The EU intends to strengthen control over tax evasion, first of all – by large companies.

For this purpose the European Commission is preparing legislative initiatives on development of the recently enacted package of regulations aimed at combating tax evasion. At least, such plans were announced by a number of influential European media with reference to their sources.

What are they going to strengthen?

We are talking about mandatory disclosure by multinationals corporations of data on profits received and taxes paid in each of the countries within the European Union.

As reported by the media, the relevant draft law will be officially presented already in April.

Such initiatives were caused by the so-called “Lux Leaks” 2014 – a high-profile scandal when the media became aware of tax transactions carried out by some transnational corporations with Luxembourg, which allowed these corporations to save on taxes the amounts exceeding the revenue part of the Ukrainian budget.

After that the European officials could reveal a number of violations of tax legislation by the major tax payers, which illegally identified the country of origin of the source of income to take the advantages provided by the domestic law of individual jurisdictions.

Regarding the scope of the proposed reform there is very little agreement as the estimated thresholds for the companies subject to stricter control (it is proposed to extend it to the companies with an annual turnover of 750 mln euros), apparently, narrow the range of global players, which will be subjected to these requirements.

Moreover, such companies have the possibility to creatively approach the reform of its own corporate structure to avoid such disclosure.

Will such innovations apply to Ukraine?

It is likely that similar rules will be implemented in our country, and that the European Commission will extend the requirements for disclosure of data to the income earned in the European countries outside the EU.

What will happen to the large Ukrainian business in this case?

Obviously, there are not enough Ukrainian companies reaching estimated thresholds so that the new rules in any way adversely affected pumping up of the Ukrainian budget due to the partial transfer of the tax base in Europe (even if there are grounds for such an approach).

The same applies to the possible loss of fiscal revenue due to application of sanctions by the EU to the multinational corporations having the origin of income in Ukraine. It is pointless to suggest that the Ukrainian budget is formed by taxes paid by multinational corporations, which were not paid in the European countries (though, e.g. the multinational tobacco manufacturers are really large budget donors, but they cannot be suspected of minimization as they have large production capacities in Ukraine).

However, this decision of the EU creates an opportunity for Ukraine to become a European tax haven for multinational corporations.

Meanwhile it looks fantastic, but there is nothing impossible in reforming tax legislation and reducing tax burden on business with the proper skill and willingness of the authorities.

At least, these efforts will result in a situation where Ukraine will “just” become a country with comfortable and clear tax treatment.

In any case, it would be beneficial for both the world’s largest businesses and our state.