The new law allows them to choose a further model of work, with or without profit.

On November 15, a new version of the Law of Ukraine "On Agricultural Cooperation" enters into force. The majority of the agrarian community perceived this fact positively. However, there are also negative responses, which first of all indicate ignorance or misunderstanding of the main provisions of the new law. UAC Deputy Chairman Mykhailo Sokolov told the “Governmental Courier” newspaper about the fundamental differences and new provisions of the new version of the document.

Negative feedback is an echo of the discussion that has revolved around the concept of development of the cooperative movement in Ukraine over the last four years, the consequences of different function perceptions and tasks of the cooperative.

Non-profit status is not a benefit

Some opponents of the new law, who are not very familiar with the subject, accuse its authors that they propose to forcibly impose profit status on cooperatives. In fact, the new law allows cooperatives to choose the future model of their cooperative work, with or without profit. Until now, non-profit status was imposed to agricultural cooperatives.

Apparently, our opponents for some reason believe that non-profit status is a kind of benefit. Allegedly, non-profit cooperatives may have a profit, but it is not taxed.

This is fundamentally wrong; this view indicates ignorance of tax law. A non-profit cooperative cannot distribute profits among its members, but if it does, such profits are taxed on a general basis. Also, a non-profit cooperative has no right to buy products from its members - this is expressly prohibited by law. Is that a benefit?

Instead, the new law eliminates at the legislative level the division of cooperatives into production and service ones, and thus solves the described problem. If the cooperative still needs non-profit status, its members can make appropriate provisions to the statute and apply to the tax authorities for its receipt in the general order.

Worldwide concept

The general concept of cooperation, on which our law is based, is borrowed from the experience of cooperatives in developed countries. Our bill was drafted by lawyers from Canadian cooperatives, European experts on cooperatives, experts from international cooperative banks, and more. During the preparation of the bill, a group of developers, in particular, was based on reports prepared by order of the European Commission on the development of cooperation in Europe.

That is why here's what to note - they have a cooperative (profitable) who pays its members two types of payments: ordinary dividends in proportion to the property contribution of each member to the cooperative, which are subject to income tax, and the so-called patronage dividends. We did not have such a concept at all, only this law introduces it. Such dividends are paid in proportion to the turnover of the member with the cooperative - so the value of products which is sold to the cooperative (or purchased from him).

This can be explained by the example of a dairy cooperative - its members produce milk, hand it over to the cooperative at a fixed price, which they set themselves. The cooperative produces various types of dairy products from it under its own brand, sells it and thus receives a profit, which is distributed in proportion to the amount of milk purchased from its members.

In fact, it is a surcharge to the price: because price fluctuations in the market and, accordingly, future income and profit is difficult to be predict, so first sell, get the money to be paid for milk in any case, and then give the rest in addition to previously paid prices. The same is interpreted in the legislation - as a surcharge to the price. Therefore, in the United States and some EU countries, this type of payment is not taxed as the profit of the cooperative - already a member of the cooperative pays tax on it according to his personal income or profit and the chosen system of taxation.

Why is this so important? The probable situation is when a member of the cooperative sold him milk, but suffered a loss. If the cooperative paid only dividends in the usual form, it would have to tax this payment and then pay it to the member. It turns out that the member received a loss, income tax was paid on his income, although he has no profit!

Instead, the patronage dividend in the cooperative is not taxed, goes to the member, covers his loss, and the tax is taken only from profits, ie from the excess of the patronage dividend over the loss of a cooperative member. Obviously, on the part of the state it is fairer.

I note that this model is effective for agricultural cooperation. Therefore, the adopted law regulates the activities of agricultural cooperatives and no others.

Cooperatives and trade

Until recently, there was a serious problem: the cooperative could not sell products produced by its members on its own behalf. After all, only natural persons could be members of an agricultural production cooperative, and any farm, as well as a lot of agricultural producers, are legal entities.

So, they could only be members of service cooperatives, and such cooperatives were prohibited by law from purchasing products from their members. It means that each member of the cooperative should make a contract - a power of attorney to sell products on his behalf. If there are many members, then there are many contracts, and the cooperative was not responsible for their implementation. Retailers did not want to deal with such a supplier.

Because of this, small producers have suffered so much from quarantine restrictions. After all, due to the impossibility of forming large batches of the same type of goods, they were not able to work with large retail chains, they had only one way - to the market. And it is closed!

Another thing is a cooperative. It is advantageous for him to develop relations with retail chains, because he is a stable buyer. And the role of the cooperative is to provide large batches of the same type of product at the same price. Thus, the cooperative organizes the supply of its members with seeds of the same variety, the same plant protection products, disseminates the same cultivation technology, organizes the collection of products at the right time…

Own processing will be possible

Here is another interesting point - a small farmer is not able to create their own processing, and many such farms - can. Abroad, cooperatives of farmers cannot do without their own processing - in particular, dairy farmers, producers of berries, fruits and more. We also want to introduce it, there is only one step left - to adopt amendments to the Tax Code regarding patronage dividends.

Previously, the cooperative could take raw materials for processing only as it was given. And if from a certain type of raw material you can get different products with different profitability, it turns out that the members of the cooperative, who handed over the same raw materials, should receive different profits according to what exactly is made from whose raw materials? And how to distinguish different raw materials? That's why we didn't have cooperative processing.

Now the cooperative buys, the same milk, at the price was set by its members, produces various products from it, sells it, receives income, calculates production costs, development share, dividends, and distributes the rest by the amount of milk delivered in the form of patronage dividends. That's all! Quite a different motivation - no conflicts, everyone is equally interested.

We have the potential for development

In France, 60% of all agricultural products are sold through cooperatives, in the United States - about half, in many European countries about the same. In Ukraine it is less than one percent.

No matter how much we fight for the development of cooperation, nothing happens, although the potential of our agriculture in general is great. The only delay is that the existing rules did not allow for development. If the necessary changes are made to the tax legislation, our cooperatives will develop at an accelerated pace.

And finally. A cooperative is not a charitable project for the social support of the rural population, but a commercial association whose main goal is to earn money for its members. However, there is a social and even political aspect here: the development of a strong, prosperous middle class in Ukraine contributes to the stabilization of society, is a safeguard against social unrest.

Mykhailo Sokolov,
UAC Deputy Chairman,
for the “Government Courier”