Ferrexpo in 2022 cuts payment of income tax in Ukraine by 58.3%, State Tax Service continues checking company's assets

KYIV. March 15 (Interfax-Ukraine) – Mining company Ferrexpo with assets in Ukraine in 2022 reduced the payment of income tax by 51.8% compared to the previous year, to $110 million from $228 million, of which $91 million were paid in Ukraine, and it was 58.3% less ($221 million).

According to the company’s annual report published on Wednesday, the group’s income tax expense was $119 million in 2022, up from $200 million in 2021.

It explains that the group operates across a number of jurisdictions through its value chain and prices its sales between its subsidiaries using international benchmark prices for comparable products covering product quality and applicable freight costs. The group judges these to be on terms which comply with applicable legislation in the jurisdictions in which the group operates.

According to the report, on 27 June 2022, the Supreme Court of Ukraine ruled partially in favour of the State Fiscal Service of Ukraine (SFS) in respect of a claim made by the SFS. The claim was in respect of a tax audit performed for the period from 1 September 2013 to 31 December 2015 at the group’s major subsidiary in Ukraine (Poltava Mining) with a focus on cross-border transactions. As a result of this court decision, an amount of UAH 234 million ($7.999 million) became a legally binding obligation and was paid in July 2022.

“The partially negative verdict of the Supreme Court of Ukraine might have an adverse impact on the tax audits described below as the STS might use the court verdict as a precedent,” the company said.

In addition, on 18 February 2020, the State Tax Service of Ukraine (STS), formerly known as SFS, commenced two tax audits for cross-border transactions between the group’s major subsidiary in Ukraine and two subsidiaries of the group outside of Ukraine in relation to the sale of iron ore products during the financial years 2015 to 2017. The audits were halted in March 2020 due to a Covid-19 related quarantine imposed in Ukraine and resumed on 10 February 2021.

On 14 June 2021, the STS commenced another tax audit for the financial years 2015 to 2017 for cross-border transactions of another Ukrainian subsidiary with the same two subsidiaries of the group outside of Ukraine.

Both audits have been suspended when Ukraine declared Martial law, but resumed again on 25 January 2023. Based on legislation in Ukraine, the results of these audits are to be provided by the STS within 18 months after commencement. The deadlines to provide the reports for the audits have not expired as of 31 December 2022 and are 10 June 2023 and 15 November 2023, respectively, according to the report.

Despite the verdict received from the Supreme Court of Ukraine, the group still considers that it has complied with applicable legislation for all cross-border transactions undertaken.

Ferrexpo owns 100% of Yeristovo Mining LLC and 99.9% of Belanovo Mining LLC. Prior to the court decision in September 2022, Ferrexpo also owned 100% of the shares of PJSC Poltava Mining.