Business Ukraine, September 2012
Magdalena Patrzyk, Senior Manager, PwC Ukraine
This summer, in the Tax Code of Ukraine was amended again. Although many of the amendments were widely discussed in business circles and the mass media, it appears that one of the changes implemented from 1 July 2012 went through almost unnoticed. Was this change unimportant? Certainly not. Considering the Ukrainian reality, the change could even be called ‘revolutionary’. The said changes relate to the possibility of issuing electronic tax invoices.
Article 201 of the Tax Code of Ukraine in its current wording states that tax invoices can be issued either in traditional paper form or in electronic form. If the electronic form of an invoice is issued, there is no need to additionally issue / obtain its paper version. Actually, with this change, Ukraine has accepted that paper and electronic invoices are equal from the tax perspective.
Of course, there are certain requirements which need to be fulfilled. However, the Tax Code does not impose many of them, and at first glance it should not be difficult to meet the criteria.
Firstly, the electronic tax invoice must be duly certified with advanced digital electronic signatures (in accordance with the existing regulations) by the authorized person. This requirement is self-explanatory and does not require additional comment.
Secondly, the electronic invoice must be registered in the Unified register of tax invoices. This condition is designed purely to make control over the electronic invoices easier for the tax authorities.
The obligation to register tax invoices in the Unified register was already implemented by the Tax Code on 1 January 2011. Initially, the invoices carrying VAT of more the 10 million hryvnias were subject to compulsory registration. The threshold was gradually decreased, and all invoices on which the amount of VAT exceeds 10 thousand hryvnias are currently subject to registration. It is worth remembering that if an invoice is not duly registered, such invoice does not entitle the purchaser (recipient of the invoice) to credit the amount of input VAT resulting from such invoice.
The above requirement of registration of the tax invoices in the Unified register is an additional burdensome procedure, by which the tax authorities transferred part of their controlling functions to the taxpayers. Still, as the obligation to register the invoices existed and exists irrespective of the form of the invoice (paper or electronic), this condition should not be an obstacle for development of electronic invoicing.
A question remains as to whether, in order to benefit from e-invoicing, the taxpayer can voluntarily register tax invoices with a VAT value of less than UAH 10,000. The current wording of the Tax Code and the respective regulations on the Unified register do not envisage such possibility. This means that the possibility to switch to electronic invoices is currently limited to invoices with a VAT amount exceeding ten thousand hryvnias. There are no reasonable grounds for this – as often happens, this issue was probably overlooked by the legislator.
Clearly, the implementation of an electronic invoicing solution provides corporations with the possibility to benefit from a significant reduction in the cost and time related to issuing, processing and administering paper tax invoices.
It is the purchaser (recipient of the invoice) who can decide which form of the invoice should be issued. In particular, the purchasers who receive electronic invoices instead of paper ones can significantly reduce their administrative costs through the elimination of sorting, registering and manual data entry of paper invoices.
While electronic invoicing provides significant benefits to buyers, the benefits to suppliers should not be underestimated. Electronic invoicing eliminates the issues that result from mailing, sorting and re-issuing paper documents.
Major cost savings for both sides of the transaction are achieved with the reduction of postage and storage of paper copies.
Additionally, increased accuracy should result – the automation of processing of critical business data into accounting systems allows for the mitigation of possible human errors during manual entry of the of data into accounting systems. Staff freed from low-value data entry tasks can focus on more important activities, or can be re-allocated to perform other business processes within the company.
Last but not least - since electronic invoicing eliminates the paper and transportation of paper from the supplier to the buyer, it is an environmentally friendly solution and represents a good business practice.
In most cases, electronic invoicing does not demand large technological support. Consequently, implementation costs should not be significant. Most IT departments can implement secure connectivity and data transmission internally.
Why was the implementation of the possibility to issue invoices in electronic form not widely noticed by the public? Maybe because there were several other changes which were more ‘tangible’ for the taxpayers?
This may also be because it is difficult to believe that this theoretical possibility provided by the Tax Code can be successfully implemented in practice in the nearest future.
Having observed the efforts of the Ukrainian Tax Authorities aimed at the popularization of electronic submission of tax returns (including the recent possibility to obtain an electronic digital signature and the related software allowing for submission of tax returns electronically for free), I can imagine that electronic invoicing may also become a hot-topic. Thus, I am looking with a reasonable dose of optimism into the future for the actual implementation of electronic invoices.
It is worth mentioning that Ukraine is not the only country in the region (apart from the members of the European Union which were obliged to implement e-invoicing by respective EU Directives) which has implemented electronic invoicing solutions. The respective regulatory basis was already adopted in neighboring Russia. In March of this year the Ministry of Justice of Russia registered a respective order on the approval of electronic formats for VAT invoices. As a result, electronic invoicing became an interesting issue for many companies from different sectors (mainly for entities who receive and issue a significant number of invoices such as FMCG, and automotive and IT businesses) who have already implemented or are eager to implement this solution.
Hopefully, Ukraine will follow this practice and electronic invoicing will soon become a commonly used procedure.
Theoretically, it should already be possible to use the option to issue and receive tax invoices in electronic form. The Tax Code does not set any conditions (apart from the ones already described above) or requirements for the related executive regulations for determining the details of how the electronic turnover of tax invoices between taxpayers should be issued.
However, the Tax Code includes certain provisions which raise some level of uncertainty.
The Tax Code includes a provision which states that incorrectly issued tax invoices do not give the right for VAT credit. Article 201.2 of the Tax Code additionally states that the form and methodology of the issuance of tax invoices is determined by the central State Tax Service. The current wording of the respective regulation only refers to paper invoices. For example, it specifies that tax invoices can be completed in writing or electronically and then printed-out. Both methods require a material form of the invoice, which contradicts the current wording of article 201.1 of the Tax Code.
Considering this, I would not expect that Ukrainian businesses will decide to implement electronic tax invoices until these issues are clarified and certain amendments are made to the Order on the form and methodology of issuing tax invoices. Hopefully, we will not need to wait long for these regulations.