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Tax Implications of EU-Ukraine Association Agreement discussed at IFA Ukraine Seminar

25 November, 2014, Kyiv, Ukraine

November 25, 2014. - The Ukrainian branch of International Fiscal Association held its third in a series of Knowledge Sharing Seminars on International Taxation, this time dedicated to the topic of tax implications of EU-Ukraine Association Agreement.

Seminar participants discussed the local tax, customs and industry-specific perspectives under the ratified Association Agreement, as well as exchanged their views with EU Member State practitioners on practical aspects of integration process.

The Tax panel of the Seminar was joined by Pavlo Khodakovsky, Arzinger, Svitlana Musienko, DLA Piper,Roustam Vakhitov, International Tax Associates B.V., and Tetiana Matsiuk, Vasil Kisil & Partners.

Pavlo Khodakovsky presented the comprehensive overview of the current legal base, regulating the issues of transparency and information exchange on a global level, as well as specified Ukraine's position with regard to global framework. In his presentation Pavlo covered the most recent policy developments concerning the increase of transparency and information exchange worldwide, making specific focus on new OECD Standard for Automatic Exchange of Financial Account Information in Tax Matters, Multilateral competent authority agreement to automatically exchange information, and revised EU Administrative Directive.

Roustam Vakhitov, in his turn, provided the insights on latest anti-offshore practices in EU. In particular, Roustam noted that Cyprus and Luxembourg IP boxes will most likely not survive, while hybrid instruments will most probably be eliminated. As it comes to treaty abuse (shopping), treaty benefits will be provided based on the "substance" approach. In respect of information exchange, the full transparency, also with offshore jurisdictions, is expected.

Tetiana Matsiuk presented to Seminar participants the detail overview of contents, terms and deadlines for implementation of EU Directives to excise duties and energy products, as well as discussed the dispositive nature of Directives' provisions.

When commenting the issue of dispositive nature of Directives, Serhii Suprun, State Fiscal Service of Ukraine, andTetiana Bondarenko, Ministry of Finance of Ukraine, concluded that Ukraine will most probably implement these supranational requirements, regardless of their non-obligatory character.

Continuing the discussion, Svtilana Musienko described in details the VAT issue, since tax harmonization under the ratified Agreement is mainly focused on indirect taxes (VAT, excise duties). In her presentation Svitlana pointed out that despite certain differences the Ukrainian VAT system is conceptually in line with EU VAT Directive. Also she noted that because Ukraine is not EU Member, it can have flexible approach when harmonizing its national rules with those of EU, providing that Ukrainian VAT system will not conflict with the Directive in basic principles.

The Customs Panel of the Seminar was chaired by Igor Dankov, E&Y, Ukraine. Igor discussed major cross-border aspects of the EU-UA DCFTA, including duty exemption for qualifying Ukrainian goods. In particular, Igor discussed application of "direct transportation rule", the rule of "direct contract", distribution principle of quotas, import licensing, rules of origin etc.

Marianna Matokhniuk, E&Y, Frankfurt am Mein, Germany, completed Igor's presentation by giving practical insights on EU transit procedures (single transit document), local clearance procedures, benefits of AEO status, and customs valuation (treatment of royalties, post-audit etc.).

The Seminar's Business Panel was presented by Mykola Khomenko, representative of agri sector.In describing the impact of EU-Ukraine Association Agreement on agri sector, Mykola focused on both VAT and customs perspectives. With respect to VAT, he made a comparison of European practice and Ukrainian realities based on the example of grain sector, as well as estimated VAT system to be launched from January 1st, 2015. When commenting customs aspects, Mykola concentrated on the issue of practical implementation of the granted customs preferences.

EU Panel was joined via telecom by Joanna Prokurat, Wardyński & Partners, with her presentation, titled "Polish Way to the EU - Tax Issues". Joanna described milestones of Poland's integration into EU, as well as legal aspects of harmonization of taxes and tax systems of EU Member States. Joanna distinguished the EU law priority principle (i.e. EU law overrides national Member State law), applicable to all binding EU acts of law. She also denoted the role and importance of the Court of Justice of the European Union, guaranteeing protection of taxpayers' rights and uniform application of harmonized taxation regulations across the EU, as well as providing invaluable assistance in interpreting tax laws.

The event was attended by representatives of State Fiscal Service of Ukraine, Ministry of Finance of Ukraine, High Administrative Court of Ukraine, National Center for Tax Issues Research, multinational companies, leading law and audit firms.

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