Keynote points of the discussion and abridged expositions of speaker reports are published below.
Keynote Points:
The delivery and acceptance certificate is a document that confirms the fact of works/services delivery and the absence of customer’s claims regarding their quality. It is also used to calculate taxable events, specifically, the tax credit one.
The delivery and acceptance certificate is no guarantee from risks of non-performance of works or sham transactions. The court will not accept the delivery and acceptance certificate as the proof of the parties’ satisfaction with the works or services delivered.
The existence of delivery and acceptance certificates (DACs) in Ukraine creates problems at the international level. The developed economies worldwide have no such document using invoices or bills instead.
According to the survey, private entrepreneurs are signing about five, while legal entities, up to 30 such certificates a month on average. Staff is hired to handle DACs and spends more than 13% their time just on these.
Some companies deliver their DACs themselves with expedited or personal delivery being the second most popular way of doing it.
Many, or more than 70% (73–74%), Ukrainian businesspersons are of opinion non-mandatory signing of delivery and acceptance certificates would ease doing business.
Handling the DACs is an expensive and tedious business: the costs of signing, delivering and accounting DACs average to UAH2,000-UAH4,000 a month, or 34 billion Hryvnias/around 0.6% GDP nation-wide.
The legislation should be feasibly amended to make DACs not mandatory for Ukrainian businesspersons and allow their voluntary presentation to simplify conditions for both works/service providers and contracting authorities.
Transcript of discussion (for the full video of discussion please follow the link)
– How much does the turnover of delivery and acceptance certificates cost for the economy? Why are they a nuisance, and what do businesses think about the prospect of delivery and acceptance certificates becoming not mandatory?
Yevhen Shulha
The economic environment is changing in Ukraine now and new conditions are being created to improve the business climate. This survey has become possible thanks to involvement of Atlant, a U. S. network working to promote free market ideas, simplify the entrepreneurial environment and increase economic freedoms worldwide.
The delivery and acceptance certificate is a document that has theoretically been conceived to confirm it to both service providers and contracting authorities that a service has been delivered to the full satisfaction of the customer. The document is also used to calculate taxable event dates. However, with time the very concept of the certificate has lost its original meaning: first of all, when a company plans to avoid fraudulent transactions when people agree between themselves about paying for services that in reality have never been delivered, it understates its profit. On top of that, the DAC is not a risk guarantee; it cannot guarantee 100% the transaction was not a sham. Secondly, the courts do not consider DACs a proof of the parties’ satisfaction with services provided.
Businesses in developed economies have no such notion as a delivery and acceptance certificate at all – and do nicely without it. Therefore, we decided to investigate how they are coping without one. It appears, in the most of developed economies paying the bill would suffice. The bill issued and paid is proof enough that the service was provided.
The delivery and acceptance certificates in Ukraine also create certain issues internationally; first of all, this is against the practices in the EU Member States. It is Ukraine that has to comply with EU requirements, not vice versa. Secondly, as most countries have no such requirements, problems for international trade in services arise. The need to prepare documents required in Ukraine creates additional inconvenience for overseas traders. Despite Ukraine has already introduced certain conditions to simplify business with foreign partners, the practice of issuing delivery and acceptance certificates still exists.
As our survey has shown, there is a demand among entrepreneurs in Ukraine for simplification of DAC turnover. A survey among more than 400 company managers, also financial ones, was carried out with assistance from Info Sapiens company. The survey allowed specifying their vision and practices, looking into ways in which they handle DACs, the time needed for this and their position as to whether they would deem a simplification of DAC turnover necessary. The obtained results are presented below.
From the outset, the legal entities were separated from natural persons given the difference in their stance dictated by operational specifics. Natural persons who are private entrepreneurs issue up to five delivery and acceptance certificates a month. Meanwhile, legal entities issue up to 30 DACs a month in average. As to the number of staff involved in certificate handling, it is one person in the case of private entrepreneur but for many bigger businesses the making, signing, storing and exchanging of DACS means, at least, two (sometimes, seven, eight and more) staff involved. That is, some companies see quite a lot of people involved in the process.
How much time does it take to process DACs? It appears, there is a median value for the accountants for a half of them are spending more than 13% working time to process DACs. The other half spends less time; still, 13% make for a serious median value. It is 5% for company managers. Herewith, the DAC handling process may involve also other staff, besides the director and the accountant, who will spend about 10% their time on that.
In order to evaluate the full cost of the work for a company, we included the matter of DAC delivery costs. Some businesspersons are exchanging these electronically so it practically costs nothing for them except for the monthly subscription fee to use the system (UAH200); however, it has been found less than a third of all companies do this. Some companies furnish delivery and acceptance certificates themselves; from here, expedited and personal delivery as the second most popular delivery method. People are spending their own work time to sign and transport DACs, and the waste of time looks worrisome.
The main question to all our respondents was about their stance towards not having to sign delivery and acceptance certificates. Would it be easier for Ukrainian businesses to work under the condition that the companies willing to sign them could do so while for some entrepreneurs the fact of payment to confirm customer’s satisfaction with the services received would be enough? The answer we received was unequivocal with more than 70% (73–74%) of companies, private entrepreneurs and legal entities saying: yes, working in Ukraine would be easier under such conditions.
