Taxpayers (utility enterprises) receive budgetary funds from managers of such funds for implementation of certain measures (including supply of services (works)) within the framework of implementation of relevant budgetary programs, for example, but not exclusively:
programs for improvement of the settlement territory (landscaping, lighting, etc.);
programs for ensuring reliable and uninterrupted operation of elevators;
programs for improvement of quality of drinking water;
garbage collection and removal programs;
programs for maintenance and efficient operation of housing and communal services.
In this regard, taxpayers (utility enterprises) have questions about the practical application of rules of tax legislation to the above specified operations.
Legal bases of functioning of the budgetary system of Ukraine, its principles, basics of budgetary process, intergovernmental relations and responsibility for violation of budget legislation are determined by the Budget Code of Ukraine (hereinafter - BCU).
Paragraph 11 Part 1 Article 2 of the BCU stipulates that budgetary funds (funds of the budget) are budget revenues and expenditures owned according to legislation.
Budget manager is a budgetary institution in the person of its head, authorized to receive budgetary allocations, take budgetary obligations, long-term obligations on energy service, medium-term liabilities in the health care sphere and to implement budget expenditures (Paragraph 47 Part 1 Article 2 of the BCU).
Budget manager may authorize the recipient of budgetary funds to implement measures provided by the budgetary program by bringing to such budget manager budgetary allocations and providing appropriate budgetary funds (on a non-repayable or turning basis). Recipient of budgetary funds uses such funds according to requirements of budget legislation on the basis of a plan of use of budgetary funds containing distribution of budgetary allocations (Part 6 Article 22 of the BCU).
Recipient of budgetary funds is an entity, public or other organization that does not have a status of budgetary institution, authorized by the budget manager for implementation of measures stipulated by the budgetary program and receives budgetary funds for their implementation (Paragraph 38 Part 1 Article 2 of the BCU).
On the basis of departmental classification of expenditures and crediting of the budget, the Treasury of Ukraine compiles and maintains Unified register of budget managers and recipients of budgetary funds. Main budget managers determine network of lower level budget managers and budget recipients taking into account formation requirements of the Unified register (Part 3 Article 10 Section I of the BCU).
Budget manager after receipt of goods, works and services according to the terms of the budgetary obligation makes a decision on their payment and gives an order for payment to the Treasury body of Ukraine, unless otherwise is provided by budget legislation, determined in Paragraph 5 Part 1 Article 49 of the BCU).
Paragraph 1.1 of the Rule for compiling passports of budgetary programs of local budgets and reports on their implementation, approved by Order of the Ministry of Finance of Ukraine № 836 as of 26.08.2014, registered in the Ministry of Justice of Ukraine on 10.09.2014 under № 1104/25881, stipulates that usage directions of budgetary funds – actions (measures) are related to the provision of public services and/or provision of such services, aimed at achieving the goal and ensure fulfillment of tasks within the limits provided by decision on the local budget for implementation of budgetary program.
Effective indicators of budgetary program are quantitative and qualitative indicators that determine result of implementation of budgetary program, characterize course of its implementation, degree of achievement of the public policy goals in relevant area of activity, implementation of which is provided by the chief budget manager, achievement of goal of budgetary program, fulfillment of tasks of budgetary program, highlight the volume and quality of provision of public services.
Paragraph 1.5 of Instruction on the application of economic classification of budgetary expenditures, approved by Order of the Ministry of Finance of Ukraine № 333 as of 12.03.2012, registered in the Ministry of Justice of Ukraine on 27.03.2012 under № 456/20769 with changes and amendments (hereinafter - Instruction № 333), stipulates that expenditures of recipients of budgetary funds are carried out according to the following codes of the economic classification of budgetary expenditures:
current expenses:
2281 "Research and development, separate development measures for implementation of the state (regional) programs";
2282 "Individual measures for implementation of the state (regional) programs, not classified as development measures";
2610 "Subsidies and current transfers to enterprises (institutions, organizations)";
capital expenditures:
3210 "Capital transfers to enterprises (institutions, organizations)".
