The Committee on Agrarian and Land Policy of the Verkhovna Rada of Ukraine endorsed the draft law No. 08856 on agricultural cooperation (submitted to the Verkhovna Rada of the previous convocation under No. 6527-d). The bill was first read in June this year. Now it must be considered in the second reading.

During the consideration of the bill, the current composition of the committee made many amendments to it. What has changed in the document and what result it will have for agricultural producers was told to Agravery.com by one of the authors of the bill - Deputy Chairman of the UAC Mykhaylo Sokolov.

So, what were the amendments to the bill? How significantly do they change its position?

The bill did receive a lot of amendments and some of them were quite serious, but in my opinion, they are only improving it. For example, the terminology we use in cooperatives is aligned with international ones. Yes, concepts such as "pay"(transliterated from Ukrainian) and "share payout" are common to us.  But it was very difficult to explain their meaning to foreign partners, since in English there is only one word for the word “chastka”, for the word “pay” - “share”. And how to translate the word "pay" into English without using the word "share" was unclear. However, in our accounting standard, as in the whole developed world, there is a concept of "share in the authorized capital" and there is no "pay". Therefore, the problem was that cooperative accountants find it difficult to work because the accounting standard does not operate in terms such as "pay" or "pay payout". It has "share in the authorized capital" and "dividends".

Another example: in international terminology, there is a concept like "patronage dividends" that is not in ours. We have "cooperative payments" which, in essence, were about the same as patronage dividends. Therefore, this moment was brought into line with international norms.

You see, we used some alternative system of concepts for cooperation, which existed in isolation from the terminology used throughout the world and it created many difficulties in our, Ukrainian, accounting standard, especially for accountants. And these changes will be a great relief for them, as you will not need to learn any additional accounting instruction for the cooperative, as it is now, and then explain it to the tax authorities.

Talking about co-operative payments, now patronage dividends, how will they be paid? After all, the current law provides for the payment of 20% of income. While it is proposed in the new bill to pay 80% of the cooperative's profits.

Indeed, we have such changes; they are about unit payments or dividends. The bill states that they should pay no more than 80% of the profits. And as we have repeatedly emphasized, 80% of our profits are less than 20% of our revenue.

However, as for me, no restrictions were required at all. Why should the law or someone else tell the cooperators how much money to send in dividends? Why should there be any tight restrictions? It's their money and they have to decide where and how they spend it. But the co-authors of the bill, including international experts, insisted that some restriction should be considered, and, as a compromise, it was decided to leave it like this.

What are patronage dividends? Your opponents have criticized you for possible fraud in them. Is this true?

Patronage dividends will be paid on the basis of the fiscal year and financial result after tax, in proportion to the turnover of the cooperative member with the cooperative. This is now formulated as clearly as possible and in full compliance with the tax code. Moreover, this formulation was discussed separately with DFS specialists and they do not see any loopholes or irregularities in it, as it explicitly states that the financial result (profit) is distributed after tax. 

In addition, there was a direct rule that patronage dividends could not be paid in non-profit cooperatives. The bill had not previously provided for such an opportunity, but now there is a direct clarification and, accordingly, the fiscal service will not be able to say that we have a law on cooperation that contradicts the tax code in some way. Therefore, when non-profit cooperatives will be created, they will meet the requirements of the tax code by default and will be easy to register as non-profit.

However, with the passage of the law, it will be necessary to adopt changes to the tax code that will exempt the patronage dividends from paying the income tax at the cooperative level, but will increase the financial result (profit) of the cooperative member and will be taxed in accordance with its tax system.

This norm also exists throughout the developed world and we intend to implement it in Ukraine. But to speak of this norm, it was necessary to come up with the concept of patronage dividends in the form in which it exists in other countries. We can now refer to the tax codes of other cooperative countries, such as the United States, Canada, and justify our requirements for this rule. And this is not a tax benefit. Because, as I said, farmers will pay taxes on this income but according to their tax system.

And what about the legal conflict over serving cooperatives, which can only be unprofitable at the moment, but where cooperative payments are available? Was it eliminated? Will they be able to earn non-profit status?

This conflict was eliminated in the first reading, but we have made such clarifications that leave no room for doubt. However, the big question now is whether cooperatives will need non-profit status, since they can work without it.

We haven't really changed anything for non-profit cooperatives. They will continue working as they used to work. They couldn't pay anything before because the tax code didn't allow it. However, they will now have much less difficulty obtaining and maintaining the status of a non-profit-making organization.

Is the norm approved for who may be the head of the cooperative? It is remembered that the bill suggested that a non-cooperative director should be selected.

Another rule has now been approved: the executive director may not be a member of a cooperative. That is, if such a position is created in a cooperative, they must be hired “from the side”.

Another essential provision, around which there were many disputes between the authors of the "old" and "new" laws, was the presence of proportional voting in cooperatives. Do you have this norm in your bill?

The founders of the cooperative will have the right, if they see fit, to establish such a provision in their charter. We have taken a more conservative path than most EU countries. There is a proportional vote in our bill, but it is partial and only concerns economic matters. When making amendments to the charter, the principle of "one member - one vote" continues to apply. In this regard, our law is less liberal than the legislation of most European countries governing cooperation.

We have assumed that is already such a new norm for Ukraine, and we, in some ways, reinsured it. However, we assume that cooperatives in the future may raise the issue of its liberalization. Legislation is not written forever, it must change depending on the needs of society. We have come to the conclusion that it is better to take a conservative step than to delve into discussions, as this norm is difficult for the agrarian community to accept. Although the practice of the European Union shows that co-operatives with proportional voting are more efficient and successful.

What overall positive changes do you expect from the implementation of this bill?

By this bill, we have, in fact, created a new type of cooperation for Ukraine that exists all over the world but which we did not have - these are profitable cooperatives in which not only individuals but also legal entities are members. If the bill is passed, we will be able to create full-fledged profit cooperatives and they will be comfortable enough to work with. And this form of cooperation is very convenient for farmers, because they can sell cooperative products; it is easy to arrange these operations, to receive patronage dividends, which are, in fact, a surcharge to the price.

Of course, it is necessary for deputies to support the bill in the second reading. It is also should be signed the President. But we hope that this will still happen. And when this bill comes to fruition, the cooperative will be able, as we have repeatedly emphasized, to fulfill its key function - to be a trading unit for its participants. It will give an opportunity to buy products directly from them and sell large batches of them, in particular, exporting abroad.

Or, by purchasing products such as milk from their own participants, a cooperative can process and release and sell new products, creating added value. In the first case as well as in the second case, it is an opportunity for agricultural producers to compete with big agricultural companies, to develop and to have more profit. In fact, the law is aimed at creating a form of cooperation that is convenient for people. That is why we expect that such cooperatives will start developing now. That's how they work all over the world.

 

 

Monday, 9 December 2019

 

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