1. TAX Yuliana Revyuk, KPMG in Ukraine Investment in Ukraine: Certain key tax issues

2. 2 Agenda Ukrainian tax system: Major aspects Tax audits in Ukraine Tax audits: New approach of the tax authorities Tips for the tax payer

3. 3 Ukrainian tax system: Major aspects Advantages: Low tax rates for certain taxes (15% Personal Income Tax rate), no property / real estate tax (except for land) Unified tax for small entrepreneurs Special benefits for agricultural producers (unified agricultural tax) Extensive Double Tax Treaty network, including Treaty with Austria Aspects to be improved: Decrease of tax burden (decrease of certain tax rates (VAT, land tax for certain land categories), improvement of mechanism for taxable income computation) and expenses for maintenance of tax reporting Introduction of single social tax (current social payments burden ranges between 36-38%) Harmonization of tax and financial accounting standards Introducing procedures of tax consolidation for groups of companies Prescribing for effective mechanisms of VAT refunds Introducing clear transfer pricing rules

4. Tax audits in Ukraine Tax audits: general background Tax audits may be scheduled or unscheduled In practice scheduled tax audits are performed once per 3 years. Unscheduled tax audits may be performed only based on limited number of grounds and upon the court’s decision. General limitation period in Ukraine is 3 years The tax authorities generally do not revert to “closed” tax periods (i.e., tax periods already verified by the tax audits) Anti-Crisis measures – New rules of conducting tax audits have been recently introduced (Resolution No. 502 of the Cabinet of Ministers of Ukraine of 21 May 2009) Scheduled tax audits may be performed only with respect to tax payers whose activities are of high risk Unscheduled tax audits may be performed only based on claims of violations performed by a tax payer Penalties for the violations discovered during tax audit may be imposed only in case the tax payer fails to eliminate the discovered violations within 30 days The above special rules would be applicable until 31 December 2010

5. Tax audits – New approach of the tax authorities (1) New approach of the tax authorities on eliminating tax evasion structures Declaring of the transactions null and void due to violation of the interests of the State and full restitution for the benefit of the State (i.e., retention for the benefit of the State of everything received by the Parties under the transaction) “Sustentative” evaluation of taxable transactions: review of documentary, monetary and commodity flows of the tax payer to confirm the substance of the transaction What major items do the tax authorities pay attention to: proper documentary support of the transaction substance of the transaction and achievement of a commercial result (for instance, whether the only commercial result of the transaction would be VAT cash refund or whether the profit stays with the loss-making counteragent in a chain of counteragents, etc) the transaction should be typical for the tax payer’s activity and the tax payer should have proper facilities for performing such activities (such as a warehouse in case of provision of storing services, availability of sufficient and qualified personnel, etc) the transaction should be with counteragents who are tax payers in good faith and whose activity is not fictitious

6. Tax audits – New approach of the tax authorities (2) Selected tax rulings and court practice Methodological recommendations for the bodies of the State Tax Service on eliminating tax evasion structures and collection of evidence for retentions based on void transactions, approved by Letter No. 2012/7/10-1017 of the State Tax Administration of Ukraine on 3 February 2009 Order of the State Tax Administration of Ukraine No. 266 “On the co-operation of the bodies of the State Tax Service with respect to processing of transcripts of tax liabilities and tax credit on Value Added Tax with a breakdown into counteragents”, dated 18 April 2008 Letter No. 1022-0-1-08-19 of the Ministry of Justice of Ukraine, dated 30 October 2008 Informative letter No. 01-8/211 of the Supreme Commercial Court of Ukraine, dated 7 April 2008 Summary of the Supreme Court of Ukraine “Court Practice of Voidance of Transactions in Civil Cases” Resolution of the Supreme Court of Ukraine with respect to Case No. 08/86, dated 19 February 2008 Resolution of the Supreme Court of Ukraine with respect to Case No. 08/39, dated 25 March 2008 Resolution of the Supreme Court of Ukraine with respect to Case No. 08/104, dated 07 May 2008 Resolution of the Supreme Court of Ukraine with respect to Case No. 08/121, dated 03 June 2008 Resolution of the Supreme Court of Ukraine with respect to Case No. 21-281во08, dated 10 June 2008 Resolution of the Supreme Court of Ukraine with respect to Case No. 21-32во08, dated 19 August 2008

7. Tips for the tax payer Documents in support of taxable transactions must be prepared in compliance with formal legal requirements General legislative requirements to primary documents: the Civil Code of Ukraine, the Commercial Code of Ukraine, the Law of Ukraine “On Financial Accounting and Financial Reporting in Ukraine”, National Standard of Ukraine “Requirements to maintaining documents”, Regulation on the documentary support of records in the financial accounting, approved by Order No. 88 of the Ministry of Finance of Ukraine of 24 May1995 Special legislative requirements to special types of contracts: the Law of Ukraine “On Foreign Economic Contracts”, the Law of Ukraine “On Leasing Land”, the Law of Ukraine “On Mortgage” etc Documents supporting the transaction should be sufficient, i.e., not only the contract, but also acts of transfer and acceptance, presentation materials for marketing and advertising services, TIR documents etc The transaction must have a substance, i.e., the services physically provided, goods physically transferred, the counteragents should achieve / or at least try to achieve a commercial result / gain profit.

8. TAX Vielen Dank / Thank you very much Yuliana Revyuk Manager, Tax and Legal yrevyuk@kpmg.ua +38 044 495 0040 yrevyuk@kpmg.ua Vielen Dank / Thank you very much Yuliana Revyuk Manager, Tax and Legal yrevyuk@kpmg.ua +38 044 495 0040 yrevyuk@kpmg.ua