Illogical and unfair approach of Tax service harms the business environment in Ukraine

The AGRARIAN ASSOCIATION OF UKRAINE (AAU) wants to draw attention to the unfair practice of the tax service in relation to Ukrainian farmers. The state fiscal authority claims that farmers receive additional income from the sale of wheat or corn using a trademark. It is clear that such statements, especially in relation to cereals, are false as cereals are by nature typical commodities that cannot be differentiated and therefore pricing for them does not depend on the use of a particular brand. Their price cannot be increased by using a trademark, as can happen with cigarettes, luxury items or other products, which, despite their similarity, are still distinguishable from each other.

AAU emphasizes that this practice of falsely creating non-existent and impossible incomes for tax purposes is in fierce contradiction with any logic and economic science.

The collection of taxes must be based on fair principles and procedures. The fiscal authority should not try to levy/collect taxes for no reason. The state cannot behave like an extortionist who comes to a business/tax payer with illogical demands, waiting for it to react. Such erroneous practices will lead to significant corruption, which will deteriorate the Ukrainian investment environment and will return it back to dark ages.

Unfortunately, the regional tax service in the city of Kyiv accrued such additional income to a member of our association engaged in grain trade, precisely due to the use of a trademark, which is registered to its parent company. Representatives of the tax service determined the additional income for the purpose of further taxation of the trademark, in the amount of 4% of the company’s revenue for the last three years! As proof of the use of a trademark, the tax authorities identified the fact that some of the company’s documents were printed on a form with the group’s logo.

Despite the fact that the current Tax Code does not provide for the possibility of such additional taxation, the tax service, at its discretion, used and calculated a specific percentage. The tax service argues that through the use of a trademark, the company’s grain received advantages not available to neighboring farmers which were reflected in the sale price.

We want to note the complete lack of economic logic in this approach of the tax service because the market for grain products is a market for homogeneous goods. The use of the parent company’s trademark in the grain market in no way increases either the price of the product or the company’s revenue. Grain is a commodity, and the grain market is a highly competitive market where buyers and sellers of grain are so numerous and well informed, and the grain such a homogeneous commodity, that no particular brand brings any additional premium to the final price of grain.

That is, one cannot compare the benefits of using brands, for example, in clothing, where the branded item has a higher price, or other groups of consumer goods, where the name matters, with grain, which has no “brand”, and the price of which depends exclusively on the market, the dominant part of which is far outside Ukraine.

There is no wheat of company A and wheat of company B, all wheat prices are determined only by the appropriate classes based on protein, gluten and other parameters. It is impossible to differentiate wheat by the producer or by its trademark. This is a clear example of the fact that any agricultural company cannot achieve a higher price. Speaking in expert terms, a farmer is a price taker, which means that every farmer is forced to accept and respect the price of grain which has developed in the existing commodity market, and he cannot influence it and cannot deviate from it. This, in turn, means that the fiscal authority cannot have any logical basis and cannot demand any additional taxes for the use of trademarks or group logos, especially with regard to trade in grain.

This practice of the regional tax service forces the Association of Agrarians of Ukraine to call on all concerned to respond to such unjustified surcharges. The agricultural sector is the flagship of the Ukrainian economy, and such dishonest actions cause significant damage to Ukraine’s investment attractiveness.