith, after transition from the simplified taxation system at 2% income rate on the general taxation system and renewal of the VAT payer’s registration, such VAT payer in tax reporting for the first reporting period of renewal of registration of the VAT payer must, according to Paragraph 198.5 Article 198 of the TCU, accrue the VAT liabilities on value of goods, services used (supplied, sold) in non-taxable operations, amount of tax on which was included in tax credit on the date of transition to the simplified system of taxation at 2% rate based on the cost of purchasing such goods and services. Such operations must be reflected in relevant lines of Line 4 "Accrued tax liabilities according to Paragraph 198.5 Article 198 and Paragraph 199.1 Article 199 of the Tax Code of Ukraine for taxable operations" of the VAT declaration.

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