Paragraph 1.6 of Instruction № 333 stipulates that:
capital expenditures are expenditures directed to the acquisition of fixed capital (equipment and items of the long-term use), non-current assets (including land, intangible assets, etc.), capital investments, major repairs; for creation of state stocks and reserves; for purchase of capital assets; gratuitous payments, compensation of losses associated with damage to fixed capital. Criteria (cost and time indicators) of capital expenditures are regulated by current legislation;
capital transfers are gratuitous unilateral payments by governing bodies that do not lead to the emergence or repayment of financial claims. They are provided for the purchase of capital assets, compensation of losses associated with damage to fixed capital or capital increase of recipients of budgetary funds. This category also includes transfer payments to enterprises to cover losses accumulated by them over a number of years or those that arose as a result of extraordinary circumstances. Capital transfers are gratuitous, non-returnable payments that are the one-time and irregular both for the giver (donor) and for their recipient (beneficiary). Funds allocated from the budget as capital transfers have a specific purpose;
current expenses are expenses directed to the implementation of budgetary programs and ensure current functioning of budget institutions, conducting research, development, activities and providing current transfers to population and enterprises (institutions, organizations);
subsidies are all gratuitous current payments to enterprises that do not include compensation in the form of specially stipulated payments or goods and services in exchange for payments made, as well as expenses related to compensation of losses of the state-owned enterprises;
transfers to population are current payments to individuals or provision of them with material assistance in kind, which are intended to increase their income. Transfers to population can be provided both in cash and by paying bills. Such payments can be a separate supplement to the budget of a certain family or person or compensation for certain types of expenses, for example, for food, utilities, travel expenses, etc.;
transfer payments are gratuitous and non-refundable payments that are not the purchase of goods or services, provision of credit or payment of an outstanding debt.
Therefore, budgetary funds received by the VAT payer (municipal enterprise) from the managers of such funds can, in their economic essence, be a direct payment (compensation) of the cost of goods/services supplied by such a payer (utility enterprise) to their customer (for example, territorial community), as well as funds received on an irrevocable basis (without the condition of supply of certain goods/services within or outside the limits of relevant budgetary programs) exclusively for use in one's own economic activity for the specified purposes (for example: payment of wages, purchase of items, materials, equipment, payment for services (utilities and energy carriers), travel expenses, etc.).
Legal bases of the VAT taxation are established by Section V and Sub-section 2 of Section XX of the TCU.
Sub-paragraphs “a” and “b” of Paragraph 185.1 Article 185 Section V of the TCU stipulate that the VAT taxation object is operations of the VAT payers for the supply of goods/services place of supply of which, according to Article 186 Section V of the TCU, is located in the customs territory of Ukraine.
Paragraph 188.1 Article 188 Section V of the TCU stipulates that the tax base for the supply of goods/services is determined basing on their contractual value, taking into account national taxes and levies (except for excise tax, which is calculated according to Sub-paragraphs 213.1.9 and 213.1.14 of Paragraph 213.1 Article 213 Section VI of the TCU, single contribution to obligatory state social insurance that covers the cost of cellular mobile communication services, value added tax and excise tax on ethyl alcohol, which is used by producers - business entities for production of medicinal products, including blood components and preparations made from them (except for medicinal products in the form of balms and elixirs).
The contractual (contract) cost includes any sums of funds, cost of tangible and intangible assets transferred to the taxpayer directly by the buyer or through any third party in connection with compensation of the cost of goods/services.
Formation rules of tax liabilities and the VAT credits and compiling of tax invoices / adjustment calculations to tax invoices and their registration in the Unified Register of Tax Invoices are established by Articles 187, 198 and 201 Section V of the TCU.
Paragraph 187.1 Article 187 Section V of the TCU stipulates that the date of occurrence of tax liabilities for the supply of goods/services is considered to be the date that falls within the tax period during which any of the cases that occurred earlier occurs:
a) date of crediting of funds from the buyer/customer to the taxpayer's bank account as payment for goods/services to be supplied and in case of goods/services being supplied for cash – is the date of posting of funds in the taxpayer's cash register and in the absence of such – is the date of cash collection in a banking institution serving the taxpayer;
b) date of shipment of goods, and in case of export of goods – is the date of registration of the customs declaration certifying fact of crossing the customs border of Ukraine, registered according to requirements of customs legislation, and for services – is the date of registration of document certifying supply of services by the taxpayer. For documents compiled in the electronic form, the registration date of document certifying provision of services by the taxpayer is the date indicated in document itself as the date of its compiling according to the Law of Ukraine № 996-XIV as of 16.07.1999 "On accounting and financial reporting in Ukraine" (hereinafter - Law № 996), regardless of the date of imposition of the electronic signature.
