Interview: The right decision would be to introduce a moratorium on suspending the registration of tax invoices during martial law

Agribusiness is becoming an increasingly important player on the global stage, and the tax system has a huge impact on its functioning. However, it is far too early to claim that the agricultural sector in Ukraine has managed to survive. Farmers face opposition not only from the aggressor, but also their own state, which, after two years of full-scale war, has failed to resolve issues with neighbouring countries regarding the export of domestic agricultural produce and to ensure that farmers can sell their own produce. This is the view of the majority, including Kostiantyn Nosov, partner and attorney at the law firm Synegor.

We spoke to him about who is exempt from paying land tax during the war, how important it is to support the agribusiness sector, and what the main shortcoming of Ukraine’s tax system is.

— Konstantin, what are the most common enquiries from clients at the moment?

— The issues currently relevant to farmers depend on the location of the business: specifically, whether the production facilities (land plots) are situated in or near an active combat zone, or whether the business is located in a relatively unsafe area. In other words, whether it is possible to carry out agricultural production to the full extent or not. For example, for those farmers located in the immediate vicinity of the combat zone, the most pressing issues are obtaining tax relief and documenting damage to property, machinery and crops.

This year, issues relating to the placement of fortifications on agricultural land have come to the fore: who is responsible for recording this and how, given that such information is classified as a state secret; how to obtain tax exemptions, given that such land cannot be used for its intended purpose, and so on.

It seems that issues concerning the suspension of tax invoice registration and the imposition of fines for late registration of tax invoices remain relevant for all farmers.

Tax authorities are conducting audits of agricultural producers quite actively, both scheduled (one need only look at the audit schedules) and unscheduled (such audits mostly concern a negative VAT balance arising in previous reporting periods). The emergence of a negative VAT balance is due both to the fact that agricultural producers actively purchased expensive means of production (machinery, vehicles, etc.) in the pre-war period, and to the fact that, under current conditions, many farmers purchase fuel, seed and fertiliser ‘in bulk’. Furthermore, sales volumes of home-grown produce have either fallen significantly or have been channelled through exports, which are subject to a ‘zero’ VAT rate.

Disputes concerning the non-performance or improper performance of commercial contracts remain as relevant as ever, as under martial law, breaches of delivery deadlines or delays in payment for goods already delivered are quite a common occurrence.

— Who is completely exempt from paying land tax during the war? Who actually stands to gain? 

— It should be noted straight away that the Tax Code does not provide for any tax relief for farmers who are able to carry out economic activities. The legislator has provided for relief on land payments (land tax, rent for state- or council-owned land), the Group 4 single tax, and the minimum tax liability on land plots only in cases where such land plots cannot be used for their intended purpose because they are located in a zone of active hostilities or temporary occupation, or because they are contaminated with explosive ordnance.

Where land plots are situated in a zone of active hostilities or temporary occupation—as defined in accordance with the List of Territories in Which Hostilities Are (Were) Taking Place or which are temporarily occupied by the Russian Federation, no taxes shall be levied provided that the relevant territories are included in the List. Where land is contaminated (or potentially contaminated) with explosive ordnance, the decision to grant tax relief is taken by the local authority or the local military administration. Territories that were under occupation or where active hostilities took place are considered to be contaminated with explosive ordnance. It is worth noting that the mechanism for granting relief in respect of land plots contaminated with explosive ordnance requires improvement, as, in the case of land plots owned by private individuals and transferred for use to agricultural producers, only the owners of such land plots have the right to apply for such relief. Given the mass evacuation of the population from territories where active hostilities took place or which were temporarily occupied, tenants of land plots largely have no contact with the landowners, whilst the latter are not particularly concerned about the need to obtain tax relief, as they are exempt from land tax and the minimum tax liability; this is because the tenants are predominantly legal entities that are single-tax payers in Group 4.

Consequently, farmers have leased plots of land which they cannot use, yet are also unable to obtain exemption from the taxes due.

— What provisions would it be advisable to add to the Tax Code of Ukraine and other legislative acts, in the context of supporting agribusiness and business in general during the war?

— A pressing issue not only for agribusiness but for all businesses in Ukraine is the suspension of tax invoice registration. It would be absolutely the right decision to introduce a moratorium on the suspension of tax invoice registration during martial law. Furthermore, I believe it would be right to waive or further reduce penalties for offences that do not result in losses to the state budget (late registration of tax invoices, failure to carry out payment transactions via cash registers (particularly relevant for small businesses)).

The regulations governing the granting of tax relief to users of land plots contaminated with explosive ordnance require improvement (specifically regarding the ability of tenants of privately owned land to apply to the authorised body for such relief).

— How do you assess the work of state bodies in their communications with the agribusiness sector? What needs attention and what needs to be improved? 

— Unfortunately, there is no communication between government bodies and the agribusiness sector. One gets the impression that government bodies exist in a parallel reality, where there is no war, where business is operating at full capacity, and where the sole task of government bodies is to devise the most effective mechanisms for influencing business – and not solely in the interests of the state.

— Complete the sentence: The agricultural sector has managed to survive in the new reality thanks to….

— It is still too early to say that the agricultural sector has managed to survive. Yes, the struggle for survival continues, but farmers are facing opposition not only from the aggressor, but also our own state, which, after two years of full-scale war, has failed to resolve issues with neighbouring countries regarding the export of domestic agricultural produce and to ensure that farmers can sell their own produce. At present, there are no clear and effective legally defined mechanisms for granting concessions to businesses, and tax audits have resumed. Retaining the workforce is becoming a challenge, as mobilisation measures are taking place primarily in rural areas, leaving farmers facing a shortage of skilled workers.

— What will be the main trends in your area of practice in 2024–2025? 

— The main areas will undoubtedly be tax disputes, assisting farmers in ‘reserving’ workers from mobilisation, and bringing claims before the courts for compensation for damage caused by the Russian Federation’s armed aggression.

— What is the main shortcoming of Ukraine’s tax system? What further tax reforms does Ukraine still need for European integration and EU accession? Which of these do you support?

— The main shortcoming of Ukraine’s tax system is the notorious Mr Getmantsev and his initiatives. In my view, now is not the time to amend tax legislation with a view to future EU membership, as the survival of businesses is currently the overriding priority. With a completely ruined economy, it is unlikely that we will be accepted into the EU. Therefore, the state must nevertheless pay attention to this and not destroy businesses once and for all, but rather try not to hinder them and to support them.

Read the article on the ‘Yurydychna Gazeta’ website: here