Assets were destroyed due to the war: is it necessary to adjust the financial result

The Southern Interregional Department of the State Tax Service for work with large taxpayers explained whether it is necessary to adjust the financial result in case of loss or destruction of assets.

According to subparagraph 134.1.1 of paragraph 134.1 of article 134 of the Tax Code of Ukraine dated December 2, 2010 No. 2755-VI (hereinafter – TCU), the object of taxation by corporate income tax is the profit originating from sources in Ukraine and abroad, which is determined by adjusting (increasing or decreasing) the financial result before taxation (profit or loss), defined in the financial statements of the enterprise in accordance with national accounting standards or international financial reporting standards, by differences established by the relevant provisions of the TCU.

According to paragraph 138.1 of article 138 of the TCU, the financial result before taxation is increased, in particular, by the amount of:

• the residual value of a separate fixed asset or intangible asset, determined in accordance with national accounting standards or international financial reporting standards, in case of liquidation or sale of such an asset;
• the residual value of a separate non-production fixed asset and/or non-production intangible asset, determined in accordance with national accounting standards or international financial reporting standards, in case of liquidation or sale of such an asset.

The financial result before taxation is decreased, in particular, by the amount of:

• the residual value of a separate fixed asset or intangible asset, determined taking into account the provisions of this article of the TCU, in case of liquidation or sale of such an asset (paragraph 138.2 of article 138 of the TCU).

According to subparagraph 138.3.2 of paragraph 138.3 of article 138 of the TCU, the terms “non-production fixed assets” and “non-production intangible assets” mean fixed assets and intangible assets not intended for use in the taxpayer’s economic activity, respectively.

The residual value of fixed assets, other non-current and intangible assets for the purposes of section III of the TCU is the amount of the residual value of such assets, which is determined as the difference between the initial cost and the amount of calculated depreciation in accordance with the provisions of section III of the TCU (subparagraph 14.1.9 of paragraph 14.1 of article 14 of the TCU).

The TCU does not provide differences for adjusting the financial result before taxation in case of destruction (loss) of goods and inventories. Such operations are reflected according to accounting rules when forming the financial result before taxation and, accordingly, the object of corporate income tax.

At the same time, in case of writing off fixed assets due to their destruction (loss), an adjustment of the financial result before taxation is made:

• for production fixed assets in accordance with subparagraphs 138.1 and 138.2 of article 138 of the TCU;
• for non-production fixed assets – paragraph 138.1 of article 138 of the TCU.

According to the first part of article 14 note 1 of the Law of Ukraine dated December 2, 1997 No. 671/97-VR “On Chambers of Commerce and Industry in Ukraine,” the Chamber of Commerce and Industry of Ukraine and its authorized regional chambers certify force majeure circumstances (circumstances of insurmountable force) and issue a certificate of such circumstances within seven days from the date of the business entity’s application at cost.

Thus, confirmation of the destruction (loss) of the taxpayer’s goods due to the occurrence of force majeure circumstances during the period of martial law or emergency state should be carried out based on relevant primary documents and in the presence of a certificate of force majeure circumstances (circumstances of insurmountable force).

The regulation of issues related to the methodology of accounting and financial reporting is carried out by the central executive body that ensures the formation and implements state policy in the field of accounting and auditing, approves national accounting standards, national accounting standards in the public sector, and other regulatory legal acts regarding accounting and financial reporting (first paragraph of the second part of article 6 of the Law of Ukraine dated July 16, 1999 No. 996-XIV “On Accounting and Financial Reporting in Ukraine”).

Therefore, regarding the preparation, reflection in primary documents, and documentary confirmation of the destruction (loss) of goods due to force majeure circumstances during the period of martial law or emergency state, it is advisable for the taxpayer to contact the Ministry of Finance of Ukraine.

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