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BEPS Action Plan: Hope for Transparent Business Taxation

Date of publication: 18 February 2019

Nina Bets, Lawyer

Source: LB.ua

The Ministry of Finance and the National Bank have recently published a draft law on the implementation of BEPS Action Plan in Ukraine. Let us figure out what does the BEPS stand for and why do we need it. The abbreviation stands for Base Erosion and Profit Shifting. The introduction of this Plan is of paramount importance for Ukraine, but aside from its introduction into the national legislation, we should also learn to effectively apply it.

In legal parlance, the draft law reads as follows: the Law of Ukraine on Amendments to the Tax Code of Ukraine to Implement the Action Plan on Base Erosion and Profit Shifting. Now the authors of the draft law are waiting for the proposals to improve the draft law from business representatives and tax consultants, as well as criticism from the international organizations, upon which the draft law will be submitted to the Verkhovna Rada of Ukraine. The preparations for introduction of BEPS Action Plan began in 2016. It does not provide for the introduction of new taxes, but rather for the improvement of rules for the proper collection of already existing taxes.

The introduction of BEPS Action Plan by Ukraine into the national legislation is a condition imposed by the OECD, an international community fighting against tax evasion to increase tax transparency in the world. Otherwise, Ukraine may be put on the black list, which will significantly complicate the conduct of international business activities (in the banking and investment sectors, making difficult the relations with counterparties). The whole world, including Ukraine, is committed to transparency and openness. However, the openness is valuable only provided that the information given is accurate. And certainly there are some problems with accuracy. It is for the third year in Ukraine that the Unified Register of Legal Entities and Individual Entrepreneurs contains data about beneficial owners. However, according to official statistics only, about 20% of the information provided therein is inaccurate, since verification of information, conducted when entering such information into the register, is substandard. For the effective implementation of BEPS Action Plan Ukraine needs to join the CRS standard for automatic exchange of information on financial accounts of non-residents under the international standard (Common Reporting Standard). Due to the implementation of the CRS standard, as well as the rules of the CFC in the EU, more than 800 000 people have disclosed their offshore assets and declared about EUR 93 billion. In order to qualify to participate in the automatic exchange, Ukraine shall fulfill one mandatory condition, namely, sign the OECD Multilateral Competent Authority Agreement for the Automatic Exchange of Information. However, the exchange itself will in any case be carried out between specific jurisdictions among themselves. To ‘activate’ the exchange, both participating jurisdictions shall adapt their national legislation on automatic exchange, sign a bilateral agreement and notify the OECD Secretariat of the start of such exchange.

In order for other participating jurisdictions (48 states) to express their intention to exchange information with Ukraine, our country shall guarantee the reliability of storage of data obtained in the process of such exchange. After all, we are talking about bank secrecy, which in no case can be disclosed to the public. The disclosure of bank secrecy is one of the ways to interfere with the person’s private life, which can be done to prevent the commission of a crime or ensure the economic security of the State only.

The introduction of BEPS Action Plan into the Ukrainian tax legislation is, of course, a significant step for Ukraine. Yet, it is also very important how these rules will be applied by fiscal authorities in the future and whether this will have a positive effect on the economy of the State. Today, the majority of business representatives are ready for transparency in their tax payments, if the State provides security guarantees and ensures consistent and clear rules of the game.