Regarding the exemption from VAT on imports of goods with a customs value not exceeding the equivalent of EUR 150

Experts of the Ukrainian Business Council (UBC) have analyzed the changes to subparagraphs 196.1.16 of the Tax Code of Ukraine proposed by the Cabinet of Ministers in ROM No. 11416 regarding the taxation of imported goods shipped in international postal and express shipments with a customs value not exceeding the equivalent of EUR 150. According to the URB experts, the current exemption leads to a loss of state budget revenues in the range of UAH 7-9 billion per year, and creates unequal conditions between national and international e-commerce operators, as well as domestic and foreign manufacturers.

Draft Law No. 11416 envisagesa number of negative provisions for the economy, including a 1% turnover tax, 5% unified social tax for employees, etc.

At the same time, the provisions of the Draft Law No. 11416 on taxation of international parcels are timely and appropriate, in line with Ukraine's European integration course. The draft law proposes to exclude the provisions stipulating that the importation of goods whose value does not exceed the equivalent of EUR 150, except for the importation of goods whose total invoice value does not exceed the equivalent of EUR 45, for one recipient - an individual in one dispatch from one sender of an individual in international mail or in one cargo of an express carrier from one sender of an individual in international express shipments, is not subject to VAT, provided that such goods are sent by the sender to the recipient without any payment, are intended for personal or family use by the recipient, their characteristics and quantity do not indicate that they are imported for any commercial purpose (amendments to Articles 191, 196 of the TCU).

With regard to this issue, the OECD has recently released the Framework of Standards to Combat Illicit Trade, in which, in particular, it recognized the de minimis issue in international parcels as one of the biggest challenges for customs. In particular, it states that the use of minimum thresholds for tax exemption has a negative impact on the collection of national taxes, distortion of competition, which leads to abuses of undervaluation of goods, fragmentation of large commercial consignments, and import of B2C goods without taxation.

At the same time, taking into account global trends and the specifics of international parcel administration in Ukraine, we believe that further work in the area of international parcel administration is necessary and the following steps should be taken in the coming years

- transform the burdensome for control and administration VAT on international parcels into a comprehensive national model for the movement of goods across the border, similar to the EU's One Stop Shop system or a corresponding update of the existing Ukrainian electronic VAT administration system (EAS VAT), given that the "traditional" model is losing its effectiveness in the context of constantly growing volumes of small parcels. The National Revenue Strategy of Ukraine until 2030, recently approved by the Cabinet of Ministers, provides for harmonization with EU VAT legislation, in particular, in terms of revision of tax exemptions, which is planned to be phased in from 2025 to 2027;

- revise the tax-free threshold in line with EU practice and extend the collection of VAT from foreign online sellers to include low-value goods. This is a more complicated procedure than collecting VAT on cross-border purchases of digital services, as it requires additional steps in customs processes at the border. It remains burdensome for the customs service to collect VAT at the border on a large number of low-value shipments. However, the "seller collection" model will offset this disadvantage if combined with the requirement that sellers, especially digital platforms, ensure that shipment information and VAT prepayment is transmitted along the supply chain, which will also allow for quicker border clearance.

- Ensure the use of a risk analysis system when declaring goods, the introduction of an easy and convenient tax payment system, etc ;

- implement a number of measures to combat possible illegal "small parcel" schemes: strengthening liability for online trade in illegal goods or illegal entry of goods across the border; expanding opportunities for access and evaluation of data by regulatory authorities (data of importers, e-commerce platforms and suppliers) ;

- consider the OECD's recommended reporting rules for digital platforms on the sharing economy and gig economy, as well as the European Union's Directive on Administrative Cooperation 7 (DAC7), which implements this model. DAC7 contains provisions that avoid imposing an unnecessary burden on foreign platforms that are already required to report relevant information to the tax administration in their national jurisdiction.

The URB urges MPs to adopt as soon as possible the amendments to para. 196.1 of the TCU regarding VAT taxation on receipt of goods sent in international postal and express shipments with a customs value not exceeding the equivalent of EUR 150, provided for by ROM No. 11416. At the same time, it is proposed to immediately hold a public discussion of the European One stop shop model for international parcels and to facilitate its implementation in Ukraine in 2025-2026.