Timchenko Katerina Legal advice on doing business in Ukraine

Case Studies:

Th, 18 August 2011

Another burning tax issue being actively discussed nowadays is the Eco-Tax. If businesses and private entrepreneurs should pay it, if they have to submit blank or filled in tax declarations, or special forms stipulated by the Tax Code.

This tax used to be referred to as the pollution levy. Presently it has been substituted by the Eco-Tax , as set forth in the Tax Code of Ukraine.

Some formulations of the Tax Code allowed for the Tax Inspection to interpret the respective section of the Code in such a way that all business entities that place waste products, including those on their own territory (take out rubbish), with its subsequent transfer for removal and utilization to a specialized waste utilization company shall pay the respective tax. This position is set forth in the Letters of the State Tax Inspection of Ukraine dated 06.05.11 № 12789/7/15-0817, and dated 01.07.2011 №17870/7/15-0817. These letters shall refer to individual cases and adhering to their provisions shall not be obligatory for application.

Therefore, the Tax Inspection considers that all the business entities that simply speaking take out rubbish, including that of an every day and office nature, shall pay such tax and shall classify theur rubbish to define the respective tax rate, define the amount of their rubbish and submit the respectve declaration and pay the tax on a quarterly basis.

However, when the formulations of the respective law are analyzed, these conclusions of the tax inspection can not be deemed valid.

The Tax Code of Ukraine in item 240.1.of article 240 sets forth the list of payers of the Eco-Tax - these shall be all business entities, in the process of business activities of which:

  • There are emissions of contaminating substances into the air by the standard contamination sources;
  • There is a leakage of contaminating substances directly into water objects;
  • There is placement of waste in specially designated places or objects, excluding placement of certain types of waste as processed raw materials;
  • There is production of radioactive waste, including already accumulated one;
  • There is a temporary storage of radio active waste by their producers,
  • There is a temporary storage of radio active waste by their producers beyond the term set by the special provisions of the respective license.

It is item 2 of the respective Tax Code's section, setting forth that "placement of waste products in specially designated places or objects, excluding placement of certain types of waste as processed raw materials" that is used by the Tax Inspection to arrive at the conclusion that all enterprises that place rubbish, including that on their own territory (which is referred to as "an object"), shall be payers of the Eco-Tax.

Based on the analysis of the respective legislative acts, however, we have drawn a deduction, which is absolutely different than that of the Tax Inspection.

In the above mentioned item 2 of the relevant section within the Tax Code of Ukraine, the following terms are utilized: "waste", "placement of waste".

Ukraine's legislation provides for the following definitions of these terms:

Waste - shall denote any substances, materials or things that appeared as a result of production or consumption, as well as goods (commodities) that fully or partially lost their consumer appeal and will not be subsequently used at the place of their production or emergence, and which their owner disposes of, intends to dispose or must dispose of, by means of utilization or removal (Art. 1 of Ukraine's Law "On Waste").

Waste disposal - shall denote storage (temporary placement prior to utilization or removal) and burial of waste at specially designated locations or objects (places for waste disposal, storage houses, facilities, complexes, constructions, spaces, etc.), for the usage of which a respective permit has been obtained from a specially authorized central body of the executive authority in the field of waste processing" (sub-item 14.1.223 of item 14.1 of article 14 of the Tax Code).

From the definition of "waste" it is clear that under this notion any things, substances and materials that are no longer needed in business activities are meant. From the term "waste disposal" its is obvious that it is storage and burial of waste exactly in specially designated places that is meant, for the usage of which there should be a special permit in the field of waste management.

Therefore, those enterprises, placing their waste, resulting from their economic activity, mostly production, in specially designated places - disposal sites, facilities, complexes, etc., and not having a license for any activity related to waste disposal (such companies are non-payers of the Eco-Tax pursuant to the Tax Code), shall pay the respective tax.

However, enterprises, taking out their household and office rubbish to waste bins, shall not be payers of this tax.

The next issue to be considered is if a company that is not a payer of the Eco-Tax, shall submit a reference, setting forth that it does not plant such activities throughout the year, as stipulated under item 250.9. of the Tax Code. The conclusion is NO, as this item refers to the payers of this tax, and not to tax payers in general, as all referrals to tax payers in Section 8 of the Tax Code are applied in the context of the Eco-Tax. If a company does not correspond to the definition of Eco-Tax payers under item 240.1. of the Tax Code, it is not obliged to submit any declarations or application forms.

Thus, all companies that do not dispose waste at specially designated locations are not obliged to pay the Eco-Tax, and correspondingly, are not to submit a declaration on the Eco-Tax or any reference on the fact that they do not plan to carry out the corresponding taxable activity.