Baltic States – CIS, Estonia, Financial Services, Legislation, Markets and Companies, Offshore, Ukraine

Ukraine did not put Estonia in the offshore watchlist, Groysman told his Estonian counterpart Juri Ratas by phone, adding that it was included in the list of states with a zero rate of tax on non-distributed profit, which can be used by residents of Ukraine to dilute their tax base and evade income tax payments in Ukraine.

The head of the Ukrainian government stressed that the purpose of this document is to prevent both the erosion of the tax base and the withdrawal of profits from taxation, according to the press service of the Cabinet of Ministers.

The Ukrainian premier noted that this list applies exclusively to residents of Ukraine who file with the tax authorities of Ukraine reports on controlled transactions. The State Fiscal Service, based on the filed reports, identifies risky operations subject to additional control under the risk identification system, which is a common practice internationally.

The Estonian side was also informed that the National Bank of Ukraine (NBU) had not taken any decision to include Estonia in the list of offshore economies. In order to avoid a possible misunderstanding in settlements between businesses, on Jan. 24, 2018 the Ukrainian regulator sent to the banking institutions a letter explaining that there were no legislative grounds for applying an in-depth analysis to Estonian companies.

Following the conversation, the prime ministers agreed to instruct their ministries of finance, along with tax authorities, to establish cooperation and conduct consultations, if needed, to resolve possible misunderstandings, the press service of the Ukrainian Cabinet of Ministers said.

"The heads of government are convinced that such an approach will help to intensify and deepen cooperation in the trade and economic sphere and positively affect the mechanism of financial and banking operations between the two countries," the report said.

Estonian Prime Minisrter Juri Ratas last week demanded that Ukraine remove his country from the offshore watchlist.

Ratas, who was attending the World Economic Forum in Davos, on Thursday talked on the phone with Ukrainian Prime Minister Volodymyr Groysman and communicated with Ukrainian Finance Minister Oleksandr Danylyuk in Davos.

"Both promised to deal with the issue and the finance minister also promised to find a solution," Ratas told the newscast of the Estonian public broadcaster ERR on Thursday. "Why this has happened -- the finance minister explained it today by saying that Ukraine has created a new tax system, admitted that it may have been created too hastily, said the inclusion of all the countries in the list of tax havens has not been conclusively deliberated and promised to put this issue on the table on Monday at the latest, when he will return to Ukraine from Davos," Ratas said.

"The prime minister and finance minister of Ukraine reaffirmed that they are dealing with the issue. The finance minister promised to solve the situation. I hope that this will be done as soon as possible," he added.

On Dec. 27 last year the Ukrainian government adopted a decision whereby 22 more countries, including Estonia and Latvia, were added to the list of jurisdictions considered by Ukraine to be tax havens.

According to Estonia, the Ukrainian government has misinterpreted Estonia's Income Tax Act.

Estonian Foreign Minister Sven Mikser last Tuesday said that the decision of Ukraine to put Estonia on its list of offshores has begun to damage the economic relationship between Estonia and Ukraine, and hopefully the situation will be solved before it becomes a political problem.