The costs of legal entities were halved thanks to the nuances of legislation

Enterprise losses in 2010 decreased by half compared to the previous year - to UAH 42 billion. The improvement is partly due to the fact that companies are only allowed to include 20% of previous years' losses in gross costs when filing their annual accounts. Therefore, experts expect problems with tax administration in May, because this restriction will no longer apply to tax payments for the first quarter.

Enterprises cut their losses by half. Yesterday, Chairman of the State Tax Service (STS) Vitaly Zakharchenko reported that based on the results of the February filing of income tax returns for 2010, the total losses of Ukrainian companies amounted to UAH 42 billion. In 2009 they reached UAH 83 billion. “The dynamics are decreasing. I think the economy has not become twice as good, but the administration has improved,” noted Mr. Zakharchenko. According to him, the Ministry of Finance planned for the State Tax Service to collect taxes in the amount of UAH 18 billion in February. According to a Kommersant source in the State Tax Service, UAH 8.6 billion of this amount are income tax deductions.

As the tax service told Kommersant, the improvement in the tax situation was caused by the restriction on the inclusion of losses from previous periods in expenses. “In 2010, the gross expenses of the taxpayer include 20% of the amount of the negative value of the object of taxation of the income tax, which was formed on January 1, 2010,” says Law No. 2275-VI, which in this part applies to reporting submitted for III and IV quarters. The remaining 80% of the loss, in particular for 2009, was not included in expenses, which automatically increased the profit taxed at a rate of 25%. “Losses will grow again when enterprises remember this under-declared 80% when submitting reports for the first quarter in May,” said a Kommersant source at the central office of the State Tax Service. It should be noted that, according to the State Statistics Service, which analyzes the overall financial results of legal entities, losses in 2010 amounted to almost UAH 91 billion (in 2009 - UAH 130.6 billion).

The return of losses from previous years to the 2011 reporting will reduce tax payments, experts confirm. “From April 1, the income tax rate will be reduced (to 23%.—Kommersant) plus 80% of losses will be taken into account, so there is no need to expect positive dynamics in tax payment, unless enterprises earn a lot and are able to cover the previous loss,” says the head of the tax committee European Business Association Vladimir Kotenko. It will limit tax payments and the continuation of the practice of transfer pricing, when the profits of enterprises are “washed out” to foreign traders. According to the President of the Union of Tax Consultants Leonid Rubanenko, transfer pricing is actively used in metallurgy, where many groups of companies belong to the same owner. “The meaning of transfer pricing is that in a group of companies one enterprise operates at a profit, while the other conducts fictitious activities that bring a loss. The profitable one transfers money to the unprofitable one, as a result of which the first one reduces profits (and the payment of taxes. — Kommersant), and the second one the company loses losses (but there are no grounds for paying taxes. — Kommersant),” explained Mr. Rubanenko.

The possibility of applying this scheme is confirmed by the fact that the problem of transfer pricing is not regulated by the Tax Code. At the beginning of the week, Prime Minister Mykola Azarov, at a meeting with the European Business Association, admitted that the government tried to solve some of the problems with the Tax Code so as not to receive mass rejection of the document, so the transfer pricing scheme remained in force.

Natalya Nepryakhina

Losses were covered with paper