Death and Taxes in Ukraine — headlines and excerpts from the Kyiv Post

Kyiv Post, February 25, 2011

London Judge Dismisses Firtash Lawsuit Against Kyiv Post A London judge on Feb. 24 dismissed a libel lawsuit filed by Ukrainian billionaire Dmytro Firtash against the Kyiv Post, saying that the link to English jurisdiction was “tenuous in the extreme.”

***

~**-=Democracy’s=-**~ deterioration discouraging, but not irreversible [flair added]

***

New tax code opens dangerous doors; fines could be very high Some of the causes for complaint include vague laws and a somewhat aggressive attitude toward those businesses that are willing to open their books to the tax authorities. In addition, the severe penalties set out in the new tax code for non-compliance scare away those businesses that are willing to come out of the shadows. . . .

More: http://www.kyivpost.com/news/business/business-sense/detail/98259/

***

ArcelorMittal [Ukraine’s largest foreign investor] becomes target after complaining about taxes To put it mildly, last year was not the easiest one in Ukraine for ArcelorMittal, the global steel-production leader and biggest of investors in Ukraine.

First, the Prosecutor General’s Office started looking into whether the company, which in 2005 bought Ukraine’s largest steel mill for $4.8 billion, fulfilled its investment commitments. ArcelorMittal feared the process could go as far as the government re-taking ownership of the steel mill.

Some think that only the interference of French President Nicolas Sarkozy duriing viktor Yanukovych’s visit to France and the Ukrainian president’s subsequent three-hour long meeting with ArcelorMittal’s owner, billionaire Lakshmi Mittal, halted such a scenario.

But such high-ranking interference didn’t solve the company’s day-to-day problems in Ukraine. In September, the State Customs Administration accused the plant of being a coal smuggler, as it claimed that ArcelorMittal failed to pay Hr 200 million ($25 million) worth of customs duties on its imported coal, arresting nearly 67,000 tons of coal in question at ports. This case was dropped last December, only to give way to headaches.

Recently, tax authorities accused ArcelorMittal’s plant in Ukraine of more than $50 million in tax violations. But Russian-native Rinat Starkov, appointed ArcelorMittal’s general director in Ukraine, says his biggest headache is the state tax administration’s inability to refund value added tax on time and in full. . . .

Kyiv Post: [how where the last 6 months?]
Rinat Starkov: You have to be involved in many things outside improving the operational efficiency of the company, which I wish I had more time to work on. But instead, I find myself dealing with the prosecutor’s office, various courts. . . .

KP: Last week you announced that the total VAT refunds owed to ArcelorMittal’s steel mill in Kryvy Rih totaled Hr 2.3 billion ($290 million) as of Dec 31. Has there been any response from the government, or tax officials?
RS: No, these people don’t work like this (he laughs). They are well informed about this amount. But in December-January we got no refunds from them whatsoever. No interview would lead to this money being returned.

KP: But last week, a top tax official promised in a Kyiv Post interview that he would refund around Hr 17 million of the VAT owed to one Finnish company. It was around half of what they were owed.
RS: I hope that company receives it. But I am not a fan of such personalized solutions. There needs to be a system of automatic refunds. We need to stop wasting each other’s time.

KP: Have you applied for automatic refunds? Has it been approved?
RS: No, we haven’t. At the moment, we are not able to establish even normal day-to-day communication with tax authorities. May I remind you that we had to pay profit tax in advance? This happened because tax authorities demanded that we immediately return 50 percent of whatever VAT refunds we got as the profit tax. So, overall, the state owes us Hr 3.5 billion.

KP: How do tax officials explain this?
RS: They are basically forcing us to import everything we need for our work, first of all, coal, our biggest purchased commodity. Tax officials claim that our Ukrainian suppliers of coal or scrap metal often wouldn’t pay the VAT they received from us to the budget, as it “evaporates somewhere along the chain of intermediaries.”

We tried to explain that we paid the VAT to suppliers, and it’s not our job to monitor what happens to it afterwards. But all we hear is that since this money didn’t make it to the budget, they won’t refund it. That’s their approach. It is a little strange to me.

During our last meeting, we said that we are switching entirely to imports, as in this case we pay VAT directly to the budget, and that we hope they won’t again say it “evaporates.”

In our view, this VAT is simply impossible to dispute. We hope that in the future what we pay for imported commodities, as well as for gas, and electricity inside the country will be returned to us unconditionally.

This is about half of what we are owed every month. Probably, such a switch to imports will be very bad for Ukraine’s economy, but we are forced to do this.

Currently, whenever we try to talk to them and find out what’s going on, they tell us that they found new violations related, for example, to scrap metal purchases, and that they are opening a criminal case.