So in the end, working with DACs is expensive and it takes a lot of working time away from rather highly-paid employees. Even with modest estimates of the salaries of, for example, an accountant (UAH15,000) and a manager (UAH20,000), the costs of processing delivery and acceptance certificates at each company would amount to UAH2,000 – UAH4,000 per month. Seemingly small, these expenses when added for each company, result in UAH 34 billion, or nearly 0.6% of GDP for the whole country. Our western neighbours grow their GDP by 4% a year on average; for Ukraine, the rate is 3%. There is a gap in GDP growth rates and we need not just stop it but also catch up with Poland and Hungary. In order to reach the level of development of Western countries in the long term, a 6% national GDP growth rate will be necessary. Therefore, even 1% GDP is a large enough figure. Occasionally, some economic decision can give an GDP increase of 1-2-3%, and such small decisions can make a rather big economic picture.
Our proposal is to make the DAC not mandatory for Ukrainian entrepreneurs. This would not mean completely abolishing it. This would mean those who have been used to DACs, who believe they are necessary for their production processes should retain this possibility – but when two entrepreneurs have agreed between themselves they need not a DAC they should be able to simply issue an invoice and pay it. And the tax service will have no right of fining them and deem their agreements fictitious transactions. Using delivery and acceptance certificates is an expensive business and a waste of time for entrepreneurs. It can be done on a voluntary basis left to the discretion of the entrepreneurs themselves.
– Managing Partner of Saivens Group Olena Zhukova is cautious about the initiative. Could you tell us why are you against the abolition of delivery and acceptance certificates?
Olena Zhukova
Surely, I am against it. Why? There is a pyramid of legal regulations with each one lower weighting less than, and having to fully comply with, the one above it. The Constitution of Ukraine, which is a law with direct effect is on the top of the pyramid. The laws of Ukraine, in particular the codes, can be found below. Cabinet of Ministers resolutions, Ministry of Finance directives and other legal regulations – bylaws – are further down. If we want to implement a bylaw, for example, a Ministry of Finance directive, to cancel the delivery and acceptance certificates, we will have to do it in such a way that it fully complies with higher-level laws and codes – primarily, the Civil Code of Ukraine that envisions the delivery and acceptance certificates as necessary.
Let us have a look of Article 837 of Chapter 61. Contractor’s Agreement of the Civil Code: ‘Under the contractor’s agreement, one party (the contractor) undertakes, at its own risk, for performing certain work commissioned by the other party, and the customer undertakes for accepting and paying for the work performed.’ That way, the acceptance of the completed work must be confirmed by the relevant document with which the customer consents to the work performed to expected quality and in full. Similar language can be also found in other articles, for example, in Art. 853. It has been presented at its fullest in the paragraph concerning the construction contract, Art. 882, Delivery and Acceptance of Works, whereby ‘the delivery of works by the contractor and their acceptance by the customer shall be formalized by a certificate act signed by both parties.’ The main drawback of the invoice used in international practice is that it contains no signature of another party, namely, the customer who has to do the payment. It is okay if the customer has paid, he might have agreed by this – but what if he was wrong?
The key point is not about taxes or accounting, it comes next along the logic chain. The key point of a DAC is the cornerstone of everything: it is about ownership title and transfer of property rights. Talking about the delivery and acceptance certificate for completed works, it is when the contractor transfers the work results into the ownership of the contracting authority.
Looking at the construction as the most well-written moment of the Civil Code that details the delivery and acceptance certificates, there is a pile of paperwork – design engineering, cost estimate and monthly documents, cost certificates, hidden works, work performance ledgers etc. – that, to be made, will require much more time than the signing of the DAC. That is a lot of documents, and DACs barely make a thousandth per cent of them.
In my opinion, it would not be possible to find a single builder who would tell DACs are not mandatory because for the construction industry their cancellation would mean suicide.
As a lawyer, I have quite an extensive working experience in courts with economic, construction, and tax suits. As for construction matters in court, these include and economic processes related to debt collection. If delivery and acceptance certificates are available, i.e. the other party’s agreement to deem the works performed to expected quality, on time and within the deadlines has been documented, then the payment process goes fast. But if the DAC is not signed, then there has been no delivery and acceptance of the work results recorded and it is now very difficult to win the case and prove the works were indeed performed.
Same thing with power of attorney cancellation: at the time, they would also say it was a difficult point and it would simplify the document flow. As a result, the companies that cancelled the power of attorney ran into multiple problems. Today, cancelling DACs will lead to the need to quench the fire every time and extremely complicate everything because the core component has gone.
Thus, the DAC is not a priority document that could be cancelled. There are many other documents that are not necessary while the DAC is about transfer of ownership, absence of claims and transfer of risks.
