Ukrainian accountants have long become accustomed to the fact that ‘surprises’ may occur as a result of a whole range of legislative initiatives. One of such surprise was “hidden” in Law no. 1797-VIII “On Amendments to the Tax Code of Ukraine on improving the investment climate”, dated December 21, 2016.
One of the provisions of this Law entailed a change in the composition of the requisite payment documents imperative for a tax invoice: the absolute indication of product codes according to the Ukrainian Classification of Commodities for Foreign Economic Activity (UKT VED) and, for services, the service code according to the State classifier of products and services. This ultimately resulted in changes being made in the form of the tax invoice, which came into effect on April 1, 2017.
Standard approaches and solutions
Developers of software solutions for automating accounting responded quickly to the news about such legislation: they implemented new forms and provided an indication of the relevant codes. It was a standard and quite logical approach to indicate all the products used in commercial transactions with an individual ‘default’ Ukrainian Ukrainian Classification of Commodities for Foreign Economic Activity code (hereinafter referred to as a customs commodity code), according to the principle that ‘one product’ (one article or SKU) is ‘one customs commodity code’. Software applications for the State Fiscal Service have also been modified so that they are capable of collecting and summarizing thousands of tax invoices.
For trading companies, the turnover of which include not dozens, but hundreds of articles, they were faced with the challenge of instating and adjusting the correct customs commodity codes across all their commodity reserves. With respect to newly purchased imported goods, one thing that essentially made things easier was the ability to automatically load (create) new commodity headings with a customs commodity code. Fortunately, most customs brokers quickly began to offer such a service.
It is here that the first difficulties arose – it is completely inexplicable how two different brokers, who were dealing with the same commodity, produced by the same manufacturer and at the same production capacities, ‘received’ two different customs commodity codes. As well, the accounting systems for such goods still are not able to ‘distinguish’ such differences, in contrast to customs brokers.
By mid-year, there were already numerous companies among EBS clients, who were faced with the problem of reliable and preferably the automatic discharge of tax invoices with valid customs commodity codes. After all, nobody has exempted the accountant from liability for the accuracy of the information indicated in the tax invoice or such things cannot be explained as an error made by the customs broker.
Can automation help?
Having thoroughly analyzed the accounting records of these customers, EBS experts have come to the following conclusions:
- The vast majority of products have a unique customs commodity code, and discrepancies occur in no more than 1-2% of products.
- For major retail companies, they must provide unique articles for all products sold.
- Maintaining solid records of all balances and movements of goods within the context of customs commodity codes is impractical due to the complexity of transitioning to such accounting records, but it is necessary to provide the accountant with simple and reliable accounting tools in order to issue reliable tax invoice statements and to ensure the validation of such statements.
Therefore, it was decided that accounting deviations should be implemented. Namely, the reporting should only include ‘deviations in standard customs commodity codes for goods at all stages of the movement of such goods and maintaining the respective paperwork.
Essentially, the accountant’s chain of actions appears to be fairly traditional:
- with the auto-loading of goods received, all deviations in the code being loaded are registered.
- with the help of a modified customs cargo declaration on imports, the flow of goods with a ‘non-standard’ code, according to the customs commodity codes classification, is registered for each batch of such goods.
- while selling goods with standard documents, the sale of goods is automatically registered for the sales of batches with ‘non-standard’ codes.
- In formulating the tax invoice for such a shipment, any ‘nonstandard’ customs commodity codes are automatically completed.
- a specialized report allows your company to analyze all sales of goods with a ‘non-standard’ code for any given period and also compare them with the data in the tax invoice issued.
- in identifying discrepancies (through a tax invoice in prepayment, errors in the tax invoice issued), there exists the opportunity to formulate and register adjustments to the tax invoice and avoid penalties for the sale of ‘non-existent’ goods.
What should the accountant do?
- Do not be afraid! According to Law no. 1797-VIII, dated December 21, 2016, nobody shall be held liable for any errors in the customs commodity codes until December 31, 2017.
- Check the customs commodity codes on all balances of the trade product classification.
- Be sure to order electronic versions of the customs cargo declaration from the customs broker and upload them automatically in order to rapidly identify differences in the customs commodity codes.
- If necessary, you should contact a consulting company for explanations and, if necessary, order the implementation of the above-mentioned improvements to the currently existing accounting systems.
“Forewarned is forearmed!”
Author: Vladimir Soroka