Author: Anastasia Holovatyuk, Lawyer at F&P
In today’s business environment, PR, marketing and consulting expenses are an integral part of a company’s development strategy. However, from a tax perspective, these expenses are often subject to scrutiny by regulatory authorities. It is important not only to incur these expenses, but also to properly confirm their reality and connection with the company’s business activities.
1. Legislative framework
According to the Tax Code of Ukraine, marketing, advertising and consulting expenses may be taken into account when determining the object of taxation, provided they are documented and related to the taxpayer’s business activities.
According to the rules of clause 138.1 of Article 138 of the TC of Ukraine, expenses taken into account when calculating the taxable object consist of: operating expenses determined in accordance with clauses 138.4, 138.6-138.9, 138.11 of this Article; other expenses determined in accordance with clauses 138.5, 138.10-138.12 of this Article, clause 140.1 of Article 140 and Article 141 of this Code; except for expenses specified in clauses 138.3 of this Article and Article 139 of this Code.
Paragraph 138.2 of Article 138 of the Tax Code of Ukraine stipulates that expenses taken into account for determining the object of taxation are recognized on the basis of primary documents confirming the taxpayer’s expenses, the obligation to maintain and store which is provided for by the rules of accounting, and other documents established by Section II of this Code.
In accordance with subparagraph 139.1.9 of paragraph 139.1 of Article 139 of the Tax Code of Ukraine, expenses not supported by the relevant settlement, payment and other primary documents, the obligation to maintain and store which is provided for by the rules of accounting and tax calculation, are not included in the expenses.
Sub-clause 14.1.108 of clause 14.1 of Article 14 of the Tax Code of Ukraine defines marketing services as services that ensure the functioning of the taxpayer’s activities in the field of market research, sales promotion of products (works, services), pricing policy, organization and management of the movement of products (works, services) to the consumer and after-sales service to the consumer within the business activities of such taxpayer. Marketing services include, among other things: services for placement of the taxpayer’s products at points of sale, services for studying, researching and analyzing consumer demand, entering the taxpayer’s products (works, services) into sales information bases, services for collecting and disseminating information about products (works, services).
In order to carry out marketing activities, a company must conduct comprehensive market research, analyze the market, segment the market, position the product, develop a marketing mix (marketing mix), etc.
The main condition for deductibility of marketing services is their documentary confirmation and connection of such expenses with the taxpayer’s business activities.
2. Documentary evidence of services
To confirm the reality of the services rendered, it is necessary to have properly executed primary documents containing all the mandatory details provided for in part 2 of Article 9 of the Law of Ukraine “On Accounting and Financial Reporting in Ukraine”. Such documents include:
– Service acceptance certificates with a detailed description of the services provided, place and date of their provision, results and connection with business activities.
– Reports on work performed, which may include market analysis, competition assessment, market trends, forecast sales plans, financial plans and other analytical materials.
– Other documents, such as media plans, advertising campaign reports, photo and video reports of events, expense documents, correspondence with contractors, etc.
It is also important to have additional supporting documents and information on the use of such services, such as customer feedback, analysis of the effectiveness of marketing activities, documents confirming the use of marketing materials in business processes and justification of their economic feasibility.
3. Justification of the business purpose
The regulatory authorities pay attention to the existence of a business purpose when incurring expenses for marketing and consulting services. This means that the company must have a justification for the economic feasibility of such expenses, for example, in the form of an order from the head of the company to conduct a marketing event, defining its purpose, goal and expected benefits for the company.
It is also recommended to have a marketing policy – an internal document of the company that describes the approach to marketing activities, accounting for such operations, their purpose, business necessity, etc. Such a document can be a strong argument for the tax authorities in case of questions about the feasibility or reality of marketing activities.
4. Court practice
Court practice confirms the importance of proper documentation of marketing services. The decision of the Administrative Court of Cassation dated 18.10.2023 in case No. 814/1412/17 states that the main condition for deducting marketing services expenses is their documentary evidence and connection of such expenses with the taxpayer’s business activities.
The court also emphasized that the connection of marketing services expenses with business activities may be confirmed by orders of the company on the need to conduct such marketing research, contracts for marketing research indicating the type of research and the purpose of their conduct, as well as acts of acceptance and transfer of services or other documents confirming the actual provision of such services.
5. Recommendations for business
To avoid tax risks, companies are advised to:
– Ensure that all necessary primary documents with mandatory details are available.
– Prepare additional documents confirming the economic feasibility of the expenses.
– Develop and implement the company’s marketing policy.
– Ensure that the costs of marketing and consulting services are linked to the company’s business activities.
– Consult with experts to analyze tax risks and receive recommendations on how to minimize them.
In today’s business environment, it is important not only to incur PR, marketing and consulting expenses, but also to properly confirm their reality and connection with business activities. This will help to avoid tax risks and ensure the stable development of the company.
