All will BEPS: How Ukraine is going to close tax loopholes

The national Bank and the Ministry of Finance began collecting the revisions to the published draft law “On amendments to the Tax code of Ukraine with the aim of implementation of the Plan of combating erosion of the tax base and the removal of profits from taxation.” Its short name is simply — the law on the implementation of the BEPS plan. At the international level, the BEPS 15 points, but Ukraine is ready to implement only eight of them.

Все будет BEPS: Как Украина собирается перекрывать налоговые лазейки

Officials want to oblige the Ukrainian individuals to disclose their participation in foreign companies that they control (CFC), and the rules for the taxation of such companies (No. 3); to limit the expenses on financial operations with related persons (No. 4); to prevent abuses in the use of agreements on avoidance of double taxation (No. 6); not to allow artificially to avoid permanent establishment status (No. 7); to improve control over transfer pricing (No. 8-10); to establish reporting rules in the context of countries for international groups of companies (No. 13).

The BEPS plan was developed in 2013 by the Organization for economic cooperation and development (OECD). His main task was to combat the blur of the tax base and the movement of corporate profits in areas with no or low taxation. At the moment the plan BEPS joined more than 100 countries, including Ukraine (1 January 2017).

The OECD has estimated annual losses of world economy from the blur of the tax base and the withdrawal of profits from taxation $100-240 billion or 4-10 percent of worldwide tax revenue. In Ukraine this percentage may be even higher. “The Ministry of Finance does not consider BEPS as a direct source of revenue. BEPS is not a new tax, and improvement of the rules against tax evasion,” — said Deputy Finance Minister Sergei Varlamov.

While we are talking about establishment of equal rules for all companies. Acting Minister of Finance Oksana Markarova believes that some companies use Ukraine signed agreements on avoidance of double taxation double tax evasion. “In fact, they do not pay taxes in any of the jurisdictions,” explained the Finance Minister. Sergey Varlamov notes that after the adoption of the law “of history that the large corporations pay lower taxes than a student who works part-time at McDonald’s, will sink into Oblivion”.

The BEPS plan is needed not only to Finance, which is responsible for the revenues of the state budget and the national Bank, which is very far from the sphere of taxation. First Deputy head of the NBU Kateryna Rozhkova said that without the adoption of the law on BEPS full-scale currency liberalization promised by the law “On currency and exchange operations”, can not earn from February 2019. The logic of this approach is that while Ukraine will not close the tax loopholes that allow capital to run away from the country, currency liberalization will hit the hryvnia.

The thorny path to taxes

The necessity of introduction in Ukraine of the rules of the BEPS does not cause resistance, but the issues appear when it comes to how to implement them. “Without a single international instruments, without the support of international organizations will be very difficult to deal with the minimization of taxation”, — said Deputy Minister of Finance of Georgia Lasha Khutsishvili. Representative to the OECD from the Ministry of Finance of Poland Piotr Piontkovsky problem refers to the ability of the state to implement all the planned steps. “It is one thing to enact legislation. But poor implementation of the legislation will not help”, — the expert believes.

States that have already implemented the plan BEPS, did this pattern: design with foreign experts of legislation, its adaptation to the peculiarities of the country, the adoption of laws, training of staff, implementing the new standards, modernization of material-technical base for high-quality information exchange with other countries, etc.

Each country had its own peculiarities, possible difficulties waiting and Ukraine. “Given the experience of neighbouring countries, including the negative, we are well aware of the need to enter smoothly into this process. Our country, like no other, it is very hard to deal with the phenomenon of withdrawal of profits and tax evasion in Ukraine. Looks like a one-sided, when the business of the state requires fulfillment of all norms enshrined in the Constitution, and instead continue to resort to aggressive tax planning”, — said the head of the Committee on taxation and customs policy of the Verkhovna Rada Nina Southerner.

The MP reminded that “all the time structuring of business took place with the use of low-tax zones, and not only for the purpose of tax evasion, but also to protect their assets.” “And in many ways, these assets are not declared in Ukraine, they officially unknown to regulatory authorities. Therefore, the implementation of the action Plan BEPS should provide for Declaration of assets of residents of Ukraine,” she said.

Kateryna Rozhkova needs to ensure the confidentiality and security of information exchange with other countries. Acting Deputy head of State fiscal service, head Office of large taxpayers Eugene Bambiza warns that the tax office needs to address the methodological issue of setting up information exchange. “It’s important to understand what the law in fact its adoption”, — says the official. The second problem is technical. “That is how we will protect the information. This requires upgrading of all IT equipment,” admits Eugene Bambiza.

Head of compliance and legal support group ICU Maxim Grinchenko considered a prerequisite to the implementation of the BEPS security business. “One of the reasons why the business goes into the shadows is how the laws are applied by officials when say black, what is white”, — said Maxim Grinchenko.

Banks in the first phase, will play a key role in gathering information about customers — they already concentrated the largest database on the activities of Ukrainian companies. In this case the NBU obliges them to carefully check the cash flow of their clients. “The national Bank already uses a similar approach to financial monitoring in the fight against fictitious entrepreneurship”, — said the Director of the financial monitoring Department of the national Bank Igor Birch.

The Chairman of the Board of Raiffeisen Bank Aval Vladimir Lavrenchuk believes that the law should clearly prescribe which institutions can count on access to banking secrecy and what information they can get. “The number of such institutions is constantly growing. But customers see in the Bank the secret of his safety, therefore, the disclosure should be targeted,” — said the banker. He noted that it is worth to describe in more detail the criteria which are considered to be “questionable.” “There are organizational issues. We can assume that the number of conflicts with customers will grow. They will be more than in previous years. Therefore, we need to clearly define who will solve these disputes: the national Bank, the financial Ombudsman? Which institution will define it?” — focuses on the problem of Vladimir Lavrenchuk.

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