Destruction of Property and Documents of a Medical Facility or Pharmacy Due to Hostilities: Tax and Legal Protection Algorithm

Enemy missile and drone strikes cause direct damage to private medical centres, pharmacies, dental practices, diagnostic laboratories and consulting rooms of doctors operating as sole proprietors. A destroyed clinic building, damaged expensive medical equipment such as MRI, ultrasound or dental units, destroyed stocks of medicines or a lost paper archive are not only a material disaster but also a serious challenge in dealings with regulatory authorities.
If the tax authorities identify asset write-offs without a proper documentary basis, medical and pharmaceutical businesses risk additional VAT and corporate income tax assessments, transactions being treated as non-genuine and business activities being blocked. A timely legal and tax audit of losses protects the business from penalties and creates a reliable basis for future reparations.

Documenting damage to or destruction of medical equipment and premises

For the tax authorities, insurance funds and international damage registers, a manager’s internal conviction is not enough — there must be legally proper documentation of the causal link between hostilities and the destruction.

Below are examples of documents that may form part of the evidentiary package:

• Procedural documents of investigative authorities. These include an extract from the Unified Register of Pre-Trial Investigations concerning the opening of criminal proceedings under Article 438 of the Criminal Code of Ukraine on war crimes, and an inspection report of the scene prepared by the National Police or the Security Service of Ukraine;
• Acts of civil protection services. An act of the State Emergency Service concerning a fire, inspection of the impact site, debris removal or demining;
• Acts of local government authorities. Acts of commission inspections of damaged real estate recording the category of damage;
• Technical and commodity examinations. A report by a certified expert on the technical inspection of buildings, as well as conclusions of chambers of commerce and industry or accredited forensic experts on the value of material losses and the technical impossibility of restoring high-precision medical equipment;
• Digital evidence. Detailed photo and video records of equipment serial numbers, manufacturer identification plates and the condition of utilities, with geolocation and metadata.

Obtaining a force majeure certificate from the Ukrainian Chamber of Commerce and Industry

The general letter of the Chamber of Commerce and Industry dated 28 February 2022 no longer operates as a universal exemption from obligations for the commercial sector. Tax authorities require individualised proof that a specific obligation could not be performed because of a specific event.

An application to the Ukrainian Chamber of Commerce and Industry or a regional chamber for an individual certificate is required for:

• Exemption from liability for failure to perform commercial agreements, for example disruption of medicine supplies or failure to perform contracts with partners.
• Justifying late settlement or late submission of tax reporting.
• Proving the existence of extraordinary and unavoidable circumstances before fiscal authorities.

Inventory and write-off of destroyed medical assets: VAT and corporate income tax

Where property has been destroyed or damaged, the head of a medical centre or pharmacy must issue an order to conduct an unscheduled inventory as at the date of the event or the date on which safe access to the premises becomes available.

The inventory commission reconciles stocks of medicines, consumables and equipment against the accounting records. Assets that have been completely destroyed and are subject to disposal are recorded separately from assets requiring repair or modernisation.

Tax consequences under the Tax Code of Ukraine

Value added tax (VAT) is governed by Articles 189 and 198 of the Tax Code of Ukraine. Destruction of fixed production assets as a result of force majeure during martial law is not treated as a supply of goods and does not result in compensating VAT liabilities under paragraph 198.5 of the Tax Code of Ukraine, provided that an appropriate package of supporting documents is available. Therefore, where goods are destroyed or lost as a result of force majeure during martial law or a state of emergency, compensating VAT liabilities under paragraph 198.5 of Article 198 of the Tax Code of Ukraine DO NOT NEED TO BE ACCRUED. However, the absence of an expert examination act or an extract from the Unified Register of Pre-Trial Investigations may lead the State Tax Service to require additional VAT to be assessed on the residual carrying value of the equipment.

Corporate income tax. Losses arising from the disposal of fixed assets and loss of inventories are recognised as expenses of the enterprise in accordance with accounting rules, reducing the financial result before taxation.

Loss of primary and medical documentation: how to protect against tax sanctions

The destruction of accounting records, fiscal receipts, contractor agreements or patients’ primary medical records, such as Forms 043/o and 003/o, disrupts both interaction with the State Tax Service and protection of the licence before the Ministry of Health. The legislation establishes clear deadlines for notification of the loss, damage or premature destruction of documents.

The taxpayer must, within 5 days from the date of the event, notify the tax authority at the place of registration in writing of the loss of documents and provide certificates from law enforcement authorities or the State Emergency Service. The legislation provides 90 calendar days from the day following receipt of the notification by the State Tax Service for the complete restoration of primary documentation.

A special regime applies only to businesses that operated in territories of active hostilities or temporarily occupied territories of Ukraine under subparagraph 69.28 of paragraph 69 of subsection 10 of Section XX of the Tax Code of Ukraine. If a medical facility or pharmacy operated in an area of active hostilities or occupation and primary documents cannot be removed or have been destroyed, a special moratorium applies to audits of the relevant periods. The taxpayer submits an individual notification in the prescribed form indicating that the documents cannot be removed, which prevents tax authorities from making additional tax assessments for those periods.

