09:43 11 Feb 2021

Servant of the People explains how Ukraine will tax Facebook and Netflix

Danylo Hermatsev

Ukraine won't introduce an additional tax for large tech giants that are not residents but will only force them to pay value-added tax on the electronic services they sell to Ukrainians.

People's Deputy from the "Servant of the People" party, Chairperson of the Verkhovna Rada Committee on Finance, Tax and Customs Policy Danylo Hetmantsev stated this on Hromadske.

The People's Deputy explained everyone should pay VAT, including tech giants, but currently the legislation simply doesn't have the tools to "administer this activity." That is why the new draft law stipulates the obligation of "e-commerce services" to pay VAT.

"The current situation is that our advertisers have to pay VAT, and the big giants are transnational, but for some reason, they're actually exempt from VAT. It's wrong, we need to fix it. And, by the way, we met with Facebook, with other large companies, they didn't object to paying this tax," he said.

We are talking about the current tax, and the new law should introduce a simplified mechanism for its payment, as Hetmantsev explained.

"Remote registration in the e-office, payment in foreign currency, communication in English with our tax service. That is, everything to make it convenient for them to do it and so that they did it remotely," the deputy cited tools that will allow technology giants to pay taxes in Ukraine.

However, it raises the question of whether companies like Google, Facebook, and Netflix will transfer this tax to the consumer, i.e. whether they will increase prices. Because usually, it's what manufacturers do in the case of the introduction/increase of taxes.

"Scientists have concluded that who's the actual taxpayer or to whom it's transferred doesn't depend on the tax design, not on the legislator's intention, but depends on the specific market situation. That is, how supply and demand are correlated. If my product is not in demand, I take responsibility for paying this tax myself. If it is in use, I transfer it to the consumer," Hetmantsev said.

He himself suggests some services become more expensive because of this tax, and some will not.

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