VAT on parcels and purchases from foreign marketplaces: draft law No. 15112-d received serious comments

Ukraine continues to consider draft law No. 15112-d, which is intended to change the rules for VAT taxation of goods purchased through foreign online platforms. The document has not yet become a law, and its provisions require further development: experts from the Verkhovna Rada and the Committee on Ukraine’s Integration into the EU have pointed out a number of inconsistencies with European legislation. Some reservations concern not only VAT on online purchases, but also the financial monitoring of politically exposed persons (PEPs).

This is the draft Law of Ukraine No. 15112-d “On Amendments to the Tax Code of Ukraine Regarding the Taxation of Electronic Commerce Transactions with Value Added Tax”.

The draft law remains under consideration by the Verkhovna Rada. Therefore, the new rules for taxation of purchases through foreign marketplaces, provided for in the document, have not yet entered into force.

VAT collection mechanism recognized as incomplete

One of the key comments of the Main Scientific and Expert Department of the Verkhovna Rada is that the draft law does not contain a completed mechanism for VAT taxation of distance sales of goods.

The document refers to the “rules for distance sales of goods”, however, the relevant rules are not defined either by the Tax and Customs Codes or by the draft law itself.

The procedure for accounting for persons responsible for the calculation and payment of VAT is also not properly regulated.

Because of this, according to the conclusion of the GNEU, it is currently impossible to fully assess the proposed mechanism and its compliance with EU Directive 2006/112/EC.

Questions also arose regarding the deadlines for tax payment

The draft law proposes to pay VAT within 10 calendar days after the deadline for submitting the report.

At the same time, European regulation provides for a different approach: the relevant VAT must be paid no later than the deadline for submitting the declaration.

The GNEU also drew attention to the fact that the authors of the bill did not sufficiently substantiate its possible socio-economic consequences.

In particular, it concerns the potential impact of the new rules on prices in Ukraine, domestic producers under martial law, and revenues to the state budget.

There are questions about the rules for parcels up to 150 euros

Some comments concern the taxation of goods worth up to 150 euros.

According to experts, the proposed rules for VAT exemption for goods imported in unaccompanied baggage do not fully comply with the special provisions of European legislation on declaring and paying VAT when importing shipments of such value.

There are also comments on reporting.

The bill provides that the person responsible for calculating and paying VAT will not file tax returns for the relevant transactions. Instead, European rules provide for the submission of a VAT return for each month, regardless of whether distance sales were made.

Free parcels up to 45 euros: not all EU rules were taken into account

The draft also provides for VAT exemption for international postal and express shipments worth up to 45 euros, if it concerns the free sending of goods from one individual to another for personal or family use without commercial purposes.

However, the relevant EU Directive establishes not only a maximum value, but also quantitative restrictions for certain categories of goods.

In particular, this concerns perfumes, toilet water, coffee, tea and related extracts. The draft law does not provide for such quantitative restrictions.

Benefits for the Armed Forces of Ukraine were found permissible

At the same time, a positive opinion was received on certain provisions on tax benefits for the Defense Forces and energy equipment.

Although general EU legislation does not provide for such benefits, the Committee on EU Integration concluded that they are consistent with the security exceptions of the Association Agreement.

Such exceptions allow Ukraine to take the necessary measures to ensure its own security and defense in times of war.

The greatest risks were seen in the weakening of control over PEPs

A separate and most debatable block of the draft law does not directly concern the taxation of online purchases at all.

The draft provides for not applying measures of influence for certain violations of the requirements for identifying and verifying politically exposed persons — PEPs, their family members and related persons, until Ukraine becomes a member of the EU.

This concerns, in particular, failure to comply with the requirements for establishing sources of wealth and funds, obtaining permission from management to establish or continue business relationships, and conducting in-depth monitoring.

The State Financial Supervision Authority and the Committee on Integration into the EU drew attention to the fact that such an approach does not fully comply with FATF standards and European legislation.

The NBU warned of risks for international financing

The National Bank of Ukraine also expressed critical comments on the relevant provisions.

According to the NBU, the actual exemption from liability for certain violations in the work with PEPs may deprive the supervisory authorities of effective control tools and weaken the preventive function of financial monitoring.

The materials for the draft law also indicate the risks of a negative assessment by MONEVAL, the complication of negotiations on accession to the EU