Questions – answers regarding the individual income tax issues

Regarding the limitation of taking into account negative value of the taxation object of past tax (reporting) years by large taxpayers

Please note that Sub-paragraph 140.4.4 Paragraph 140.4 Article 140 of the Tax Code of Ukraine (hereinafter –  Code) establishes that financial result before taxation is reduced, in particular, by the amount of negative value of the payer’s taxation object (except for large taxpayers) of past tax (reporting) years.

Large taxpayers reduce financial result before taxation by part of the amount of negative value of the taxation object of previous tax (reporting) years until its full repayment in such procedure.

Large taxpayers have a right to reduce financial result before taxation of tax (reporting) period (profit, loss or zero value) by not more than 50 percent of the outstanding amount of negative value of the taxation object of previous tax (reporting) years.

Amount of negative value of the taxation object of past tax (reporting) years, not offset by positive value of the taxation object of tax (reporting) year, reduces financial result before taxation (profit, loss or zero value) of future tax (reporting) periods in in the amount of not more than 50 percent of such outstanding amount before its full repayment.

Herewith, if the outstanding amount of negative value of the taxation object of past tax (reporting) years is not more than 10 percent of positive value of the taxation object of tax (reporting) period, calculated according to Sub-paragraph 134.1.1 Paragraph 134.1 Article 134 of this Code without taking into account the outstanding negative value of the taxation object of past tax (reporting) years, such amount of negative value reduces financial result before taxation of this tax (reporting) period in full.

Provisions of this Sub-paragraph are applied taking into account Paragraphs 3 and 4² of Sub-section 4 Section XX "Transitional provisions" of this Code.

For the purposes of this Sub-paragraph, amounts of negative value of the taxation object of past tax (reporting) years, for which two of the following conditions are simultaneously fulfilled, are considered repaid:

a) these amounts were included in calculation of the taxation object for future tax (reporting) periods;

b) at the expense of these amounts, positive value of the taxation object (profit) of relevant tax (reporting) years, calculated according to Sub-paragraph 134.1.1 Paragraph 134.1 Article 134 of this Code without taking into account the outstanding negative value of the taxation object of past tax (reporting) years.

Paragraph 4² Sub-section 4 Section XX "Transitional provisions" of the Code stipulates that provisions of Sub-paragraph 140.4.4 Paragraph 140.4 Article 140 of the Code in edition of the Law of Ukraine № 1914-IX as of 30.11.2021 "On amendments to the Tax Code of Ukraine and other legislative acts of Ukraine on ensuring balance of budget revenues", in part of establishing procedure for large taxpayers for taking into account negative value of the taxation object in reducing financial result before taxation is applied for the first time during calculation of the taxation object based on results of the tax (reporting) periods of 2022.

At the same time according to Sub-paragraph 14.1.24 Paragraph 14.1 Article 14 of the Code, the large taxpayer is a legal entity or a permanent non-resident’s representative office in the territory of Ukraine, in which volume of income from all types of activities for the last four consecutive tax (reporting) quarters exceeds equivalent of 50 million euros, determined at the weighted average official exchange rate of the National Bank of Ukraine for the same period, or the total amount of taxes, levies, payments paid to the State budget of Ukraine, control over execution of which is entrusted to controlling bodies, except for customs payments, for the same period exceeds equivalent of 1.5 million euros, determined by the weighted average official exchange rate of the National Bank of Ukraine for the same period.

Paragraph 64.7 Article 67 of the Code stipulates that the central executive body, which ensures formation and implementation of state financial policy, determines procedure for accounting of taxpayers in controlling bodies and procedure for forming Register of large taxpayers for the relevant year, taking into account criteria defined by this Code for large taxpayers.

Order of the Ministry of Finance of Ukraine № 911 as of 21.10.2015 approved Procedure for formation of the Register of large taxpayers (hereinafter – Register), according to which relevant register for the following year is formed each year by the State Tax Service. Herewith, Paragraph 2 Section I of Procedure stipulates that taxpayers, who meet the large taxpayer’s criteria, defined in Sub-paragraph 14.1.24 Paragraph 14.1 Article 14 Section I of the Code. In case that the taxpayer is included in Register of large taxpayers, special peculiarities regarding large taxpayers defined by the Code (Paragraph 3 Section I of Procedure) are applied to such taxpayer.

