LETTER OF STATE TAX ADMINISTRATION OF UKRAINE

of June 18, 2011 No. 11326/6/15-0516

The State Tax Administration of Ukraine considered the letter concerning the questions connected with taxation on profit and the value added tax and reports.

Concerning taxation on profit of the companies

According to subitem 140.1.2 of item 140.1 of Art. 140 of the Section III of the Tax code of Ukraine (далееКодекс) the structure of expenses of the taxpayer does not join charges of royalty in the accounting period for benefit of the nonresident (except charges for benefit of permanent mission of the nonresident, taxable according to Item 160. 8, charges which are performed by subjects of managing in the field of television and broadcasting according to the Law of Ukraine "About television and broadcasting" and charges for provision of the right to use of the author's, related right to cinema movies of foreign production, musical and literary works) in amount which exceeds 4 percent of the income (revenue) from sales of products (goods of works, services) (less the value added tax and the excise tax) in the year previous reporting and also in cases if any of the conditions provided by this Item is carried out, in particular, royalty are paid concerning objects concerning which intellectual property rights for the first time arose at resident of Ukraine. At the same time in case of discrepancies between tax authority and the taxpayer concerning determination of person at which for the first time arose intellectual property rights on intellectual property item (were acquired), such tax authorities shall address to specially authorized body determined by the Cabinet of Ministers of Ukraine for receipt of the corresponding conclusion.

Thus, income tax payers of the company have no right to include the royalty added for benefit of the nonresident in the expenses if royalty are paid concerning objects concerning which intellectual property rights for the first time arose at resident of Ukraine ((subitem in) the item of 1 subitem 140.1.2 of item 140.1 of the Art. 140).

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