By 2018 the world tax climate has become much tougher and requires that the business change. The website "Economical truth" writes about this.


What are the challenges for Ukrainian companies?


The main ones are the restriction of tax benefits for the payment of interest on loans to non-residents, restrictions on the concentration of profits in low-tax jurisdictions and limiting the confidentiality of business ownership.


How to finance the operating companies in Ukraine?

Trying to ease the tax burden, Ukrainian companies use loan financing from affiliated companies, particularly in Cyprus, due to the possibility of reducing the company's profits by the amount of interest paid and the low interest rate on their payment to Cyprus.


As a struggle against this practice, the BEPS plan calls for amending the existing tax conventions, including simultaneously all the conventions to which the state is a party, by joining the MLI Convention - the Multilateral Convention.


Based on the statements of the Ministry of Finance of Ukraine and the actions already taken in this direction, Ukraine's accession to the Multilateral Convention can be expected in 2018.


As a consequence, in order to apply a preferential tax rate in the payment of interest, the work of companies will be subject to a "primary purpose" test.


If it is determined that the purpose of commercial relations is tax optimization, the tax relief provided by the Convention will not be granted.


Thus, when Ukrainian companies pay interest on Cyprus, they will be taxed on repatriation in Ukraine at a rate of 15%, which makes loan financing very expensive.


In addition, in the light of the possible adoption of a tax on the withdrawn capital, it is assumed that interest payments may also be considered as a hidden distribution of dividends, which may entail the taxation of interest in Ukraine.


How to reorganize trading activity?

Often, export-import activities are carried out using a trading company in a jurisdiction with a favorable tax regime, which acts as a center for accumulating profits. However, this possibility is limited by the rules of transfer pricing.


Before the New Year, the Cabinet approved a new list of states whose transactions are recognized as controlled in accordance with transfer pricing. The former list was supplemented by Estonia, Latvia, Hungary, Malta, Georgia, Singapore, the United Arab Emirates.


It is noteworthy that the list was formed taking into account new criteria that allow the Cabinet to include in it any jurisdiction in which it will be possible to find tax privileges.


Consequently, these changes significantly limited the ability of Ukrainian companies to obtain tax benefits from moving profits and concentration of margins in low-tax jurisdictions.


In addition, the EU has established a "black list" of jurisdictions, which complicates the situation with the choice of a trading company for business, which by financial criteria remained outside the influence of domestic legislation in the sphere of TCOs. It is expected that in the near future the list of the EU can be significantly corrected.


How to keep your privacy?

Due to the unsolved problem of raiding in Ukraine, significant corruption component, unstable political situation and general distrust of state bodies, most owners of Ukrainian business prefer confidentiality in relation to owning a business.


In addition, due to currency restrictions, which did not allow Ukrainians to freely carry out investment activities abroad, Ukrainian businessmen were forced to establish foreign companies in violation of the currency legislation of Ukraine and not "glow."


Now the automatic exchange of tax information - CRS - leaves no other choice, except for the transition to the publicity of owning a business. The Ministry of Finance of Ukraine promises that Ukraine will join the CRS in 2018 and carry out the first automatic exchange of tax information in 2020 for 2019.


Consequently, after the first automatic exchange, Ukrainian owners of foreign companies may receive requests from tax authorities about their foreign incomes and assets.


How to transfer to direct ownership of foreign companies?

As a result of the receipt by the tax authorities of information on the possession by a tax resident of Ukraine of a foreign company and funds in an account with a foreign bank, two questions may follow.


The first is whether all taxes on income received by the owner from a foreign company were paid. The second is whether the requirements of the currency legislation of Ukraine are met at the time of acquisition of the company.


Depending on the position of the owner in relation to the company at the time when the data about it were subject to exchange, the answers can lead to a number of consequences.


Firstly - to pay taxes on personal income to the budget of Ukraine after the next dividend payment by a foreign company.


Secondly - to responsibility for non-payment of taxes in respect of paid income in favor of owners.


Thirdly - to pay a fine in the amount of investment or reinvestment abroad, if such were conducted in violation of the currency legislation.


How to change and win?

Changes in the sphere of international taxation and their implementation by Ukraine require a revision of the principles of work and a willingness to benefit from it, as the replacement of the vector also has its advantages.


Despite the desire to grab for the remaining opportunities to act by previous methods, the options for answering calls may look like this.


How to secure financing for operating companies in Ukraine.


Contrary to the adopted approach, the existing corporate business structure should be reviewed in terms of the possibility of combining the functions of foreign companies in one company instead of piling up their many.


This will reduce costs and direct them in favor of filling a foreign company with a real entity. This will also ensure that the company meets the requirements put forward, will allow to apply tax benefits, increase the reputation of the business and give it international status.


How to reorganize trading activity?


The choice of jurisdiction should be based on economic feasibility, as if the taxation in each jurisdiction was the same.


It is worthwhile to focus on additional benefits from the trading house, pay attention to the development of the banking sector and the possibility of attracting trade financing from banks or export credit agencies.


How to keep your privacy?


Unfortunately, legal instruments that still allow you to maintain confidentiality are expensive. It is easy to see that the OECD plans to spread global transparency and to trusts with private funds. That is, for most of the business, the next question will be more correct.


How to transfer to direct ownership of foreign companies?


The answer to this question should be based on a detailed analysis of the situation. The most important recommendation regarding the transition to direct business ownership is timeliness, since 2018 is probably the last year when it is possible to transfer to public ownership of the company without serious consequences.


Thus, the requirements for conducting international activities have changed significantly. The existing internal and international rules force the business to change the corporate structure.


However, before adjusting to the new rules, the approach to assessing the priority of the benefits that can be derived from such changes should be changed.