Therefore, large taxpayer is a legal entity or a permanent non-resident’s representative office in the territory of Ukraine that meets criteria established by Sub-paragraph 14.1.24 Paragraph 14.1 Article 14 of the Code and included in Register. Please note that the Register of large taxpayers for 2022 was approved by Order of the State Tax Service № 838 as of 24.09.2021 and Register of large taxpayers for 2023 was approved by Order of the State Tax Service № 781 as of 21.10.2022.

Taking into account the above specified, we draw attention to the fact that the taxpayer who in 2022 was in Register for 2022 and reduced financial result before taxation for a quarter of 2022, half year of 2022 and 9 months of 2022 by 50 percent of the amount of negative value of the taxation object of previous years, during determination of the taxation object as a whole for 2022 must also apply restrictions provided for in Sub-paragraph 140.4.4 Paragraph 140.4 Article 140 of the Code, namely: to reduce financial result before taxation of the tax (reporting) period (profit, loss or zero value) by not more than 50 percent of the outstanding amount of negative value of the taxation object of previous tax (reporting) years, regardless of whether the specified payer is included in Register for 2023.

At the same time, the taxpayer who meets the large taxpayer’s criteria according to Sub-paragraph 14.1.24 Paragraph 14.1 Article 14 of the Code in 2022 and who was not in Register for 2022, does not apply restriction provided for in Sub-paragraph 140.4.4 Paragraph 140.4 Article 140 of the Code during determination of the taxation object for the reporting period of 2022.

However, if such payer is not included in Register for 2022, but is included in Register for 2023, then in the reporting periods of 2023, such taxpayer applies restrictions provided for in Sub-paragraph 140.4.4 Paragraph 140.4 Article 140 of the Code, namely: reduces financial result before taxation of the tax (reporting) period (profit, loss or zero value) by not more than 50 percent of the outstanding amount of negative value of the taxation object of previous tax (reporting) years in the reporting periods of 2023.

Regarding reduction of accrued income tax in the form of the minimum tax liability for amount of an advance payment for payment of dividends, which was paid in the previous periods

Sub-paragraph 14.1.114² Paragraph 14.1 Article 14 of the Code stipulates that the minimum tax liability is the minimum amount of tax liability for payment of taxes, levies, payments, control over execution of which is entrusted to controlling bodies, related to the production and sale of one's own agricultural products and/or with ownership and/or use (rent, sublease, emphyteusis, permanent use) of land plots classified as agricultural land, calculated according to this Code. Sum of the minimum tax liabilities determined for each of the land plots, right to use of which belongs to one legal entity or individual, including individual-entrepreneur, is the total minimum tax liability.

Paragraph 141.9 Article 141 of the Code determines specific peculiarities of determining general minimum tax liability of taxpayers.

Positive value of difference between amount of the total minimum tax liability and total amount of paid taxes, levies, payments and costs for renting land plots is a part of the corporate income tax liability (Sub-paragraph 141.9.5 Paragraph 141.9 Article 141 of the Code).

Sub-paragraph 57.1¹.2 Paragraph 57.1¹ Article 57 of the Code determines that, except for cases provided for in Sub-paragraph 57.11.3 of this Paragraph, the issuer of corporate rights, which decides on payment of dividends to its shareholders (owners), calculates and makes advance contribution from income tax to the budget.

Amount of advance payments from income tax paid in advance during the tax (reporting) period during payment of dividends is credited to reduce the accrued income tax liability declared in tax declaration for such tax (reporting) period.

In case that amount of advance payment paid in advance during the reporting period exceeds amount of the accrued tax liability of an enterprise – the issuer of corporate rights for such tax (reporting) period transfers amount of such excess to reduce tax liabilities of the following tax (reporting) periods until of its full repayment, and when receiving negative value of the taxation object of such subsequent period – to reduce tax liabilities of the future tax (reporting) periods until its full repayment.

Based on the above specified, please pay attention to the fact that income tax payer who simultaneously declared negative value of the taxation object in line 04 of declaration and positive minimum tax liability in line 06.2 of the minimum tax liability of the income tax declaration for 2022, has a right to reduce declared minimum tax liability by the amount of advance payment in connection with payment of dividends in the past periods, which is reflected by the payer in line 16.4.2 of annex on the reduction of the accrued tax amount to declaration for 2021 and is accordingly transferred to line 16.3 of annex on the reduction of the accrued tax amount of line 16 reduction of the calculated tax amount of declaration for 2022.