On 28 April 2017, the National Bank of Ukraine held an interagency meeting to discuss measures to prevent unproductive capital outflow via low-tax and other foreign jurisdictions.
The meeting featured NBU Governor Valeria Gontareva, Minister of Finance Oleksandr Danylyuk, Acting Head of the State Fiscal Service Myroslav Prodan, Chair of the Parliamentary Committee on Tax and Customs Policy Nina Yuzhanina, NBU First Deputy Governor Yakiv Smolii, First Deputy Minister of the Ministry of Economic Development and Trade Maskym Nefiodov, NBU Deputy Governors Dmytro Sologub and Oleg Churiy, as well as representetives of other agencies and accounting firms.
“In order to make the full transition to a liberal FX regulation model, Ukraine needs to address the problem of unproductive capital outflow via foreign jurisdictions. Only when the efficient tax regulation is put in place instead of tight FX regulation, it will be possible to fully relax FX controls in accordance with the road map published and agreed with the IMF,” stressed the NBU Governor.
Last year a package of draft laws designed to counteract the erosion of the taxable base and profit-shifting abroad (BEPS-related draft laws) was prepared in line with the OECD’s BEPS recommendations by the Parliamentary Committee on Tax and Customs Policy with the support from the NBU. The draft laws were presented to the National Council of Reforms and tabled to parliament for consideration.
They intend to implement five key and most urgent among 15 OECD recommendations:
- introducing controlled foreign companies rules (require resident individuals to disclose their shares in/control over the foreign companies);
- imposing limitations for expenses in the related party transactions;
- preventing the abuse of double tax treaties (DTTs);
- preventing the artificial avoidance of permanent establishment status;
introducing country-by-country reporting for multinational groups.
However, the implementation of these recommendations hinges on the automated exchange of tax information. Therefore, Ukraine needs to join the framework for automatic exchange of information between the tax authorities of other countries based on the Convention on Mutual Administrative Assistance in Tax Matters ratified by Ukraine.
Furthermore, in order to encourage businesses to disclose their control over the foreign companies, the NBU intends to grant FX amnesty if the aforementioned BEPS principles are implemented. This means that individuals that disclose their shares in foreign companies shall be relieved from penalties for violation of the rules governing foreign investment requiring validation of their shares in foreign companies.
In addition, the NBU supports the introduction of a one-off declaration. This regulatory move will contribute to efforts to relax FX controls and expand the taxation base in the future.
The Ministry of Finance of Ukraine supports two of the five proposed anti-BEPS recommendations. During the meeting, the Ministry of Finance of Ukraine presented four principles anti-BEPS principles that Ukraine undertook to implement to join the BEPS Action Plan (from 1 January 2017). Without the implementation of all the five recommendations outlined by the NBU it will be impossible to fully relax FX controls. Therefore, the NBU proposes the expand the principles proposed by the Ministry of Finance by including three more principles. Thus, the list of principles will be exhaustive and the most efficient in terms of tax and FX regulation.