Internet tax: subscriptions to Netflix and Amazon may rise in Ukraine

The Parliament of Ukraine adopted a law providing for the levy of value added tax (VAT) on services provided to Ukrainians by international Internet giants not registered in Ukraine. Writes about it with the BBC.

Photo: Shutterstock

The Ukrainian media call it the “Google tax” law, but in fact, we are talking about a much wider list of companies. From Facebook to streaming service Netflix, from tech giants Apple and Microsoft to hotel booking service Booking.com.

There are fears that the additional financial burden of the company will be shifted to users. Or they simply won't pay this tax.

The initiators of this law - the head of the financial committee of parliament Danil Getmantsev and a number of his fellow party members from the Servant of the People - believe that currently the Ukrainian tax system does not take into account the specifics of digital economy companies. They can be registered in one country and receive income throughout the world.

In Ukraine, large international companies can sell their services not only to other companies, but also to individuals. In this case, their income is, in fact, not taxed.

The authors of the law argue that it will not affect ordinary users of social networks or search services.

Although, it is difficult to predict how international companies will behave after the adoption of the law, in particular, whether they will not include 20% tax in the cost of their services.

There are also doubts about the realistic implementation of the law. Despite the fact that its authors refer to foreign experience, relations with Internet giants are not easy even in the USA and the EU.

That is only the long-term EU negotiations with Facebook and even between the EU President and Mark Zuckerberg.

On the other hand, companies like Microsoft or Google already have their offices in Ukraine and pay taxes, including VAT.

Offers to Internet giants in Ukraine

The law stipulates that VAT will be levied on transactions in the provision of electronic services by a “non-resident without a permanent establishment” in Ukraine. If he provides these services to individuals and individual entrepreneurs who are not registered taxpayers in Ukraine.

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The law also provides that in this case the international company will be registered as a taxpayer in Ukraine, but in a simplified regime.

In particular, such taxpayers may not open accounts in the electronic VAT administration system, they will not draw up tax invoices and will not be able to receive a tax credit.

For them, there is a separate procedure for administrative appeal against decisions of regulatory bodies. But all this, according to the Main Legal Department of the Rada, violates the principle of equality of taxpayers before the law.

International Internet giants are offered to communicate with Ukrainian fiscal authorities through a special electronic service, and pay taxes in foreign currency - in euros or American dollars at the NBU rate.

Companies will receive messages in English and Ukrainian from the Ministry of Finance that they have to pay VAT in Ukraine.

If there is no reaction to the tax notification and taxes have not been paid, the Ministry of Finance will apply to the authorities of the countries where these international companies are registered. Disputes will be resolved in accordance with international agreements.

How will they be punished?

For the fact that an international company sells its electronic services in Ukraine, but does not register as a taxpayer, a fine of 30 minimum wages is provided (now it is 180 hryvnia / $ 000).

If an international non-resident company sells its services in Ukraine through a registered intermediary, then they will not be taxed. Indeed, in this case, the tax burden falls on the intermediary.

Electronic services are not taxed if the company provides them through its representative office in Ukraine.

Companies that process payments for electronic services are also not affected by this law.

What will be taxed

Before final approval, deputies clarified which services are electronic and subject to taxation and which are not.

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According to the final version of the law, electronic services are services “that are delivered via the Internet, automatically, using information technology and primarily without human intervention, including by installing a special application or application on smartphones, tablets, television receivers or other digital devices "

These include:

• the supply of electronic copies, the provision of access to images, texts and information. This can be electronic newspapers, magazines, books, providing access or downloading photos, graphics, video materials;
• providing access to databases;
• the supply of electronic copies or the provision of access to audiovisual works, video and audio works to order, games, services for access to television programs (channels) or their packages;
• providing access to information, commercial, entertainment electronic resources;
• provision of distance learning services on the Internet, "the conduct and provision of which does not require human participation";
• provision of "cloud" services for computing or storing data;
• delivery of software and updates to it;
• provision of advertising services on the Internet, mobile applications and other electronic resources.

The law also provides that electronic services do not include those ordered via the Internet, but performed without it. For example, taxi orders or food deliveries are not subject to this law.

Educational services are not taxed if “the Internet is used exclusively as a means of communication between teacher and student,” so there is no need to worry about distance learning either.

Attention should also be paid to the fact that the provision of electronic services on the territory of Ukraine will be taxed, which will provide for the identification of consumers of these services.

This can be through an Internet provider, or through a smartphone's SIM card, or by the IP address of an electronic service user.

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