KP: Have you set up the special department to work with the relentless inspections?
RS: I think it’s necessary, as currently working with inspectors requires efforts of many departments. We try to have the legal department coordinate all this, but when you have two-to-three inspections each day, it’s really difficult.

KP: Are they searching for something specific?
RS: Well, you know how it is. When there is an inspection, they cannot leave empty-handed. Sometimes, it’s something small, sometimes, bigger issues arise. Last time, they took a whole truckload of documents related to scrap metal purchases. I kind of understand them, as they know we are the only ones who have all the necessary documents on scrap metal in order.

So, they took a truckload of them, in turn paralyzing the work of two departments which needed to arrange all these documents for them. We offered giving them an electronic version on a disk, but they said it wasn’t enough. . . .

KP: Could someone be trying to force ArcelorMittal to sell its mill?
RS: No, such minor mosquito bites won’t lead even to the thought of selling it. . . . .

Nobody understands why such methods are used against one of the world’s largest companies, one which controls 10 percent of the global steel market.

But, it’s important to understand that in the ArcelorMittal empire, the Ukrainian company accounts for only 3 percent of the whole company. To say that the whole corporation cannot live or breathe without it would be a huge exaggeration.

***

Azarov fails to impress business leaders But speaking with the Kyiv Post after discussions with Azarov, EBA executive director Anna Derevyanko said companies surveyed by the 807-member business association say they are fed up with promises and want results. Timely refunds of value added tax to exporters are at the top of many lists.

***

Klymenko: Grain rules could trigger international scandal
    Ukraine’s grain traders have long complained about state interference in a lucrative sector frequently seen as key to the country’s economic future.
    When export quotas were introduced last year, some top international firms were shut out while a disproportionate share of quotas have gone to a company owned by the state and unknown individuals.
    On Feb. 2, lawmakers from several parties made a move to increase state control further with a proposal to create a monopoly that allows only state companies and farmers to export grain.
    The Kyiv office of the influential Grain and Feed Trade Association wrote to the speaker of parliament, Volodymyr Lytvyn, saying the draft law “contradicts all known standards of free trade and the market.”
    One of the most vocal critics has been Volodymyr Klymenko, president of the Ukrainian Grain Association, an organization that brings together 80 percent of Ukrainian traders.
    The Kyiv Post sat down with him to talk about the draft law and corruption in the agriculture sector.
Kyiv Post: Why have you been so critical of this draft law? What’s so bad about it?
Volodymyr Klymenko: Competition has become the key to success of Ukraine’s agrarian sector in last 15 years, and this draft law could lead to the demise of the country’s entire grain sector. It aims only to squeeze private firms from grain export. Private grain traders have invested in Ukraine’s agrarian sector for 20 years.
    They brought investment, built or modernized grain silos, constructed facilities for loading grain, cultivated soil – and now they are all told to get out of the market.
    The members of our association alone own 250 silos, while there are about 700 private grain silos all over Ukraine. All of them could be closed as the silos used only for storage of the grain without subsequent export would be unprofitable.
    If the grain storages and the grain loading facilities become useless, their value will decrease dramatically.
    So, perhaps the aim of this draft law is to make grain market participants sell out their granaries for pennies?
    I can assure you that the grain trading companies, some of which have a budget bigger than the state budget of Ukraine, will never give up their silos for nothing.
    All state attempts to displace them from the market could lead to an international scandal.
KP: Are chances high that this law will be passed, as it was sent for revisions by parliament’ agriculture committee?
VK: I think this draft law was written with the aim to monopolize grain exports, to enable one company to run all export operations and to dictate its own prices and working conditions to the market.
KP: Are you hinting that corruption could be at play as a result of monopolizing of the export?
VK: Sure. We know that Hr 7 billion, including grain, disappeared from the State Committee of Material Reserves. We know that it is risky to store grain in the silos of the state company Khlib Ukrainy, as more than once grain completely disappeared from there.
    Several months ago, the agriculture minister said about 300,000 metric tons of grain had disappeared from the state-owned Agrarian Fund.
    Now we hear about plans to create a fourth state body that will run grain export, and I have serious doubts that this new institution will not have the problems of mystery losses.
    I can compare grain trade with a casino game as both things are equally risky. In Russia, the state-run United Grain Company failed to become a big grain trader.
    Two years of its work as a monopolist led to huge losses. Now we are trying to repeat Russia’s unsuccessful experience.

***

Taxes around the world
Country/# of payments a year/Hours per year spent complying/Total tax rate

top 5:

Maldives/3/0/9.3%
Quatar/3/36/11.3%
Hong Kong/3/80/24.1%
Singapore/5/84/25.4%
UAE/14/12/14.1%

bottom 5:

Chad/54/732/65.4%
Rep. of Congo/61/606/65.5%
Ukraine/135/657/55.5%
Central African Republic/54/504/203.8%
Belarus/82/798/80.4%

also:

U.S.A./11/187/46.8%

(this is from a PWC study)

***

Kyiv Post, March 4, 2011

Desperate Lives
CHISINAU, Moldova – Konstantin is desperate. His daughter is sick and needs an operation abroad costing thousands of dollars.
The 30-year-old father sees one option left – to sell part of his body.

