LETTER OF STATE TAX ADMINISTRATION OF UKRAINE

of September 9, 1999 No. 13583/7/22-3118

About the taxation of the income of insurance companies

According to the order of State Tax Administration of Ukraine of 18.11.97 N 417 "About providing feedback of tax authorities in development of methodology and in work on introduction of new documents" the State Tax Administration of Ukraine directs for management and use in work of explanation on questions which arrived from State Tax Administrations in the Autonomous Republic of Crimea, areas, the cities of Kiev and Sevastopol concerning the taxation of the income of insurance companies.

As losses of the insurer are postponed to the next accounting periods. As balance sheet losses of the insurer by results of work for the first half of the year 1997 in reports for subsequent periods of activities, in particular in the declaration on the income of the insurer for 1997 are reflected.

Article 6 of the Law of Ukraine "About the taxation of profit of the companies", with changes and amendments, provides that if the taxation object of the taxpayer from among residents by results of reporting (tax) quarter has negative value (taking into account the amount of the depreciation charges), the corresponding reduction of the taxation object of the next reporting (tax) quarter, and also each of the next twenty reporting (tax) quarters before complete repayment of such negative value of the taxation object is allowed.

That is in the declaration on the income of the insurer not balance sheet losses of the taxpayer, namely negative value of the taxation object shall be reflected.

When charging gross income from insurance activity this taxation object, namely the amount of insurance payments, cannot have negative value therefore at the insurer only losses from the activities which are not connected with insurance (reinsurance) are postponed to the next tax quarters.

With respect thereto, transferring of negative value of the taxation object at the insurer is reflected in the II Section of the declaration "The Activities of Insurers Which Are Not Connected with Insurance and Reinsurance".

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