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Oleksandr Klymenko Emphasizes Transfer Pricing Control as Salvation for Ukrainian Treasury Former Revenues and Duties Minister Critical of Government's Military Tax
September, 03rd 2014

Former Ukrainian Minister of Revenues and Duties Oleksandr Klymenko cast a spotlight on the massive exit of funds from Ukraine to countries with preferential taxation systems. Klymenko notes that in 2014 to-date, 75% of all export operations were carried out under contracts between Ukrainian businesses with countries whose tax structures provide distinct advantages over current conditions in Ukraine.

"Due to the pull of profitability from Ukraine toward countries with preferential taxation systems, in the short-term the Ukrainian treasury risks to lose tax revenues in the amount of UAH 2.6 billion due to transfer pricing practices by businesses," said Klymenko. "The Government is expecting to receive a similar amount - UAH 2.9 billion - from the recently imposed 'military tax.' But my analysis of this army tariff, which places the financial burden of military actions on the shoulders of ordinary citizens, shows the Government of Ukraine will only succeed in collecting 10% of its projected figures."

Kiev has disclosed that the country's treasury is empty and announced the government need to cut expenditures and, accordingly, the necessity to increase revenue to the nation's coffers.

As opposed to relying on the newly-enacted and untested military tax, which does not differentiate between income levels of taxpayers,

Klymenko stresses the need to vigorously implement transfer pricing legislation which, after overcoming numerous hurdles, was adopted in Ukraine in 2013. Klymenko asserts this approach would be far more effective in "recovering significant revenues from Ukrainian businesses which should be going into the country's treasury but instead are transferred to Cyprus, Switzerland and other nations with mild tax climates."

Klymenko, who served as Minister of Revenues and Duties from December 2012 to February 2014 views the true potential to increase tax revenue as being through forceful transfer pricing control and not application of the military tax. Klymenko highlights this course of action as "enabling the state treasury to make substantial gains without overly burdening the average taxpayer." Klymenko cautions the current administration not to ignore the largely untapped "treasure" which can be attained from properly-administered transfer pricing controls.

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