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FACTORING: BANK - CCGGeneral concepts Concession of claims (cession) - is one of the methods to replace the creditor in the obligation. The possibility of such a change is provided in art.512 of Civil Code of Ukraine. Its essence is that the original creditor passes (gives) his rights in obligation to another person - a new creditor (assignees). The new creditor is transferred all rights of the primary creditor. Thus the primary creditor is responsible to the new creditor for invalidity of transmitted claim, but not responsible for its execution by the debtor (except when the original creditor surety for the debtor before the new creditor). Legal claim can be transmitted at any stage of the contract, by the time fixed of fulfillment the obligations under the main contract and after. Factoring is a financial service and only financial institutions can provide it, ordinary enterprises are not eligible. If the new creditor violates this rule, the contract may be declared invalid. All these terms (assignment, factoring, financial services) are closely intertwined with each other. The concession of the claim underlies the factoring agreement, and operation of factoring, as it follows from Art. 4 of the Law on financial services, is financial service, the rights of which exclusively financial institutions own. The definitions of factoring and financial services: Paragraph 5 of Article. 1 of the Law “On the financial services” reveals that financial services are operations with financial assets undertaken for the benefit of the third parties at their own expense or at the expense of this persons, and in cases envisaged by law - and at the expense of financial assets brought from others for a profit or preserve the real value of financial assets. According to Article 47 of the Law of Ukraine dated 07.12.2000, № 2121-iii “On Banks and Banking” factoring is a purchase of rights to meet the obligations in cash for goods or services provided with taking the risk of fulfillment such requirements and obligations to receive payments. Complete presentation of factoring is in Art.73 of Civil Code of Ukraine. According to Art. 1077 of Civil Code of Ukraine under the agreement of factoring( accounts receivable financing) one party (the financial agent) transfers or agrees to transfer the money available to the other party (the client), and the client gives or agrees to give the financial agent his money claim to the third party arising out of customer relations (the creditor) with the third party (the debtor). Factor may be a bank or other financial institution and natural person - a business entity, which by law has the right to factoring transactions (part 3 art. 1079 of Civil Code). Today, factoring is a set of financial services which are done the client by factor. And the word "payment" is an indicator that the ratio of money in exchange for the receivables should be for the benefit of factor ( he must make a profit as a difference). Cession is one of the elements of a factoring contract which complete package usually consists of: financing, insurance the risk of nonpayment, administrative accounts receivable management, and information services. Factoring involves the simultaneous presence of three terms:
Features of taxation the operations of concession the claim VAT Rules for taxation of factoring operations of value added are in the paragraph 3.2.5 of Law on VAT. They depend on the object of the claim that is assigned and forms of payment for such right. If the subject of debt of factoring is a currency value (according to Art. 1 of the Decree of Cabinet of Ministers "On Currency Regulation and Currency Control" dated 19.02.93 № 15-93, the national currency (UAH) refers to currency values) and expensive securities, under the condition that the new creditor pays cash or securities, the operation of assignment is not imposed VAT; Profits tax Terms of profits taxation the transactions of concession the claim of debt are described in the new paragraph 7.9.7 of the Law on profits. Taxpayers areoffered to keep records of financial transactions for the sale (transfer) and purchase of legal claim the debt on bills of debt separately. This mechanism of financial results for the primary and the new creditors is different. The main difference: the primary creditor is entitled to reflect losses obtained in result of concession the claim consisting of gross expenses and the new creditor does not has such one. Example: Assignment of the legal claim the bill of debt. Bank under the agreement gave the credit 9000 UAH to the borrower for the period of 6 months. After 8 months the debt taking into account interest and penalties is 12 000 USD. Further, the primary creditor assigns the legal claim the new creditor (who has the status of financial institution) for 2500 USD. According to the agreement the new creditor transmits the primary creditor specified amount. Debtor repays the debts in the amount of 10000 USD. under the credit agreement to the new creditor. Consider the features of taxation of each party.
Accounting in the primary creditor According to the paragraph. 7.9.7 of the Law on the profit it must determine the financial outcome of the transaction with the concession of the legal claim of debt, namely:
Thus, we determine that the financial result of the operation is negative : - 9500 USD. (2500 USD. - 12000 USD.), it reduces the object of taxation on profits. As for VAT, according to the paragraph. 3.2.5 of Law on VAT under the contract of concession the legal claim the debt tax liabilities are not accrued as the subject of the debt in this case is cash (currency value). Accounting in the new creditor The financial result from the operation of concession the legal claim the bill of debt with the purpose of profits tax we need to determine comparing this:
The financial result of operations in this case is positive: 7500 USD. (10000 USD. - 2500 USD.). New creditor includes the obtained profits to gross income (it is on page 01.6 of declaration on income tax in shortly). Revelation of Bank secrecy According to the changes in the art.of the Law "On Banks and Banking, which were introduced by the Law of Ukraine" On amendments to some legislative acts of Ukraine concerning the features of the events in the financial rehabilitation of banks "bank has the right to disclose the information pertaining to banking secrecy, the person to whom the assets and liabilities of the bank are alienated. So today there is a clear regulation of the Law "On Banks and Banking, which allows banks to transmit CCG information in alienation of assets (sales of troubled receivables under the factoring agreement). Conclusions and recommendations: CCG recommends the banks to carry out a concession of troubled debt under the factoring agreement, because: In this case, the debts of the Bank's debtors are conceded with special status - financial institution (share capital - 3 million, the controlling body - the State Commission for Regulation of Financial Services of Ukraine). Regardless of the title of contract on concession the legal claim through the legal nature of such relationships (concession the assets is not by a book cost but by a discount) the contract, if it was not signed with a finance company, which activity is factoring, may be declared invalid. Legislation
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