Confirmation of inability to fulfil tax obligations (Procedure No. 225)

If damage to servers, loss of qualified electronic signatures or destruction of an office prevents a clinic, doctor operating as a sole proprietor or pharmacy manager from paying taxes, accruing the unified social contribution or filing declarations on time, do not wait for penalties to be imposed or accounts to be blocked.

Under subparagraph 69.1 of subsection 10 of Section XX of the Tax Code of Ukraine and Ministry of Finance Procedure No. 225, the entity submits to the tax authority:

• An application concerning inability to fulfil tax obligations on time.
• A comprehensive documentary package directly substantiating the causal link between the shelling and inability to make payments, such as bank certificates regarding damaged communication lines, acts recording destruction of computer equipment and similar documents.

In addition, taxpayers may voluntarily submit a Notification of Loss, Destruction or Damage to Property (Goods) through the Electronic Taxpayer Cabinet or Taxpayer Service Centres. This step additionally formalises the grounds for changes to the business’s balance sheet indicators in State Tax Service databases.

Preserving a medical licence after destruction of premises or loss of equipment

For healthcare facilities and doctors operating as sole proprietors, damage to real estate affects compliance with the Licensing Conditions of the Ministry of Health of Ukraine.

Any forced change of the address at which medical practice is carried out, destruction of equipment declared in the licensing file or non-compliance of the premises with DBN standards requires the licensee to submit a Notification of Changes to the Ministry of Health within one month.

If the licensee plans to resume medical practice, it is sufficient to submit an application to the Ministry of Health to suspend the licence in full or in part for a period of up to six months. When activities are resumed, the licensing authority must be informed by submitting the relevant application.

If the premises are completely destroyed or cannot be restored, the licence must be terminated in respect of that address. If the medical facility is relocated to another address, the business entity submits information about changes to the medical practice licence. This means that the medical licence remains the same and covers the same specialties, but a different address for carrying out medical practice is added to the licensing file.

Depending on the extent of the damage and plans for restoring the business, the legal course of action for a pharmacy is divided into several scenarios.

If the pharmacy is located in an area of active hostilities under the list maintained by the Ministry for Development and has been damaged by shelling, but this has not had a significant adverse impact on medicine storage conditions, meaning the main storage facilities remain intact and unauthorised persons have not gained access to medicines, the basic requirements for premises and facilities and equipment temporarily do not apply to the licensee during martial law. To preserve the licence, the manager must formally notify the pre-trial investigation authorities of the damage to the pharmacy and restore the pharmacy’s facilities and equipment within 3 months from the date of such notification.

Temporary suspension of pharmacy operations during repairs (up to 6 months)

If the licensee intends to resume pharmacy operations after damage or reconstruction, it submits to the Ukrainian Pharmaceutical Agency an Application to Suspend the Licence in full or in part no later than 10 working days before the work begins. Once restoration work is completed, an Application to Resume the Licence or written notification of reopening is submitted no later than 10 working days before operations resume.

Complete destruction or termination of pharmacy operations at the retail medicine location

If the pharmacy premises are completely destroyed or the lease is terminated without any possibility of restoration, the licensee must submit to the licensing authority, within 10 working days, an Application to Terminate the Licence in full or in part in respect of that specific place of business.

Relocation of a pharmacy to a new address

Where a pharmacy relocates to a new location, the existing licence remains with the business entity, but the licensing file is amended. For this purpose, the licensee submits:

• a notification of changes to data / creation of a new place of business;
• updated Information on the Availability of Facilities and Equipment and Qualified Personnel for the new premises.

Comprehensive legal and tax support from Prikhodko & Partners

Attempting to write off equipment worth millions of hryvnias solely on the basis of ordinary accounting certificates is practically guaranteed to result in additional tax assessments during the first documentary audit. In practice, for owners of private clinics, doctors operating as sole proprietors and managers of pharmacy chains, one of the greatest challenges is the documentary formalisation of changes to the licensing file.

The specialised medical law practice at Prikhodko & Partners provides comprehensive turnkey assistance to clinics, doctors operating as sole proprietors and pharmacy businesses:

• we organise the collection of evidence, including examinations of facilities and equipment, loss assessment, interaction with the State Emergency Service and police, internal orders and write-off acts for fixed assets taking into account the specifics of medical devices and VAT requirements;
• we represent clients before the Chamber of Commerce and Industry to obtain a force majeure certificate promptly;
• we prepare and submit notifications under Article 44.5 of the Tax Code of Ukraine and applications under Ministry of Finance Procedure No. 225, and protect businesses against blocking of tax invoices and penalties;
• we update the clinic’s licensing file without the risk of suspension of the medical practice licence.

Do not face bureaucratic pressure from regulatory authorities alone at a critical time for your business. Submit an enquiry on the website or call our specialist lawyers to protect your business and establish the legal basis for future compensation of losses.