"The main thing for investors is transparent administration of taxes, simple and predictable rules without corruption", – Yaroslav Romanchuk, Managing Partner of the EUCON International Legal Center, emphasizes
— Do you believe that Ukraine will see a rise in investment after adoption of the announced anti-corruption draft amendment to the Tax Code of Ukraine?
— In recent years, Ukraine has seen strong distrust in the tax authorities, prosecutor's office and courts on the part of business. We need a systemic approach to reforms in order to turn this around and raise investments coming into the country. The objective of amendments, proposed by the Ministry of Finance of Ukraine, is to provide already existing business and foreign investors with comfortable conditions for operation and the possibility to grow their business. Creation of favorable conditions will become the best message for the new investors who coming. The Government understands that increase in budget revenues from tax collection shall be made exclusively due to economic growth and development and not by increasing pressure on business.
— In your opinion, what problems in the tax system should be solved in the first place?
— I think that today, the most burning problems are the condition of tax administration and corruption. Unfortunately, foreign companies often say that they are not so concerned with the amount of tax rates, the level of which is considered rather acceptable in Ukraine, as with the very system of their administration. The main thing for investors is transparent administration of taxes, simple and predictable rules without corruption. Our company has already been working on the territory of the European Union for ten years, we have an office in Warsaw, and during this period we have never had problems with the tax service. It all comes down to online communication, as prompt assistance can be obtained at any moment. The Polish Government created excellent conditions for business and is grateful to it for the payment of taxes to the Treasury. I hope that one day this will be the same in our country.
— Do you think that the draft of the Ministry of Finance can solve these problems?
— Generally speaking, the package of tax reforms is an important part of reform of the State Fiscal Service of Ukraine, as it eliminates the possibilities for systemic corruption in the tax field.
The main emphasis of the proposed changes is placed on tax management itself. All taxpayer databases will be transferred to the Ministry of Finance, and the taxpayer e-account will be provided with more functionality. And absolutely transparent VAT reimbursement in automatic mode will be a solid achievement. The unified register of amounts subject to reimbursement, revocation of SFS decisions, ability to obtain information from the Treasury on payment terms – all these regulations should take effect. In addition, other novelties are also very important: introduction of income tax holidays for taxpayers with revenue of up to 3 mln. UAH, liberalization of the period of registration of tax invoices, liquidation of the tax police, etc.
— Will these changes be sufficient?
— Definitely not. In my opinion, there are many important nuances. For example, I think it is vital to establish personal responsibility for officials of the regulatory authority for violations committed by them during monitoring and verification work. Undoubtedly, it would yield results, as recently we can see many appeals against the rulings of the tax authority. In 2015, our company alone defended more than 1 billion UAH in courts of our clients in disputes with the State Fiscal Service of Ukraine.
— Today, deoffshorization is the main trend in world-wide tax policy. Is it possible to reach a compromise between tough regulation and attracting investments?
— Certainly, it is possible. Governments of almost all countries ensure that taxes are paid to their Treasuries. The best days of tax havens and offshores are coming to an end, and these structures are becoming transparent. Such processes are inevitable. Investors continually look for new markets, and predictable rules and absence of corruption are important for them. We must create a new system of tax administration. There is no other way. And we cannot stay on the sidelines of deoffshorization.
— But it seems that the announced focus on deoffshorization has ground to a halt.
— Yes, the laws announced on controlled foreign companies, on changes in the area of transfer pricing, and Ukraine's joining the multilateral convention on automatic exchange of information between competent authorities are on hold at the moment. But in any case these processes are right around the corner. Regulations providing for oversight over transactions with offshore jurisdictions are in force at the moment. These are transfer pricing legislation, rule of thin capitalization, limitations on costs of operations with offshore jurisdictions, and requirements of the National Bank of Ukraine on the activities of banks.
— Today, many experts are considering the receipts connected with control over transfer pricing as possible compensators for filling the budget. When will this legislation start to work in full?
— Control in the area of transfer pricing stipulated by the current legislation can, in fact, be called very liberal. Inspections are not frequent and almost all additional charges are connected with fines for failure to submit accounts and records. We have information on the total amount of about 1 billion UAH worth of independent adjustments made by taxpayers according to the results of the annual income tax declaration for 2015. Probably, all of this is insufficient for the fourth year of operation of legislation in this area. But transfer pricing is the most efficient mechanism for combating withdrawal of revenue from taxation and, therefore, control in this area will inevitably gain momentum.
— What are the problems encountered most frequently in the context of transfer pricing?
— The number of taxpayers who failed to file reports on controlled transactions and fell under penalties in the form of huge fines indicates that general unwillingness, ignorance of legislation, and lack of qualified specialists are serious problems. The actual tax legislation in the area of transfer pricing in our country is, in my opinion, quite balanced, complies with the requirements of the Organization for Economic Co-operation and Development and does not contain provisions requiring urgent review. If the company has problems with preparation of documentations, searching for comparable transactions, and application of procedures for determining the level of prices for those goods which are quoted on the Stock Exchange, it should seek the help of qualified specialists in this area. For example, our company's auditors, experts, and lawyers work in our transfer pricing practice and this very symbiosis enables our clients to solve diverse tasks: from economic analysis of controlled transactions to appeals against the decisions of the tax authority.