LETTER OF THE STATE TAX SERVICE OF UKRAINE

of May 4, 2012 No. 7730/6/15-1215

The State Tax Service of Ukraine considered the letter '...' concerning taking into account in case of reduction of expenses of VAT amount in case of settlement of doubtful debt according to subitem 159.1.2 of Item 159.1 of article 159 of the Tax Code of Ukraine also reports.

The procedure for settlement of bad and doubtful debt is regulated by article 159 of the Tax Code of Ukraine (дальшеКодекс). According to subitem 159.1.2 of Item 159.1 of article 159 of the Code the taxpayer - the buyer shall reduce expenses on the debt cost recognized by court or on executive text of the notary in tax period of which day of the introduction in legal force of the judgment about recognition (collection) of such debt (its part), or making by the notary of executive text is the share.

At the same time article 139 of the Code regulates expenses which are not considered in case of taxable profit determination. So, according to subitem 136.1.2 of Item 136.1 of article 136 of the Code stipulated in Item 153.3 Articles 153 and article 160 of this Code are not included in the expenses of tax amount on profit, and also taxes; the value added tax included in the goods price (works, services) which are acquired by the taxpayer for production or non-productive use, taxes on the income of physical persons which are deducted from benefits amounts of such income according to the Section IV of the Code.

Considering stated, the company buyer shall reduce expenses on the cost of the debt recognized by court, excluding VAT.

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