The Tax Code is in many respects linked to the delivery and acceptance certificate; e.g., when the first VAT event is the payment for completed works or the signing of the delivery and acceptance certificate. The invoice does not confirm the works have been performed. When the contract says 10 payments are to be made, these will be made indeed but this does not imply the works will be completed. By and large, I can write out an invoice to anyone today and tell them to pay it. I dare you to prove I didn’t do some of the work to you.
Thus, the first consideration is it is in no way about facilitating the document flow. There are a lot of other documents that everyone would benefit from them being cancelled. The second point is it would be counter to laws, the higher legal regulations. The third one is it would mean a lot of problems for the contractor companies leaving them stuck in court. The delivery and acceptance certificate is not about taxes – taxes are attached to it afterwards – it is about the transfer of ownership and risks. Therefore, I believe it is not possible to cancel delivery and acceptance certificates.
– But is the existence and use of the delivery and acceptance certificates a real problem for businesses?
Inna Volosevych
Our company provides consulting services and we sign more than 100 DACs per month. My pet peeve at work before I was promoted to a managerial position had been to chase customers asking them to sign the document. Then they hired a special officer full time to exclusively deliver paper documents, contracts and certificates. We have hundreds of clients, also abroad, who are always surprised by what we want from them. There are also dozens of local contractors in each region who need hundreds of contracts and DACs every month. This requires a lot of human resources. If the responsible officer is relieved at least from these DACs, he will have half of his time freed for more useful things.
I want to make a clarification regarding the 2017 law. It indeed says both the DAC and the invoice can be the primary documents but the problem is the Law on Accounting mentions it the document has to be initialled. That’s why we are making DACs not for our own pleasure but because the tax service would not accept any other document if it is not signed. A significant number of resources are spent to have it signed.
This is why we agreed to conduct the survey, and we would like to thank CASE Ukraine for this initiative. Info Sapiens company is for delivery and acceptance certificates made not mandatory because they create a lot of unnecessary work and costs and irritate our customers. Ideally, at least the signature has to be cancelled, the document name is unimportant for us. The electronic document turnover makes everything easier though, unfortunately, only a minority of clients in Ukraine use it whatever the reason. The problem of paper chaos is rather relevant for our company. We are not clear as to what to do if the client does not sign the DAC; we can be fined by the tax service for this despite we have not breached any law and have paid all taxes due.
We have contracts for 30 million Hryvnias and we are ready to accept the risk and not sign delivery and acceptance certificates. Well, we are ready to sign the certificate whenever the client demands it but most of them, as also we, do not need them. There are quite a lot of companies like ours (74%), in particular legal entities. We would like to stop the “legal lawlessness” and legally challenge the mandatory nature of the delivery and acceptance certificates.
– How a decision to make delivery and acceptance certificates not mandatory is to be made when there exist areas that cannot do without them?
Yevhen Shulha
Yes, there are sectors in which signed delivery and acceptance certificates are absolutely necessary. Builders have special documentation requirements of their own; however, in practice those certificates are issued purely for the sake of compliance with regulatory requirements in Ukraine. The Civil Code that Olena quotes from as an authoritative source says the parties may agree upon a contract using the language of choice. Whenever the work requires an exchange of DACs, the signing of additional documents, Masonic handshakes etc. all this can be included into the contract. There is no need to hold the whole country hostage to one or two industries for which it is necessary.
Perhaps not even all the construction companies require this exact procedure. The legislation is not set in stone, it can and should be amended if Ukraine aspires to become a developed economy.
We believe the parties have the right to agree it between themselves if they need DACs. Just include it into the contract and perform the works accordingly. But if a simplified option is available when the bill payment is confirmed with an e-signature with personal ID, why force the entire country to follow rules not everyone needs?
– How it may be possible to cancel delivery and acceptance certificates for consulting, advertising etc. services now?
Olena Zhukova
First of all, the DAC demonstrates the relationship between the economic agents. This concerns some basic fundamental principles, transfer of ownership of the work results and the transfer of risks for the given asset with a statute of limitations tied to the work completion date, the warranty period and lots of other considerations that are directly linked to the economic process and the ownership rather than reflect this economic process for accounting purposes. Therefore, cancelling the delivery and acceptance certificates is not possible.
Inna Volosevych
I cannot understand the emotions of DAC opponents. Everyone who needs DACs is not against making them. Let each company together with its clients decide what is difficult for them and what is not. I want my right to abstain from making DACs. One point to consider here: we are a small business plus one salaried employee whom we pay only to have him collect paper documents, which is quite an expense for us. Meanwhile, the main problem arises when a client does not need the DAC and refuses from signing one. It looks like the state has no mechanisms for that and it is us to blame – that is, we have either to falsify documents or pay fines. There are no mechanisms whatsoever to protect businesses in these circumstances.
We have hundreds of clients and dozens of them do not sign DACs. We are not going to sue them, still more that we love our clients very much and are very loyal to them. Fortunately, we have not a single client who would not pay us. If the client is not a respectable one and has no intention of paying, he will not sign the DAC either because it is hard to imagine someone in his right mind signing the DAC without any plan of paying. Even if such a client appears, God forbid, and signs the DAC, the document will be thrown out by the court.