Wednesday, April 29, 2009

Customs control: who shall pay for it?



Lines of sea containers in Ukrainian ports. Economic upturn and increase of goods circulation? No, customs control.

Despite numerous promises of Ukrainian customs authorities to apply selective customs control deviations often happen in practice. Yesterday the Southern Customs Office issued an internal order demanding total inspection in sea ports. This time-consuming procedure caused lines of incoming containers. In addition, importers bear extra expanses related with customs control procedures, i.e. container weighting. However, it contradicts Ukrainian Customs Code.

Do not pay for control procedures
Customs Code clearly provides that customs control procedures shall be conducted at customs authorities’ expense if no violations were revealed. Moreover, in several weeks a new Government resolution restating this obligation will come into force. Nevertheless, we can’t be sure that it will make customs pay for control procedures.

Necessity of precedent
It is likely that court precedent will solve this problem. Many forwarding agents don’t want to worse their relationship with customs authorities by initiating disputes for additional expenses of US 100 per container. Consequently, all importers suffer. An importer claiming for customs control expanses on the grounds of abovementioned laws will have a very strong position. Court decision will serve as a guide for all other importers and reduce such control expanses practice.

Thursday, April 23, 2009

EUR 100 parcels: to tax or not to tax

Taxation of import goods of value below EUR 100 (‘100 euro goods’) is a white spot of Ukrainian legislation. No wonder customs authorities lost when tried to clarify this issue. Currently situation is still favorable for importers, especially for express carriers importing a great number of parcels but will it last for ever?

Under customs legislation import 100 euro goods are treated in special way. According to Government Resolution No. 1948 dated December 12, 2002 goods sent to legal persons via postal and express carriers services shall be taxed in case of application of cargo customs declaration. During customs clearance of 100 euro foods importer files special Letter instead of Cargo customs declaration. Consequently, clearence of 100 euro parcels sent to legal persons doesn't require cargo customs declaration and they are not subject to import taxes.

On April 7, 2009 State Customs Service of Ukraine issued the letter in contempt of Government Resolution. According to the letter all 100 euro goods, including parcels for legal persons, shall be taxable. Customs authorities shall issue unified customs receipt recording the sum of import taxes.

The letter greatly contradicted to the general line of customs authorities’ practice. 100 euro parcels were not taxable in many regions including Kyiv. Thus, regional Customs offices were unready to tax increased number of goods and to issue unified receipts in such quantity. Therefore, in few days the reserve of unified customs receipts forms exhausted. In order to solve this problem State Customs Service issued the letter which allowed issuance of M 15, M 16 customs declarations instead of unified receipts. This letter also violated legal provisions as M 15 and M 15 customs declarations are applicable only to parcels sent to natural persons, not legal ones.

On April 10, 2009 State Customs Service of Ukraine cancelled its previous letters without any explanation. Nevertheless, we may assume that obligatory taxation of 100 euro goods, including parcels for legal person requires amendments of current laws. Will it happen?

On one hand Standard 4.13 of Revised Kyoto Convention requires national legislation to “specify a minimum value and/or a minimum amount of duties and taxes below which no duties and taxes will be collected.” Consequently, Ukraine as a party to the Revised Kyoto Convention shall implement this transitional standards till October 2011. On the other hand Government is looking for new sources to fill budget and may initiate legal amendments aimed at temporary taxation of 100 euro goods. However, expenditures on additional administrating of such goods are likely to exceed tax revenues. It increases the probability of such government’s actions.

Tuesday, April 14, 2009

Large taxpayers

On 9 December, 2008 the State Tax Administration of Ukraine issued Instruction setting up new rules for selecting large taxpayers. Unlike previous instruction this one is public and companies may know whether they will be considered as large taxpayers.

Under new rules scoring system is applied for selection. Company receives ‘large taxpayer’ status, if it receives 1 point for each indicator and passes 5 point threshold.
Indicator
Point gross income assessed taxes paid taxes VAT refund
1 20M – 100M 200K – 1M 200K – 1M 3M – 15M
2 100M – 500M 1M – 5M 1M – 5M 15M – 30M
3 >500M >5M >5M >30M

The group of large taxpayers in Kyiv, Sevastopol and regions shall generate at least 50% of regional budget’s tax revenues. Otherwise, taxpayers gaining 4-3 points will also fall under definition of large taxpayers.

The aim of selecting is to focus effort on large taxpayers that account for a large percent of total tax collection. For example, about 4 thousand taxpayers, comprising only 0,6% of registered companies, generated up to 65% of the state budget tax revenues in 2008. Large taxpayers are serviced by special tax offices. They are characterized by the divisions specialized in work with taxpayers of the definite economic sector e.g. mining, banking, agricultural, etc. It enables the revenue administration to deploy their best auditors and investigators to scrutinize cases related to large taxpayers.