Business affected by shelling: what Ukraine’s State Tax Service is changing

Destroyed equipment, a warehouse, goods, primary documents, or production halted after an attack are not only direct losses for a business.

Tax issues arise almost immediately as well.

On 2 September, Ukraine’s State Tax Service announced that it was preparing a separate package of measures for businesses that suffered losses as a result of Russian attacks.

Several important changes are involved.

First, the State Tax Service plans to create a separate list of affected businesses.

The tax administration system is expected to include a corresponding marker showing that an enterprise was affected by armed aggression.

To compile this list, the authorities plan to use information from the State Emergency Service, military administrations, local authorities, law enforcement agencies, and state registers.

Second, the consequences of attacks are expected to be taken into account when assessing a company’s tax risks.

For example, if a company’s turnover, profitability, or tax burden declines sharply after its warehouse or production facility is destroyed, this should not automatically become grounds for an inquiry from the State Tax Service or a tax audit.

The tax authority should first establish the reasons for such changes and take the consequences of the attack into account.

Third, even where an audit of an affected enterprise is necessary, the State Tax Service declares that the scope and subject matter of the audit should focus specifically on the identified tax risk.

The State Tax Service also refers to assistance for businesses that lost primary documents as a result of attacks and to minimising repeated requests for information that is already available in government systems.

However, there is one fundamental point for businesses.

The fact of an attack does not automatically mean that a business will receive tax relief or be exempt from tax control.

The damage and its impact on the company’s operations must be properly recorded and supported with documentary evidence.

This is important not only for relations with the State Tax Service.

The destruction of property may affect:

• corporate income tax;
• VAT;
• write-off of inventory and fixed assets;
• substantiation of expenses;
• preservation of input VAT credit;
• fulfilment of tax obligations;
• potential future tax audits.

For example, the State Tax Service separately explains that goods and fixed assets destroyed as a result of attacks may, under certain conditions, be written off and affect the corporate income tax base.

However, for this purpose, the company must conduct an inventory count and possess documents confirming the fact and causes of the property’s destruction.

Therefore, after an attack, it is important for a business not only to restore operations.

It should immediately document the losses and create a legal and tax evidence file, so that several months later it does not have to explain to the State Tax Service why its performance indicators changed or why goods, equipment, or documents disappeared.

You can seek legal advice now, so that you do not later need legal defence services.

Would you like legal advice on the tax consequences of destruction or damage to your business property?

📞 Call: 096 574 81 02
📧 Email: info@uk-winner.com

Author: Ihor Yasko, Managing Partner at WINNER Law Firm, PhD in Law.