LETTER OF STATE TAX ADMINISTRATION OF UKRAINE

of May 19, 1999 No. 186/2/16-1210

About legitimacy of taxation on value added of the transactions on sales of goods performed by persons who acquired the patent of trading activity

The law of Ukraine of 23.03.96 N 98/96-BP "About patenting of some types of business activity", with changes and amendments to it, object of legal regulation determines trading activity for cash of means, and also with use of other forms of calculations and activities for provision of services in the field of gaming and household services.

According to the above-stated Law subjects of business activity (legal and the subjects of business activity which do not have the status of the legal entity) which acquired the trade patent, have the right to be engaged in the types of business activity determined by this Law. Along with this Law the possibility of acquisition of the special trade patent which certifies the right of the subject of business activity to special procedure for the taxation is provided.

In particular, by article 7-1 of this Law it is determined that the subject of business activity which acquired the special trade patent does not pay the value added tax and other taxes and fees. Practical application of regulation "does not pay the value added tax" without legislative refining or specification it is impossible as the value added tax is specific tax which at the same payer when carrying out transactions by it on sale and purchase of goods (works, services) is considered both paid to suppliers, and received from consumers. And therefore there is question that whether means in Article 7-1, it is paid to suppliers in case of acquisition or sales of goods on the party or is not paid to the budget at all. At the same time irrespective of at what stage the concept "does not pay the value added tax" will be applied, the question concerning source of compensation of the entrance value added tax is subject to obligatory determination. Purchase of goods by such subjects of business activity is not limited to one supplier, and performed at wide range of sellers, and the value added tax shall be paid at the price of acquisition of material values and fixed assets.

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