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Welcome address by NBU Governor Yakiv Smolii at the opening of the #BEPSinUA Forum

Dear participants,

 

I’m delighted to welcome you to our international tax cooperation forum. This is the first international event organized by the National Bank of Ukraine and Ukraine’s Finance Ministry with the support of the OECD, USAID and the World Bank in order to discuss the introduction of an action plan to counter base erosion and profit shifting (BEPS) in Ukraine.

 

I’m pleased to see a full audience of representatives of businesses, the banking sector, the expert community and government authorities. This is a clear sign that effective tax regulation and international cooperation in this area is high on Ukraine’s reform agenda. The #BEPSinUA Forum will enable learning from the best world practices on how to tackle BEPS and enforce long-term business transparency.

 

 I’d like to express my thanks to the representatives of the Global Forum on Transparency and Exchange of Information for Tax Purposes that are present here for their great help with organizing the event and promise to give us full support with implementing the initiatives that will be discussed at this forum.

 

Why is the NBU interested in the topic of taxation?

 

As you surely know, the NBU is responsible for delivering financial stability. Financial stability is a broad notion which is not limited to a stable banking system. It’s about the stable, reliable and effective operation of the entire financial system and, consequently, about the financial transactions conducted by real economy companies.

 

This year the NBU approved a strategy that has seven strategic goals for the coming years, each of which concerns financial stability in one way or another.

 

I will dwell on one them – transitioning to the free flow of capital. Today we’re within sight of achieving this goal. Early this summer, the Law On Currency and Currency Operations was adopted. This law, which has been nicknamed "visa-free travel for capital," well deserves it name. This law envisages that all existing restrictions will be gradually removed, and eventually FX transactions in Ukraine will be conducted on the principle that “everything that is not expressly forbidden by law, is allowed.”

 

Businesses and households will be finally able to decide for themselves when and how to carry out FX transactions, without any restrictions and without having to obtain permission from the NBU. As a result of the passing of the law, FX regulation will promote economic growth rather than hinder economic relations, as has been the case for the last 25 years that the FX Regulation Decree has been in force.

 

This law, which is now only on paper, will be put into practice in three months. However, one should bear in mind that a transition to the free flow of capital won’t happen overnight. Since the NBU’s key task is delivering macroeconomic and financial stability in Ukraine, any further easing of FX rules will become possible only under the right conditions.

 

One such condition is effective tax regulation. At present, the full-scale liberalization of the FX market is being prevented by the lack of other regulatory instruments to replace existing FX restrictions designed to prevent capital outflows to countries with zero or low rates of corporate income tax.

 

Resolving this problem requires implementing the BEPS Action Plan Drafted by OECD and G20 to address the global financial turmoil, this 15-action package is intended to help close out gaps in international tax regulation and reconcile tax legislation disparities between various countries acting as safe havens for concealment of corporate income and its artificial shifting to low-tax jurisdictions where companies do not engage in economic activity.

 

Over the past three years, 123 countries have already started to integrate the BEPS Action Plan into their domestic tax laws. Ukraine officially joined them at the start of last year. But the road ahead is long and winding.

 

The MoF and NBU have recently published a draft law intended to implement 8 out of 15 BEPS Action Plan guidelines in Ukraine

 

We have chosen the steps most critical to ensuring financial stability in the country:

 

·         Action 3: disclosure by Ukrainian resident individuals of holdings in controlled foreign corporations (CFCs), and CFC taxation rules

·         Action 4: imposition of limits on related-party transaction expenses

·         Action 6: prevention of abuse of double-taxation agreements

·         Action 7: prevention of artificial evasion of permanent establishment status

·         Actions 8–10: elaboration of controls over transfer pricing

·         Action 13: introduction of country-by-country reporting rules for multinational business groups.

 

Thus, we hope this draft law receives the wide support of MPs and is submitted for consideration by the Verkhovna Rada by the end of this year.

 

At the same time, this is only a part of the package of actions that are meant to put in place effective tax regulation in Ukraine. In the modern-day global economy, financial flows traverse country borders with ease, and no country can single-handedly conduct effective tax regulation.

 

Along with the BEPS Action Plan, Ukraine plans to join a multilateral agreement on the automatic exchange of financial information under the common reporting standard (also known as CRS).

 

As it stands now, 104 countries have adopted the CRS, signing close to 3,500 bilateral agreements. All EU countries, including our immediate neighbors, are already exchanging such information in a practice that provides an enormous boost to their tax evasion combating capabilities.

 

Ukraine must not wait on the sidelines as this process unfolds. CRS-related legislative amendments are already pending approval by the Verkhovna Rada. Their expedited adoption will bring about a technical capability for the implementation of decisions that are necessary to launch the information exchange.

 

Before I give the floor over to our esteemed guests – who will talk about their real-world experiences making capital stay “at home” and keeping profits in the country of origin – let me emphasize that the BEPS Plan of Action and the CRS do not constitute a push to place a heavier tax burden on businesses. These initiatives pursue quite a different goal: that of ensuring the introduction of unified requirements for transparency of doing business in Ukraine under international standards.

 

If Ukrainian businesses wish to enter the international market as full-fledged players, undaunted by either scrutiny from foreign counterparties or KYC by banks, Ukrainian businesses must play by the same rules as businesses in Europe. It will make Ukrainian companies a welcome guest in the external market, increase Ukraine’s investment prospects and boost its economic growth.

 

Thank you for your attention. I wish you interesting and fruitful discussions.

 

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Last modification   01.11.2018