The National Bank of Ukraine (NBU) welcomes the Multilateral Convention singed by Ukraine to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (hereinafter referred to as the “Multilateral Instrument” of the “MLI”).
After the Verkhovna Rada ratifies the Convention, Ukraine will comply with two of four clauses of the Action Plan on Base Erosion and Profit Shifting (hereinafter referred to as the BEPS Action Plan) drafted by the Organisation for Economic Co-operation and Development, namely, Action 6 (prevention of bilateral tax treaty abuse) and Action 14 (making dispute resolution mechanisms more effective).
Capital flight from Ukraine poses significant risk to the financial stability and consequently mutes more active liberalization of the FX regulation, specifically retail FX operations. Thus, introducing a more effective tax regulation in Ukraine by implementing a part of the BEPS Action Plan prerequisites completes conversion to free movement of capital in line with the Law of Ukraine On Currency and Currency Operations.
However, the NBU believes that besides the two mentioned actions from the BEPS Action Plan, the following equally important actions should be implemented in order to sustain financial stability in Ukraine:
- Action 3: disclosure of holdings of individuals residing in Ukraine in CFCs, and CFC tax rules
- Action 4: limiting interest deductions on RP operations
- Action 7: preventing the artificial avoidance of PE status
- Action 13: developing reporting rules for international groups (pat of the minimum standard).
At the same time, the NBU considers that effective implementation of all mentioned actions (four actions of the minimum standard, and three steps beyond the standard but equally important) can only happen upon cooperation between tax authorities of Ukraine and other countries.
“Delaying accession to the automated financial information exchange system cat put Ukraine at risk to be recognized as non-cooperative on matters of taxation. This will hinder national companies in expanding their presence in the European markets,” argues First Deputy Governor of the NBU Kateryna Rozhkova, “And considering the advanced requirements to banks on compliance monitoring and the KYC (Know Your Customer) principles in recent years, the Ukrainian banks intending to build foreign partnerships should operate according to international standards.”
Please be reminded that in 2016, the NBU as part of the working group chaired by Nina Yuzhanina, Head of the Committee on Taxation and Customs Policy of the Verkhovna Rada of Ukraine, drafted and presented to the National Council of Reforms the text of the draft law that prescribes implementation of the most crucial actions for Ukraine of the BEPS Action Plan. Afterwards, the document was reviewed based on the expert opinions provided by the OECD specialists. At present, the draft law has not been registered in the Verkhovna Rada. The NBU hopes that this draft law will gain MP support and be submitted for consideration of the Parliament in the fall.