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Events > IFA Ukraine > IFA Ukraine Business Focused Meeting: IT Sector

IFA Ukraine Business Focused Meeting: IT Sector

26 march, 2015, Kyiv, Ukraine

The event was designed to enhance the dialogue between IFA Ukraine professionals and representatives of IT business. Participants discussed practical aspects of major tax and legal challenges in IT sector, while combining theory approach and concepts with IT industry insights.

The Seminar panel was joined by Andrii Buzhor, Global Logic Ukraine, Viktoriia Fomenko, Dentons, Dmytro Gadomsky, Juscutum, Mykola Khomenko, MNC, Vadym Medvedev, Avellum Partners, Vladyslav Podoliak, Vasil Kisil & Partners, and Natalia Rudenko, Deloitte.

Andrii Buzhor in his presentation titled "IT landscape in Ukraine and recent trends" provided an overview of major trends in the following segments of IT sector: IT outsourcing companies, product companies, foreign investment funds (PE, VC), resellers of IT solutions, multinational enterprises selling software and hardware at the Ukrainian market.

When commenting general trends in the Ukrainian IT market, Andrii noticed that outsourcing companies tend to develop their own innovative products, while product companies take efforts to enter new foreign markets. Expansion to new destinations, combination of organic growth and takeovers, as well as efforts to address the client's risk management concerns were also listed by Andrii as part of business strategies of IT companies in Ukraine.

Dmytro Gadomsky illustrated the status of Ukrainian IT market in comparison with the key competing markets all over the globe, as well as pointed out to "must have" success factors that would ensure immediate and long-term positive impact on IT industry in Ukraine.

Natalia Rudenko presented to meeting participants a detail overview of the latest amendments to the Tax Code of Ukraine with respect to royalty. In particular, Natalia compared the definition of royalty before the January 1st, 2015, and in the current edition, as well as discussed relevant implications and opportunities for IT companies dealing with royalty issues, e.g. paying royalties abroad.

Natalia also demonstrated application of VAT and CPT to royalty payments, as well as drew attention to such issues as tax risks for resellers, correlation between definition of royalty in the Tax Code and OECD Model Tax Convention / particular DTTs, technical drawbacks in the text of the Tax Code of Ukraine (duplication in art. 140.5.5 and art. 140.5.6 of the Tax Code), restriction to deduct royalties if paid to "low tax" jurisdictions, substantiation of the market level of royalty amount based on the TP rules.

Vadym Medvedev examined the topic of tax and legal aspects of structuring of IT business in Ukraine. In his presentation Vadym mainly focused on structuring issues for servicing and product companies, providing comparative analyses of such structuring strategies, their advantages and drawbacks, including with a lookback to a position of tax authorities.

Vadym also presented his view on pro's and con's of key jurisdictions, used by IT companies for structuring purposes, such as Cyprus, Luxembourg, Ireland and Hungary. Additionally, Vadym addressed the issue of selling software products through cloud platforms, e.g. AppStore, Google Play, Amazon Store, as well as pointed out to possible tax implications of using such platforms. Vadym also addressed the issue of tax treatment of transactions with IP rights in the US according to internal regulations, and 30% US withholding tax on income from "trade and business" and FDAP income.

Mykola Khomenko illustrated the topic of transfer pricing issues in IT sector. While giving the general overview of typical TP methods, Mykola focused on the two ones - the "net margin" method and "cost plus" method - as most relevant for IT market players. Mykola commented on why the "cost plus" method is usually less appropriate for IT business as opposed to "net margin" method, as well as pointed out to their benefits and disadvantages.

Practical recommendations with regard to conclusion of agreement on development of IP rights were provided by Vladyslav Podoliak.

Dmytro Gadomsky and Natalia Rudenko made a joint presentation on recent practices with regard to IT companies personnel structuring, backed up with a lively feedback from the audience. Speakers and participants discussed the issues of outdated Labour Code, social guaranties for employees, project-based nature of IT jobs, landmark court cases in Europe and preventive measures to be taken by IT companies when hiring the personnel and/or establishing contract relations with private entrepreneurs.

Viktoriia Fomenko's presentation was titled "E-commerce: PE and Indirect taxes". Viktoriia provided general overview of Action 1 of the BEPS Action Plan, dealing with tax challenges of the digital economy, as well as paid attention to discussed alternative PE threshold standards, such as "virtual fixed place of business PE", "virtual agency PE", "on-site business presence PE" etc.

Viktoriia also gave some description to tax treatment of e-commerce in Ukraine, i.e. no special rules for e-commerce taxation, the concept of permanent establishment in connection with e-commerce (server as grounds for PE (art.14.1.193 of the Tax Code of Ukraine), place of supply of goods and services with respect to VAT.

The event was attended by representatives of IT companies, leading law and audit firms, State Fiscal Service of Ukraine, National Center for Tax Issues Research.

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