(Income tax and) VAT implications of intra-group services

In order to avoid the risk of the tax authorities challenging the company’s expenses for income tax purposes, accrual of VAT liabilities or non-resident income tax (such as, in connection with reclassifying payments for services received as payment for engineering services or royalties), the company needs to have proper documentation of the received services. Case law (the Supreme Court of Ukraine in resolution No. К/9901/25039/18 of 2018) indicates that the receipt of services cannot be considered properly documented in certain situations. For instance:

• Acts of delivery and acceptance of works (services), reports, tax invoices, and payment orders alone are not reliable evidence of the actual implementation of the disputed transactions.
• The submitted acts of delivery and acceptance of works (services) contain only the name of the services provided, and as such it is impossible to estimate the amount of work performed, time spent, information materials used, or to identify the participation of contractors in the provision of works / services.
• Reports do not disclose the scope of services provided (specific actions) and do not identify the persons responsible for their provision and receipt.

Source KPMG

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