Experts of the RPR Tax Policy Group support the development of the legislative changes aimed at implementing the Base Erosion and Profit Shifting Plan (BEPS Plan) by the Government and the National Bank of Ukraine. Implementation of the BEPS Plan will be a decisive step in countering illegal withdrawal of the capital from the Ukrainian economy.
Nevertheless, experts argue, Draft Law of Ukraine “On Amendments to the Tax Code of Ukraine for the Implementation of the Base Erosion and Profit Shifting Plan” developed by the Ministry of Finance contains a number of contradictory provisions that may lead to a deterioration of Ukraine’s investment climate and business conditions.
Ukraine has declared its aspiration to join the minimum standard of the BEPS Action Plan, i.e. to implement four BEPS Action Plan steps into the national legislation (namely, No. 5, No.6, No. 13 and No. 14). However, according to RPR experts, the above-mentioned draft law does not comply with the BEPS Action Plan in a number of significant aspects.
- The draft law does foresee the implementation of a significant number of regulations into the Ukrainian legislation that are included in the four above said mandatory steps of the Action Plan.
- The draft law introduces provisions into the Tax Code not provided for in the BEPS Action Plan which are discretionary. They are likely to increase the pressure on business and significant amend Ukraine’s taxation system. These provisions require additional in-depth analysis.
- Moreover, the draft law introduces into the Tax Code the provisions that will be relevant for Ukraine in the future, but cannot be implemented today due to the low institutional development of the state. This mainly concerns the following suggested provisions:
- The draft law provision on the “business purpose” is the distorted interpretation of the BEPS Action Plan regulation on the “main purpose”. But these are quite different things. The “business purpose” regulation specified in the draft law leads to increased discretion and increased pressure on businesses by the SFS employees. At the same time, the draft law does not provide for the implementation of the regulation on the “main purpose” (included in the “minimum standard” which Ukraine pledged to meet). The non-BEPS regulation on “constructive dividends”, “actual behavior”, etc.) is also unclear;
- The draft law provision on the application of transfer pricing rules to the group 4 single tax payers is not provided for in the BEPS Action Plan. Implementation of this regulation may lead to the actual elimination of single tax group 4;
- The draft law provision on the CFC (controlled foreign companies) is not included in the mandatory minimum standard of the BEPS Action Plan. According to the experts, this regulation should be implemented into Ukrainian legislation later, after some time, after raising the level of state institutions development.
With this in mind, RPR Tax Policy experts call on the Ministry of Finance of Ukraine to finalize the government draft law on the implementation of the BEPS Action Plan in Ukraine taking into account the following recommendations:
- To exclude possibilities for expanding the discretionary powers of the State Fiscal Service (hereafter – SFS), which, in the absence of the SFS institutional reform, will result in a dramatic deterioration of business conditions in Ukraine;
- To exclude possibilities for introducing new regulations that are not related to the BEPS Action Plan;
- To ensure full implementation of all regulations under the minimum BEPS standard, which Ukraine has joined.
RPR experts appeal to the Ministry of Finance with a suggestion to hold an open expert discussion of the above said draft law with the participation of MPs, representatives of business, independent experts and the general public.