Budgetary refunding of amounts of negative value added tax value, formed as a result of purchase of products/services, provided for their further use for production of unmanned aerial vehicles under state contracts (agreements) on defense procurement
Legal bases of the VAT taxation are established by Section V and Sub-section 2 of Section XX of the Tax Code of Ukraine (hereinafter – Code).
Subparagraphs "h" and "i" of Sub-paragraph 4 Paragraph 32 Sub-section 2 Section XX of the Code stipulate that temporarily for a period of the anti-terrorist operation and/or implementation of measures to ensure national security and defense, repel and deter armed aggression of russian federation, and/or introduction of martial law according to legislation, there are exemptions from the value added tax for import to the customs territory of Ukraine and supply to the customs territory of Ukraine of products of defense purpose, defined as such according to Paragraph 29 Part 1 Article 1 of the Law of Ukraine "On defense procurement", which are classified according to the following groups, commodity items and subcategories of Ukrainian classification of the foreign activity products: 8806 and 8807 (only for unmanned aerial vehicles).
Paragraph 29 Part 1 Article 1 of the Law of Ukraine № 808-IX as of 17.07.2020 "On defense procurement" (hereinafter – Law № 808-IX) stipulates that defense products are weapons, military and special equipment, weapons and ammunition, special components for their production and operation, materials and equipment specially designed for their development, production or use, special technical means, technical intelligence means, technical and cryptographic means information protection, special communication equipment, military and dual-purpose space equipment, personal protective equipment (body armor of all classes of protection, impact-resistant, bullet-proof helmets, impact protection kits, etc.), special equipment (handcuffs, batons, equipment equipped with substances of tear repellent, light noise effect, etc.), special (specialized) vehicles; computer, optical, measuring and other equipment; special uniforms required for performance of tasks by the law enforcement agencies, structural subdivisions of executive authorities implementing state policy in areas of ensuring protection of human rights and freedoms, interests of society and the state, countering crime, maintaining public safety and order, military formations with law enforcement functions, dual-use products for guaranteed provision of security and defense needs, development of the state's defense capability and system of national stability, as well as any other products that are purchased by the state customers, determined according to Paragraph 10 Part 1 Article 1 Section I of the Law № 808-IX for guaranteed provision of security and defense needs.
At the same time, state customers in defense are central bodies of executive power, other state bodies, military formations, established according to the Laws of Ukraine (Paragraph 10 Part 1 Article 1 Section I of the Law № 808-IX) determined by the Cabinet of Ministers of Ukraine.
In addition, Clause 6 of Sub-paragraph 5 Paragraph 32 Sub-section 2 Section XX of the Code stipulates that import to the customs territory of Ukraine and supply in the customs territory of Ukraine of products final recipient of which is according to certificate of the final recipient of which, according to the end-user certificate or according to the contract terms, is the law enforcement agencies, Ministry of Defense of Ukraine, Armed Forces of Ukraine and other military formations, voluntary formations of territorial communities formed according to the Laws of Ukraine, other entities that carry out counteraction against terrorism according to the law and/or participate in the implementation of measures to ensure national security and defense, repel and deter of armed aggression of russian federation against Ukraine, enterprises that are executors (co-executors) of state contracts (agreements) for defense procurement of unmanned aerial vehicles without weapons and their parts, which are classified in commodity items 8806, 8807 according to Ukrainian classification of the foreign activity products.
At the same time, Paragraph 21 Part 1, Article 1 Section I of the Law № 808-IX stipulates that defense procurement is procurement of products, works and services by the state customer, intended for implementation of state programs in spheres of national security and defense, as well as other products, works and services for the guaranteed provision of security and defense needs.
State contract (agreement) is agreement concluded in writing by the state customer on behalf of the state with executor according to the approved plans for procurement of products, works and services for defense purposes (Paragraph 17 Part 1 Article 1 of section I of the Law № 808-IX).
