Myths about the law on the tax on withdrawal capital

Today, the Tax and Customs Policy Committee had every chance to take a historic step and consider a bill on the tax on withdrawn capital. However, its consideration was once again postponed – by the time a compromise with the IMF is found.

Some “experts” say that the tax on withdrawn capital will have a complicated managing mechanism or that it will become a new kind of offshore for large business.

I would like to dispel these myths. This draft law is aimed at imposing taxes on the most common schemes that are used today to withdraw funds to low-tax or other foreign jurisdictions. We are talking about payment of interest to non-residents, about provision of financial assistance, about payment of royalties to non-residents in violation of the 4% annual turnover limit, about payment of royalties to non-residents in low tax jurisdictions, about transfer pricing, which is a direct subject to taxation at a rate of 20%, in accordance with this law.

The argument against the tax on withdrawn capital is the fact that in 2019 we should have a balanced budget without subjecting the country to fiscal losses.

As for covering possible budget losses with the help of the business, simple solutions were proposed. In the first year after introducing this tax, to introduce a so-called conditional payment – 50% tax on profit from the one paid in 2018 with the possibility of crediting to the next tax periods.

So the business itself agrees to finance this reform. Because the business does not want to deal with the discretion of tax authorities during inspections and when determining the subject of taxation for today’s income tax.

But the Ministry of Finance has proposed a model agreed by it with the IMF, according to which the tax on withdrawn capital is introduced for the enterprises with a turnover of up to 200 million hryvnias, the third group of simplified legal entities is cancelled, precautions are introduced for large businesses, and some other ridiculous things. The Ministry of Finance has not responded to my warnings about the introduction of the tax on withdrawn capital for certain categories of taxpayers. Is the Ministry of Finance offering to leave the existing schemes for the large business? How will the transactions between the payer of the profit tax and the payer of the tax on the withdrawn capital be taxed? What measures does the Ministry of Finance suggest implementing in order to prevent the split-ups? There are no answers to these questions. Therefore, the farce and imitation of vigorous activity will continue in the future.

Tetyana Ostrikova
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