Liability of non-residents during the war for work without tax registration

Does the liability for conducting activities by a non-resident (foreign legal entity, organization) through a separate subdivision, including a permanent establishment, without tax registration during the period of martial law in Ukraine apply?

In accordance with clause 64.5 of the Tax Code and clause 3.4 of Section III of the Procedure for Registration of Taxpayers and Duties, approved by the Order of the Ministry of Finance of Ukraine No. 1588 dated December 09, 2011 No. 1588 (hereinafter - Procedure No. 1588), non-residents (foreign law firms, organizations) operating in Ukraine through separate divisions, including permanent establishments, or acquiring real estate or obtaining property rights to such property in Ukraine, or open accounts with banks of Ukraine (except for correspondent accounts opened for non-resident banks), other financial institutions, non-bank payment service providers, or open electronic wallets with electronic money issuers in accordance with Art. 64 of the Law of Ukraine dated June 30, 2021 No. 1591-IX "On Payment Services", or acquire ownership of an investment asset specified in paragraphs three to six of sub-clause 141.4.1 of the Tax Code from another non-resident who does not have a permanent establishment in Ukraine, are required to register with the regulatory authorities.

Paragraph 117.4 of the TCU stipulates that conducting business by a non-resident (foreign law firm, organization) through a separate subdivision, including a permanent establishment, without tax registration in accordance with the procedure provided for by the TCU shall result in a fine of UAH 100,000.

Paragraph 11 of Subsection 10 of Section XX "Transitional Provisions" of the TCU stipulates that penalties (financial sanctions) based on the results of inspections carried out by the controlling authorities are applied in the amounts stipulated by the law in force on the day of making decisions on the application of such penalties (financial sanctions).

In accordance with clause ⁵²¹ of subsection 10 of section XX "Transitional Provisions" of the Tax Code, penalties for violations of tax legislation committed during the period from 01.03.2020 to the last calendar day of the month (inclusive) in which the quarantine established by the CMU to prevent the spread of coronavirus disease (COVID-19) in Ukraine is terminated, shall not be applied, except for sanctions for violations that are expressly listed in the said provision of the Tax Code.

Thus, no penalties shall be imposed for the violations specified in clause 117.4 of the TCU committed during the quarantine period.

At the same time, temporarily, for the period until the termination or abolition of martial law in Ukraine, introduced by the Decree of the President of Ukraine dated February 24, 2022 No. 64/2022 "On the Introduction of Martial Law in Ukraine", approved by the Law of Ukraine dated February 24, 2022 No. 2102-IX "On Approval of the Decree of the President of Ukraine "On the Introduction of Martial Law in Ukraine", the collection of taxes and fees is carried out taking into account the peculiarities specified in clause 69 of subsection 10 of section XX of the TCU.

At the same time, sub-clause 69.2 of clause 69 of subsection 10 of Section XX "Transitional Provisions" of the TCU as amended as of 03.05.2023 stipulates that in case of detection of violations of the law based on the results of inspections, taxpayers are subject to liability in accordance with the TCU, laws, control over the implementation of which is vested in the controlling authorities, taking into account the circumstances provided for in sub-clause 112.8.9 of the TCU, which exempt from financial liability.

At the same time, the requirements of the legislation on the moratorium (suspension) of the application of penalties (financial sanctions) for the period of martial law, state of emergency and/or quarantine established by the CMU throughout Ukraine to prevent the spread of coronavirus disease (COVID-19) do not apply.

Therefore, temporarily, for the period of martial law, starting from 27.05.2022, the rules regarding the exemption from liability for late fulfillment of obligations by the payer in cases and under conditions provided for in clause 69 of subsection 10 of section XX "Transitional Provisions" of the TCU prevail.

Sub-clauses 69.1 - 69.31 of clause 69 of subsection 10 of section XX "Transitional Provisions" of the TCU provide for temporary suspension of the terms for fulfillment of tax obligations determined by the tax legislation during the period of martial law in Ukraine.

Thus, clause 69.19 of subpara. 10 of Section XX "Transitional Provisions" of the TCU temporarily, for the period until the termination or lifting of martial law, the controlling authorities suspend the deadlines established for registration with the controlling authorities of legal entities and their separate subdivisions as payers of taxes and fees at the main place of registration or individual entrepreneurs at the tax address and transfer of data on registration of such taxpayers with the controlling authorities to the Unified State Register of Legal Entities, Individuals and Entities.

At the same time, the provisions of clause 69, subsection 10, section XX "Transitional Provisions" of the Tax Code do not provide for any specifics regarding the procedure for registration of a non-resident (foreign company, organization), separate subdivision, permanent establishment with the controlling authorities during the period of martial law in Ukraine.

At the same time, the requirements of subpara. 4 subpara. 69.35 subpara. 1 of clause 69 of subsection 10 of section XX "Transitional Provisions" of the TCU, according to which, temporarily, from December 1, 2023, there is a moratorium on documentary audits of taxpayers whose tax address as of the date of the beginning of possible hostilities is the territory of possible hostilities - until the last day of the month in which the possibility of hostilities in the relevant territory was terminated, and in case of change of location by the taxpayer to another territory of Ukraine - until the date of state registration of the change of location, except for documentary unscheduled audits.

conducted solely at the request of the taxpayer;

carried out on the grounds specified in subparagraphs 78.1.1 (in the part of documentary unscheduled audits of taxpayers in respect of which information has been received indicating violations of tax legislation on taxation of income received by non-residents with a source of origin in Ukraine and/or on taxation of non-residents who carry out / carried out their activities through separate subdivisions, including permanent establishments, taxpayers who carry out / carried out activities in the field of production and/or sale

taxpayers in respect of whom tax information has been received indicating that the taxpayer has violated the requirements of currency legislation in terms of compliance with the deadlines for the receipt of goods under import transactions and/or foreign exchange earnings under export transactions.

Thus, the tax control mechanism may be implemented by the controlling authorities subject to the restrictions established by the TCU on documentary audits.