Executor of the state contract (agreement) on defense procurement is a business entity regardless of its organizational and legal form and ownership form, or foreign business entity (another foreign legal entity) or association of legal entities with which the state contract (agreement) has been concluded according to results of procurements determined by the Law № 808-IX (Paragraph 2 Part 1 Article 1 Section I of the Law № 808-IX).
In case of operations exempted from the VAT according to Sub-paragraphs 4 and 5 of Paragraph 32 Sub-section 2 Section XX of the Code (with regard to supply of products under state contracts (agreements) on defense procurement), provisions of Paragraph 198.5 Article 198 and Article 199 Section V of the Code do not apply to such operations (Clause 13 of Sub-paragraph 5 Paragraph 32 Sub-section 2 Section XX of the Code).
Procedure for determining amount of tax payable (transferred) to the State budget of Ukraine or refunded from the State budget of Ukraine (budgetary refunding) is determined by Article 200 Section V of the Code.
Paragraph 200.1 Article 200 Section V of the Code stipulates that amount of tax payable (transferred) to the State budget of Ukraine or budgetary refunding is defined as difference between amount of tax liability for reporting (tax) period and amount of tax credit for such reporting (tax) period.
Paragraph 200.4 Article 200 Section V of the Code determines that in case of negative value of amount calculated according to Paragraph 200.1 Article 200 Section V of the Code, the following amount:
a) is taken into account in the reduction of amount of tax debt from tax incurred for previous reporting (tax) periods (including installments or deferred according to this Code) in the part that does not exceed amount calculated according to Paragraph 2001.3 Article 2001 Section V of the Code at the time of receipt of tax declaration by the controlling body, and in case of no tax debt;
b) whether is subject to budgetary refunding at the payer’s request in amount of tax actually paid by the recipient of products/services in the previous and reporting tax periods to suppliers of such products/services or to the State budget of Ukraine, in the part that does not exceed amount calculated according to Paragraph 2001.3 Article 2001 Section V of the Code at the time of receipt of tax declaration by the controlling body, to the corresponding taxpayer’s account in a bank/non-bank payment service provider and/or to account of payment of monetary obligations or tax debt repayment of such taxpayer from other payments paid to the state budget;
c) and/or is included in the tax credit of the next reporting (tax) period.
Taxpayers who, in fulfillment of state contracts (agreements) on defense procurement, carry out supply of products classified in commodity headings 8806, 8807 according to Ukrainian classification of the foreign activity products, who according to Sub-paragraphs 4 and 5 of Paragraph 32 Sub-section 2 Section XX of the Code, are exempted from the VAT, budgetary refunding may include negative value of the VAT amounts, which was formed as a result of non-application of Paragraph 198.5 Article 198 Section V of the Code according to Clause 13 of Subparagraph 5 Paragraph 32 Sub-section 2 Section XX of the Code.
Therefore, taking into account Sub-paragraph "b" Paragraph 200.4 Article 200 Section V of the Code, if difference between amount of tax liability of the reporting (tax) period and amount of tax credit of such reporting (tax) period is negative, the VAT payer has a right to declare the following amount in the part that does not exceed registration amount at the time of receipt of the declaration by the controlling body, to budgetary refunding to the corresponding taxpayer’s account in a bank/non-bank payment service provider and/or to account for payment of monetary obligations or tax debt repayment of such taxpayer from other payments paid to the state budget by filling in line 20.2 and, accordingly, lines 20.2.1 and/or 20.2 .2 of declaration, form of which is approved by Order of the Ministry of Finance of Ukraine № 21 as of 28.01.2016 "On approval of forms and Procedure for filling out and submitting value added tax declarations", which was registered in the Ministry of Justice of Ukraine on 29.01.2016 under № 159/ 28289.
Taxpayers, who have a right to budgetary refunding according to Article 200 Section V of the Code and have submitted application for budgetary refunding of amount, receive such budgetary refunding in case of agreement by the controlling body of declared amount of budgetary refunding based on results of insider audit, and in cases determined by Paragraph 200.11 Article 200 Section V of the Code, based on the audit results specified in such Paragraph conducted according to the Code.