Paragraph 187.7 Article 187 Section V of the TCU stipulates that the date of occurrence of tax liabilities in the case of supply of goods/services with payment by budgetary funds is the date of crediting of such funds to the taxpayer's bank account or the date of receipt of appropriate compensation in any other form, including reduction of such taxpayer’s debt for his / her obligations to the budget.
Paragraphs 201.1, 201.7 and 201.10 Article 201 Section V of the TCU stipulate that carrying out supply of goods/services on the date of occurrence of tax liabilities, the taxpayer is obliged to compile tax invoice in the electronic form, subject to the condition of registration according to the procedure established by law the, with a qualified electronic signature of a person authorized by the payer and to register it in the Unified Register of Tax Invoices in the established by the TCU terms. Tax invoice is compiled for each full or partial supply of goods/services, as well as for the amount of funds received on the current account as an advance payment. Determining the procedure for taxation of operations carried out by them, taxpayers should be guided by one of the basic accounting principles of substance over form (operations are accounted for according to their substance and not only based on their legal form (Article 4 of Law № 996). For tax accounting purposes, the economic consequences created by economic operations are taken into account, and not the specifics of registration of such operations. Financial, tax, statistical and other types of reporting that use monetary measure are based on accounting data (Part 2 Article 3 of Law № 996).
The VAT taxation object is, in particular, the VAT payer’s operations (including utility company) for the supply of goods/services place of supply of which is the customs territory of Ukraine according to Article 186 of Section V of the TCU.
If the VAT payer (utility company) actually supplies services (works) to the buyer / customer (manager of budgetary funds), including within the framework of implementation of relevant budgetary programs, then the operation of supplying such services (works) is subject to the VAT taxation and is subject to the VAT at the appropriate rate.
According to such an operation, the VAT payer (utility company) is obliged to determine the VAT obligations and compile tax invoice for the buyer / customer (manager of budgetary funds) and register it in the Unified Register of Tax Invoices within terms established by the TCU.
At the same time, the date of occurrence of the VAT liabilities and compiling of tax invoice for such operation is determined taking into account the following peculiarities, namely:
1) if payment of the cost of services (works) provided by the VAT payer (utility company) is carried out at the expense of budgetary funds, then according to operations of the VAT payer (utility company) for the supply of such services (works) to the buyer / customer (manager of budgetary funds) on the date of occurrence of tax liabilities is the date of transfer of such funds by the buyer / customer (manager of budgetary funds) to the bank account of such VAT payer (utility company);
2) if payment of the cost of services (works) provided by the VAT payer (utility company) is carried out at the expense of other (non-budgetary) funds, whether other types of compensation are received at the expense of payment of the cost of such services (works), or whether such services (works) are supplied to the buyer on the free of charge basis, then for operations of the VAT payer (utility company) for the supply of such services (works), the date of occurrence of the VAT liabilities ("first case" rule) will be:
date of receipt by the VAT payer (utility company) of funds as payment for the cost of services (works) or receipt of other types of compensation for the cost of services (works);
or
date of document certifying the fact of supply of services (works) by the VAT payer (utility company).
Operation of receipt by the VAT payer (utility company) from the buyer / customer (manager of budgetary funds) directly of funds (including budgetary funds), which in their economic essence is not payment for the cost of goods/services supplied by the VAT payer (utility company) and are provided on an irrevocable basis (without condition of supplying certain services (works) within or outside the limits of relevant budgetary programs) exclusively for use in one's own economic activity for the specified purposes (for example: payment of wages, purchase of items, materials, equipment, payment services (utility services and energy carriers), travel expenses, etc.) are not subject to the VAT taxation in the sense of norms of the TCU.
At the same time, if such funds (including budgetary funds) in their economic essence are payment for the cost of services (works) provided (to be provided in the future) directly by the VAT payer (utility company) to the buyer / customer (manager of budgetary funds), including if the customer is a territorial community and the VAT payer (utility company) acts as an executor of measures within the relevant budgetary programs, then such funds (budgetary funds) are subject to inclusion in the VAT tax base for operations of the VAT payer (utility company) for the supply of services (works) to the buyer / customer (manager of budgetary funds) which are subject to VAT and are subject to VAT at the appropriate rate.
As follows, occurrence of the VAT taxation depends solely on the conduction of business operations (supply of goods/services (works) place of supply of which according to Article 186 Section V of the Tax Code of Ukraine is the customs territory of Ukraine, including, which are carried out within the relevant budgetary programs) and does not depend on the direction of use of funds received from the buyer / customer (budget manager) and on the status of such funds (budgetary or non-budgetary).