Tax Law

Ukrainian Tax Authority Issues Wartime Guidance That Includes Seizing Russian Tanks Tax Free

Ukraine’s National Agency on Corruption Prevention has issued special tax guidance, and this ruling does not mince words.

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russia ukraineFor the masses of Ukrainians fleeing their homeland because of the Russian invasion, they are only thinking about surviving, the fate of their loved ones, and what the future might bring. But among them, there are always a few who wonder, how am I going to file my tax returns and pay my taxes on time?

And among the thousands who chose to stay, pick up a rifle, and risk their life to fight the Russians, they might be thinking about combat strategy or whether they have adequate ammunition to hold their positions. But there is always that one guy who asks, if I seize that Russian tank, do I have to report that as income and pay taxes on it?

But these financial patriots can rest assured that the government has thought about the concerns of all five of them. On February 28, 2022, Ukraine’s National Agency on Corruption Prevention has issued special tax guidance that would apply during Russia’s “special military operation” in the country. And this ruling does not mince words.

First, the agency ruled that any proceeds from fundraising to support the Ukrainian Army and people who suffered due to the invasion is not considered taxable income. Instead, it is considered a manifestation of the unity of the Ukrainian people. This could indicate that the money some received through Airbnb could be tax free to the local homeowners.

Second, it suspended the usual due date of filing income declarations due to the invasion. It advised people not to waste time filling out forms and instead make every effort to protect their own freedom, peace in Europe and the world, and defend the Ukrainian state.

Finally, it ruled that hostile property acquired in battle is not subject to income reporting because it was not acquired as a result of a transaction but instead in connection with a full-scale aggression. Also, it determined that hostile military equipment is impossible to value in order to determine whether it meets the minimum reporting requirement. There have been reports that Russian tanks and military vehicles have been left abandoned. So, if a Ukrainian soldier successfully jacks a Russian T-72B tank, he or she won’t have to worry about hiring an appraiser to value it and report it as taxable income.

Since the agency’s ruling, the State Tax Service of Ukraine has issued additional guidance for taxpayers. As of the date of publication, this includes suspensions of fines and penalties due to inability to pay because of the invasion, suspension of audits, nonapplication of fuel excise tax if the fuel was confiscated by the government, and extensions of time to file protests and appeals. Most of the new tax guidance cited either the government’s imposition of martial law or force majeure to excuse late filings and payment.

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Wartime leniency is much needed relief for the Ukrainian people as they may need money for basic necessities. But at the same time, the government needs tax money now more than ever to fund their military and minimal government services. Wars were typically funded by targeted taxes and tariffs. The income tax was introduced in the U.S. to finance the Civil War. It was repealed soon after the war ended but was reinstated to finance World War I.

Assuming Ukraine is able to resolve the conflict while retaining its sovereignty, the question is how they will be able to audit businesses after wartime if records were destroyed. If there is an absence of direct documentation supporting expenses, they may use indirect sources that can be available online such as bank and credit card statements. And if those are unavailable, then auditors may accept a reasonable estimate based on the circumstances. It is very likely that a simplified audit procedure will be imposed with generous estimates in order to avoid civil unrest and to restore the economy.

Tax policy can be a delicate matter when your country is being invaded. But it appears that the Ukrainian government cares more about protecting its borders than protecting its revenue. Or perhaps it is the Ukrainian tax agency’s way of showing support for its troops.

Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at stevenchungatl@gmail.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.

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