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Determination of the ability to pay tax debt
Determination of the ability to pay tax debt
As previously reported, based on the decision of the Cabinet of Ministers, the "Procedure for Determining the Ability to Pay Tax Debt" has been approved. Tax experts are commenting on the requirements of this procedure and the current changes.
According to Article 85.1 of the Tax Code, the payment deadline for taxes can be adjusted according to the provisions of the Tax Code. Under Article 85.10, the deadline for fulfilling a tax obligation can be extended based on the taxpayer's choice as follows:
-deferring the payment of the debt for up to 6 months;
-deferring current tax payments for up to 6 months in the calendar year;
-deferring payment of the debt for up to 1 year, provided it is paid in installments under an agreed schedule.
According to Article 85.6.2, if paying the tax debt at once risks the taxpayer's bankruptcy or if the taxpayer is unable to pay the debt in full, the deadline may be extended. The procedure for determining the taxpayer's ability to pay the debt is established by the authority designated by the relevant executive body.
The Cabinet of Ministers' Decision No. 381, dated September 3, 2024, officially approves the procedures regulating the determination of a taxpayer's ability to pay tax debts. According to Clause 2.4, the taxpayer's average monthly income and expenses are calculated, and the difference, along with account balances in national and foreign currencies, is used to determine the available free funds. If the tax debt exceeds 1.3 times the free funds, this is considered an inability to pay the debt in full.
The free funds are calculated based on average monthly income and expenses, according to Clauses 2.1.1 and 2.1.4 as follows:
-For income (profit) tax payers, the average monthly income and expenses are determined by dividing the total income and total expenses (excluding depreciation expenses) reported in the income (profit) tax declaration for the previous fiscal year by 12 (if the taxpayer did not operate the entire year, then by the number of months of activity);
-For simplified tax payers, the average monthly income and expenses are determined by dividing the volume of revenues from sales, including non-sales income, and the expenses determined based on the taxpayer’s provided expense documents by 3 (if the taxpayer did not operate the entire reporting period, then by the number of months of activity);
-For taxpayers who started their activity during the reporting period, the average monthly income and expenses are calculated based on actual performance indicators (the taxpayer must provide a report reflecting actual performance in the form of the appropriate declaration (income, profit, or simplified tax declaration) and include expense documents). These are divided by the number of months of activity;
-To verify the accuracy of the income and expenses of taxpayers who started their activity during the reporting period, as well as the expenses of simplified tax payers, data sources available to the tax authority (electronic invoices, electronic purchase acts, control-register receipts, balances and transactions in bank accounts, including official information on import-export operations, etc.) are used.
As previously reported, based on the decision of the Cabinet of Ministers, the "Procedure for Determining the Ability to Pay Tax Debt" has been approved. Tax experts are commenting on the requirements of this procedure and the current changes.
According to Article 85.1 of the Tax Code, the payment deadline for taxes can be adjusted according to the provisions of the Tax Code. Under Article 85.10, the deadline for fulfilling a tax obligation can be extended based on the taxpayer's choice as follows:
-deferring the payment of the debt for up to 6 months;
-deferring current tax payments for up to 6 months in the calendar year;
-deferring payment of the debt for up to 1 year, provided it is paid in installments under an agreed schedule.
According to Article 85.6.2, if paying the tax debt at once risks the taxpayer's bankruptcy or if the taxpayer is unable to pay the debt in full, the deadline may be extended. The procedure for determining the taxpayer's ability to pay the debt is established by the authority designated by the relevant executive body.
The Cabinet of Ministers' Decision No. 381, dated September 3, 2024, officially approves the procedures regulating the determination of a taxpayer's ability to pay tax debts. According to Clause 2.4, the taxpayer's average monthly income and expenses are calculated, and the difference, along with account balances in national and foreign currencies, is used to determine the available free funds. If the tax debt exceeds 1.3 times the free funds, this is considered an inability to pay the debt in full.
The free funds are calculated based on average monthly income and expenses, according to Clauses 2.1.1 and 2.1.4 as follows:
-For income (profit) tax payers, the average monthly income and expenses are determined by dividing the total income and total expenses (excluding depreciation expenses) reported in the income (profit) tax declaration for the previous fiscal year by 12 (if the taxpayer did not operate the entire year, then by the number of months of activity);
-For simplified tax payers, the average monthly income and expenses are determined by dividing the volume of revenues from sales, including non-sales income, and the expenses determined based on the taxpayer’s provided expense documents by 3 (if the taxpayer did not operate the entire reporting period, then by the number of months of activity);
-For taxpayers who started their activity during the reporting period, the average monthly income and expenses are calculated based on actual performance indicators (the taxpayer must provide a report reflecting actual performance in the form of the appropriate declaration (income, profit, or simplified tax declaration) and include expense documents). These are divided by the number of months of activity;
-To verify the accuracy of the income and expenses of taxpayers who started their activity during the reporting period, as well as the expenses of simplified tax payers, data sources available to the tax authority (electronic invoices, electronic purchase acts, control-register receipts, balances and transactions in bank accounts, including official information on import-export operations, etc.) are used.