Tax planning within the framework of the financial restructuring

Typical business situation: Manufacturer purchases components from suppliers, in a result he gets a right to a tax credit in the amount of X. Having made a finished products, sells them to the buyer with a mark-up (50%). In the result he has tax liability, which is in 1.5 times exceed the loan.

(Law of Ukraine “On financial restructuring” dated 14.06.2016).

Objective: reducing the tax burden of enterprises in a part of VAT.

Decision: the use of the mechanism of financial restructuring (Law of Ukraine "On financial restructuring").

Key option of the decision: exemption of VAT payer (debtor) from VAT transactions for the supply of goods (until 1 January 2020).

ADVANTAGES

  • 1Writing off the tax debt (if there is one).
  • 2Exemption from VAT payment for the period of restructuring.

STAGES

  • 1The formation of A1 debt before FA. Purchase of goods – formation of A1 tax credit.
  • 2Impossibility of obligations performance of A1 before FA. The procedure of financial restructuring.
  • 3Sales of goods without paying VAT.

1-stoptionimplement of the solution

  • 1A1 manufacturer
  • 2buys components and sells finished products with a 50% surcharge
  • 3FA credits A1, which is not refunded in time. Credit can be issued for the purchase of the components.
  • 4 In connection with debt outstanding the A1 goes into the procedure of financial restructuring.
  • 55. For the purpose of debts repayment, A1 sells the finished products, while tax liabilities for **VAT did not arise for him. The resulting funds are used to repay debts, after which the procedure of financial restructuring is completed.

The RESULT

  • 1

    A1 sells the finished product at a lower cost, as the sale is without VAT.

  • 2

    In A1 there is no need for additional tax credit.

  • 3

    The decrease in profit before tax due to interest expense on the loan.

2-ndoption

  • 1 K2 documentary buy goods from K1. As a result, it occurs a tax credit in the amount of X.
  • 2 FA issues a loan to K2, which is not returned on time.
  • 3 Because of non-payment of the debts, K2 comes in the procedure of financial restructuring.
  • 4 For the purpose of repayment of the debts K2 sells the purchased products to K3, while there were not arise the tax liabilities for VAT for him. The resulting funds are used to repay debts, after which the procedure of financial restructuring is completed.
  • 5 K2 joins with the tax credit and interest expense on the loan to A1.

The RESULT

  • 1

    A1 receives in a result of the merger of K2 his tax credit and interest expense on the loan (reducing income tax).

  • 2

    The procedure of financial restructuring is carried out not on A1, which can be sensitive to this procedure taking into account other creditors and possible negativity in the public sphere.

  • 3

    Before joining K2 undergoes a tax audit, which confirms the validity of the tax credit.

KEY PARAMETERS

  • 1Exemption from VAT only during the sale of goods (services, works not provided).
  • 2The purpose of the goods sale – repayment of the debt to creditors according to the restructuring plan.
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