The President of Ukraine signed Law No 5083-VI which introduces a number of amendments to the Tax Code including a provision under which large taxpayers reporting losses will not be entitled to an automatic VAT refund. The change is effective as of 12 August 2012. The automatic VAT refund is not available for large taxpayers reporting tax losses as a result of activities in 2011. This new restriction applies to legal entities with annual taxable income exceeding UAH 500 million (approx 57 million CHF), or if the total amount of taxes payable exceeds UAH12 million (approx. 1.4 million CHF).
Reading this change in the law without knowing in detail the law in the Ukraine I was thinking in what kind of difficulties many of my clients will be if this were applied in other countries as well. During my professional carrier I saw time and again how easily companies can struggle. Wrong investment decisions, a certain market does not run as expected, economic downturn produces unexpected loss. Of course, you try to do everything to get profit as quickly as possible, but this is easier said than done. Cash is king. Profit is an option but cash is a fact. One can see it also in reporting. Cash flow analysis seems to become more and more important . Investors are increasingly interested in this information. In the last couple of years my activities have moved from providing advice what is the right VAT qualification to helping companies in managing cash flow by means of indirect taxes and because of indirect taxes.
Indirect taxes influence cash flow planning in many companies. We talk again and again about how difficult it is to get VAT credit back from governments in certain jurisdictions. And it’s really becoming a fairy tale that indirect taxes are cost neutral for the “unpaid collectors”, i.e. the company. If you calculate all the costs you incur in connection with collection of VAT (GST) and the recovery for instance the payment for bank guarantee to get your money back, you will realise that indirect taxes have turned from a consumption tax to a “company tax”. These developments do not make the real paradigm change yet but go towards purely protecting the revenue of government and transferring the burden free of charge to the companies. This is in my opinion questionable.