“I am willing to sell my kidney, in the worst case bone marrow,” he writes in an advertisement on a Ukrainian website, naming his price as 25,000 euros.
“Please help!” he signs off.

Konstantin is part of a growing trend in Ukraine and its neighboring former Soviet countries to sell organs for cash. Some donors are tempted by the chance to make a quick buck. Others are tricked into the illegal organ trade, recruited by intermediaries who then sell their body parts at a huge profit.

“Medicine is business, and it always will be,” said Ruslan Salyutin, who is in charge of coordinating organ transplants at Ukraine’s Health Ministry.

A search on the Internet shows there is no shortage of people openly hawking body parts.

“I am urgently selling my kidney, a part of my liver or spinal marrow. 25 years old. I don’t drink or have any sexually transmitted diseases. The price is $45,000,” reads one post on a Ukrainian website.

Offers another: “I am selling the liver of a 16-year-old boy. He is healthy, he doesn’t drink. The price is 60,000 hryvnias ($7,500). Mirgorod, Poltava region.”

The donors are primarily from Ukraine, Russia, Moldova and other former Soviet countries, where poverty makes the allure of a large paycheck much brighter.

According to human rights activists, intermediaries buy kidneys for anything from a few hundred dollars to $10,000, before selling them on at five to 10 times the price.

The donors are often volunteers, desperate for cash by any means. Others are trafficked abroad by recruiters who trick or force them into leaving Ukraine and going to countries where donating organs to non-relatives is legal.

Nicolae Brdan is one such victim. He left his impoverished Moldovan village in 2000 having been promised a job in Turkey.

Arriving there in a group of people from Moldova, Ukraine’s western neighbor and Europe’s poorest country, his passport was seized from him by the people who had recruited him.

They offered him only one way home – by selling one of his kidneys. “I hesitated for a month,” whispered Brdan, 35, through yellow teeth. “But I had no choice. You can’t come back without your documents.”

He had been tricked into going to Turkey by a woman in the neighboring village.

“Few come back,” said Marina Yevsyukova, director of the legal department of the human rights center La Strada Ukraine. She says the operations are often done unprofessionally, causing injury and even death to the victim: “Sometimes, they even cut out the victims’ hearts and both kidneys.”
Yevsyukova described a call to one of the center’s psychologists from a man who travelled to Israel to work as a nurse in a private clinic. One day, he found himself lying in a medical ward after an operation. Upon returning to Ukraine he went for a medical checkup and learned that he was missing a kidney.

***

Cherniavskiy: High tax unjustified in nation
While Ukrainian businessmen are frantically trying to understand the realities of the new tax code, those who provide accounting and tax consulting services are capitalizing on the uncertainties of doing business in a nation with one of the most complicated and burdensome tax systems.

Such is the case with Dmitry Cherniavskiy, a partner with London-based firm Tax Consulting U.K., and former interim general director of Olympic Stadium, the main venue for the Euro 2012 soccer championship.

Cherniavskiy’s firm specializes in business accounting, financial reporting and tax optimization.

Last fall, the Kyiv Post visited one of the seminars, co-organized by Tax Consulting U.K., where business representatives were taught how to avoid problems with tax authorities and customs by moving most of the income earned to the offshore jurisdictions with “no taxes and no reports.”

Cherniavskiy has no warm sentiments about the new Ukrainian tax system.

He said that the Ukrainian government simply does not provide enough public services – such as transparent judiciary, quality healthcare, and good education – to justify the high tax rates and fiscal pressures that it imposes on its businesses and citizens. . . .

Last year, the Security Service of Ukraine [SBU] and prosecutor general opened a criminal case on suspicion that Cherniavskiy gave out consulting contracts worth nearly Hr 428,000 ($53,500) for already completed construction work and services while he oversaw Olympic Stadium. Charges against him were allegedly dropped several months later.

Prior to that, the parliamentary commission investigating reconstruction of the Olympic stadium found that during currency exchange operations under Cherniavskiy’s management, the state incurred losses totaling Hr 4.3 million ($543,000). . . .

In Ukraine we have a different situation. The authorities try to collect taxes wherever they can, basically on the basis of “tax whoever you can catch.” This is not to mention the political regime we have. We all understand that there are “untouchable” people and there are people who are even more “untouchable.”

And in such a de facto absence of clear rules, it’s natural that there are people who don’t pay taxes at all, or pay fewer taxes, or pay them according to some other criteria. . . .

