Write-off of debts and penalties
This section is intended to focus on specific debt relief issues and provide answers to frequently asked questions.
A special debt relief procedure for debtors is the bankruptcy procedure.
Details about bankruptcy procedures are described on the pages Protection of Debtors' Interests in Bankruptcy Cases of Legal Entities and Bankruptcy of Individuals, which allow for forgiveness (write-off) of monetary debts to creditors.
In our consultation What are Debts?, attention is drawn to the fact that obligations to return funds can be divided into separate types:
- main obligation;
- interest;
- penalty (fine, penalty).
Bankruptcy procedures provide for a special status for penalties (fines, penalties) and tax debts
Legal entities repay penalties and fines only in the liquidation procedure - by force . If a legal entity has significant debts from accrued penalties, then after settling its own main monetary obligations, the debtor has the legal right to write off all penalties - penalties and fines (penalty).
Individuals also receive the right to automatic write-off of tax debt (except for arrears in payment of the single social contribution) upon approval of the debtors' restructuring plan.
Forgiveness, write-off, repayment of debt - that is, the termination of monetary obligations without their payment - is generally considered an additional benefit - the taxpayer's income.
In case of debt forgiveness, in accordance with paragraph e) of Article 164.2.17. of the Tax Code of Ukraine, the principal amount of the taxpayer's debt (loan) (except for the amount of the taxpayer's forgiven (cancelled) principal debt for a mortgage loan in foreign currency secured by a residential real estate mortgage), forgiven (cancelled) by the creditor by his independent decision, not related to the bankruptcy procedure, is recognized as an additional benefit until the expiration of the statute of limitations and personal income tax must be paid on these amounts.
For legal entities, in accordance with paragraph 137.10.4.3. of the Tax Code of Ukraine, debt forgiveness or the expiration of a 12-month period starting from the month following the calendar month in which the repayable financial assistance was issued, which remained unrecoverable at the end of such 12-month period, or until the end of the 12-month period, the debt for such financial assistance was recognized as hopeless in accordance with subsection 14.1.11 of clause 14.1 of Article 14 of this Code is a basis for increasing tax liabilities for corporate income tax.
However, for a debtor against whom bankruptcy proceedings was initiated, all monetary obligations that existed prior to the initiation of these proceedings are terminated and the debtor has no unsettled obligations after the end of the insolvency (bankruptcy) proceedings.
Write-off (repayment) of debt within the framework of a bankruptcy case does not lead to the assessement of taxes on the written-off, repaid, or forgiven debt.