Return from occupation and to VAT and group 4 single tax payer status 

Tax issues: Other issues Kharkiv region

From the first days of the full-scale invasion of the russian federation into Ukraine, an agricultural company from the city of Vovchansk, Kharkiv region, found itself under occupation. Subsequently, the company took advantage of tax benefits adopted by the Government in the spring of 2022 and switched to paying a group 3 single tax at the rate of 2%, which did not include the VAT payment. The company made this decision because in the summer of 2022 it was unclear how to continue further operations. And the single tax at the rate of 2% made it possible not to have mandatory tax expenses in periods when the economic activity of agricultural enterprises in the occupied territory was almost frozen.
After the de-occupation of Kharkiv Oblast, in March 2023, the company decided to start a partial sowing campaign. This decision was quite tough, because the leased warehouse of the enterprise with equipment, spare parts for it, planting material, and fertilizers was located in the city of Vovchansk, which daily suffered from occupiers” fire. Therefore, the company decided to move all equipment and materials away from the border. To do it, the company purchased the respective mobile wagons. In addition, the wheat harvest of 2022 was stolen, and since most of the seed material and plant protection products were purchased in 2021 with deferred payment, the company had substantial debts to counterparties. Also, approximately 40% of the land bank of the agricultural enterprise is located in close proximity to the russian federation border, where it had been impossible to plant crops for the second year.
Alongside this, one of the key prerequisites for making the decision to carry out the sowing campaign in the spring of 2023 was that the company was still able to agree with the counterparty on obtaining plant protection products for 2023 sunflower crop with a deferred payment, provided that the counterparty returned protection products for 2022 wheat harvest, which remained unused due to the situation in the country.
From an accounting point of view, to return plant protection agents supplied to the company even before the war, it was necessary to register the adjustment calculation to the previously drawn up tax invoice.  In practice, only a VAT payer can do it. In connection with this, there was an objective need to return the single tax group 4 payer and a VAT payer status. The company sent the application and documents to the tax authority through the payer’s e-office to confirm the group 4 single tax payer status. However, in response to the taxpayer’s request, the tax office informed the company that it would be able to return to group 4 no earlier than after two calendar years, given general restrictions set for agricultural enterprises in the Tax Code of Ukraine.
While processing the company’s complaint, the Council’s investigator drew the tax authorities’ attention to the fact that according to the amendments to the Transitional Provisions of the Tax Code of November 2022, the payer could independently refuse to stay in the 3rd group of the single tax at the rate of 2% and return to the taxation system in which he was before. At the same time, a two-year limit for group 4 single tax payers did not apply in that case.
The Council helped the complainant establish constructive communication with tax authorities on this issue. It turned out that at that time the regional tax authority had limited technical functionality for proper processing of the payer’s application to refuse group 3 single tax at the rate of 2%. Finally, after enlisting methodical help of the STS of Ukraine, within a month, local tax officials updated the data on the company’s registration as a VAT payer, and also confirmed the group 4 single tax payer status for 2023.

Next case:: Construction equipment supplier returns UAH 131k of customs duties and UAH 289k of VAT