KP: But fiscal pressure from tax authorities could be explained by the budget deficit, which, in part, results from the widespread use of offshore and tax-minimization schemes by big business?

. . . .

Do we have independent courts in Ukraine? No. They weren’t independent during the previous government either, but today there is not even an illusion of moving towards establishing independent judiciary.

People often call offshore countries “banana republics.” But most of these so-called banana republics have the judiciary system established by the British, the Dutch, or the Germans, who used to have a protectorate over these countries. . . . You cannot buy a decision there, like in Ukrainian courts. . . .

Therefore, is it surprising that big Ukrainian businesses you have asked about have offshore subsidiaries in such “banana republics”? They do provide much better protection for business than in your home country.

***

Yanukovych’s assault on Ukrainian history
Alexa Chopivsky writes: Russia negates Ukraine’s historical identity.

“One Ukraine, One History” – reads the text of billboards splashed across downtown Kyiv.

But just what does that history encompass? More than a year into office, the government of President Viktor Yanukovych revised fifth-grade history textbooks to delete certain key events from Ukrainian history, including the 2004-05 Orange Revolution.

The selective teaching of Ukraine’s history and the government’s moves to curb university autonomy are reinforcing concern that the country is moving away from the West and becoming more synchronized with Russia, and in some cases, even endorsing Moscow’s take on Ukrainian history.

The fifth-grade textbook under the previous administration referred to the Orange Revolution as the “Orange miracle,” according to Vakhtang Kipiani, the editor-in-chief of “Istorichna Pravda.” It was an interpretation he says that lacked objectivity, “but simply to throw out the Orange Revolution, that’s not right,” Kipiani said.

A lawmaker with the ruling Party of Regions and a member of the Parliamentary Committee on Education and Science, Maksym Lutsky, defended the change: “The Orange Revolution needs to be burned out of history because of what its instigators did to the country.”

No reference to Kruty . . . Deleting ‘man-made’ from famine . . . ‘Umbilical cord’ to Russia

“Minister [of Education, Science, Sport, and Youth Dmytro] Tabachnyk and the leaders of the ministry are anti-Orange, anti-democratic, anti-West people,” Kipiani said. “That’s why correspondingly at their level, as much as they can, they are trying to clean out the heritage of the Orange Revolution.

Some in the current leadership are connected by an umbilical cord to Russia; some in financial ways and some morally.”

Last year, Tabachnyk and his Russian counterpart, Andrei Fursenko, announced their intention to create a Ukrainian-Russian working group for the purpose of creating a joint textbook guide for history teachers in the two countries.

Tabachnyk also cancelled the 12th year of secondary school, bringing it into line with Russia’s 11-year system and making it more difficult, according to critics, for Ukrainian students to qualify to study at Western institutions, which typically are premised on 12 grades of schooling.

***

Formidable Firtash in flurry of chemical acquisitions (more)

***

In protectionist bid, nation may hike fuel import taxes (more)

***

Kyiv Post, other dates

Fact-checking Yanukovych
1. Soon after becoming president, Yanukovych promised to ink a visa-free regime with the European Union. . . .
2. Yanukovych assured the Wall Street Journal that Ukraine had no intention of banning grain exports. . . .
3. In dealing with Russia, Ukraine will protect its national interests, Yanukovych told France’s Le Figaro newspaper. . . .
4. Yanukovych told a group of German media that billionaire businessman Valeriy Khoroshkovsky is the right person to serve as head of Ukraine’s SBU security services. . . .
5. Yanukovych downplayed probes centering on former Economy Minister Bohdan Danylyshyn, a close ally of former Prime Minister Yulia Tymoshenko, saying the investigation was not political because Danylyshyn himself was not involved in politics. . . .
6. In the same Washington Post interview, Yanukovych called on his main rival in the presidential election campaign, ex-Prime Minister Yulia Tymoshenko, to prove that corruption charges against her were baseless. . . .
7. In the same Washington Post interview, Yanukovych claimed that a major anti-corruption campaign was under way in Ukraine under his leadership. . . .
8. Yanukovych insists he fairly won the 2004 presidential election, where his allegedly fraud marred victory was overturned by the Orange Revolution. . . .
9. Yanukovych says he doesn’t fear anything. . . .
Read more: http://www.kyivpost.com/news/nation/detail/99515/#ixzz1GTaA56L2

***

Ukrainians buy $1.3 billion more currency than they sell in February 2011
Ukrainians in February 2011 bought $1.305 billion more foreign currency than they sold, whereas the difference in January was $864 million.

As the National Bank of Ukraine reported on its Web site, Ukrainians bought $2.613 billion from banks and sold back $1.308 billion over the period.

***

U.S. experts: Ukraine 6th among countries most likely to default (more)

[I wonder where the U.S. itself was on that list.]