Social security changes create new risk for entrepreneurs - International Law Office

The Law on the Collection and Accounting of Individual Contributions to Compulsory State Social Insurance (2464-VI) empowers the Pension Fund of Ukraine to inspect individual taxpayers regarding the calculation and payment of their individual obligations.

Pursuant to Article 13 of the law, on March 9 2011 the Cabinet of Ministers issued Resolution 233/2011 to approve the procedure for the fund and its territorial bodies to conduct scheduled and unscheduled inspections of individuals and their compulsory state social insurance payments.

The new resolution does not change the criteria for determining whether an individual is a high-risk or low-risk taxpayer (and thus the frequency of inspection); nor does it affect the frequency of inspections of business activities that were outlined in Resolution 775/2008 (which has now been superseded). The grounds for inspection have not changed significantly, but the new resolution clearly defines the time limit for inspections, which cannot be extended.

Unfortunately, one of the main provisions is a change for the worse. Information about a business entity regarding accrual and non-payment can be submitted by third parties and may be used as a basis for classifying a business entity as a high-risk taxpayer. There is a danger that bad-faith accusations may result in an economic entity being labelled as high risk.

Article 46 of the Constitution guarantees individuals the right to social protection, including the right to security in cases stipulated by law. However, it appears that the new provisions will not protect the rights of citizens or boost the national budget, but will merely create additional problems for entrepreneurs.

For further information on this topic please contact Markian Malskyy at Arzinger by telephone (+380 44 390 5533), fax (+380 44 390 5540) or email (markian.malskyy@arzinger.ua).