SITUATIONAL RESPONSE IN THE PROCESS OF TAX RISK MANAGEMENT ON THE EXAMPLE OF USING A RESIDENCE STATUS CERTIFICATE FOR THE PURPOSE OF AVOIDING DOUBLE TAXATION

Abstract

Introduction. In modern conditions of business operation, the issue of tax risks is relevant for most business entities. One of the components of the tax risk management system is situational response to existing threats. It is designed to identify risks that are inherent in individual business operations (so-called point threats) and to respond to them in a timely manner in order to prevent additional taxes and financial sanctions from the control authorities. Purpose. The purpose of the article is to identify the existing issues related to tax risks when using certificates of residency status of foreign counterparties, as well as to formulate recommendations for minimization of such risks by Ukrainian companies and proposals for solving this problem at the regulatory level. Methods. As research methods to achieve the goal, general scientific methods of cognition were used, including: analysis – during comparing the legislative norms, which relate to the requirements for the certificate of tax residency, with the position of tax and judicial authorities; synthesis – during developing recommendations for reducing tax risks, wich are connected with different interpretations of legislation. Results. According to the Tax Code of Ukraine, a resident who pays income from Ukraine to a non-resident must withhold tax on such income at the rate of 15 percent, unless otherwise provided by international treaties. The basis for applying an international agreement is a certificate confirming that a non-resident is a tax resident of another country. Such a certificate must be obtained before payment of income from Ukraine. The rules for issuing certificates differ in different countries. We recommend to pay attention to the date of issuance of the certificate and the period for which it was issued. According to the tax authorities, the right to apply the international agreement arises from January 1 of the reporting year, regardless of the date of issue of the certificate. The Supreme Court believes that the certificate should be dated later than the date of payment of income to a non-resident. Both approaches involve risks. In our opinion, the certificate should be issued before the income is paid to the non-resident. In the absence of a certificate at the time of payment of income, the tax agent must withhold tax at the rate of 15 percent. This issue should be resolved through legislative changes to Article 103 of the Tax Code. It should clearly state the requirements for the date of the certificate and the period for which it can be issued. Another option is that the Ministry of Finance should issue a Generalized tax consultation on this issue. Our recommendations for taxpayers who wish to minimize their tax risks: before paying the income, receive from the non-resident a certificate dated from the current year; if such certificate contains information about residency for the past year, then after the end of the current year, get an additional certificate for the reporting year; if such a certificate contains information about residency for the current year, then after making payments to a non-resident, in the same year, receive an additional certificate with information about residency for the same year. Conclusion. In this case, the business should initiate amendments to the Tax Code of Ukraine in order to settle the disputed points. Until it happens, we recommend applying the advices of this article that minimize tax risks.