Yaroslav Romanchuk, Managing Partner of the EUCON Legal Group, told about the international corporate structuring of business as a way of protection against third-party encroachments during the first session “Corporate Conflict Resolution”, the Corporate law/ M&A School.
The speaker noted that up to 80% of world trade is on operations in a group of companies, and cited statistics according to which the main investors of Ukraine last year were Cyprus, the Netherlands, and the United Kingdom, although in reality it was the funds of Ukrainian companies reinvested in foreign jurisdictions.
Why do Ukrainian companies use a foreign element in corporate structuring? Answering this question, the speaker emphasized that this is done first of all to optimize/minimize the tax burden. Also, the use of such jurisdiction helped to hide the ultimate beneficiary of the company, thus concealing the real owner. The foreign element in the structure of the group of companies was often used for reinvestment, as well as to increase the investment attractiveness of the business group for a foreign investor.
What factors are important for choosing a foreign jurisdiction? First of all, the absence/presence of jurisdiction in the EU’s “black list”, effective rates of tax on passive and other incomes, the existence of a convention on avoidance of double taxation with Ukraine, the cost of maintaining a company (registration, renting an office, etc.), and also specific requirements (licenses, concessions, purchase of real estate, etc.).
The speaker reminded the audience that our country had joined the unified international tax rules (BEPS action plan), committing itself to implementing the minimum standard (4 out of 15). In view of joining the BEPS plan, including signing, within the framework of its implementation of the MLI, the operating of the system of automatic exchange of tax information, etc. soon the offshore need will simply disappear: taxes will have to be paid, concealing of the beneficiary and real incomes will be meaningless and impossible.
In turn, international corporate business structuring is a successful, optimal, universal and profitable tool for protecting business from third parties. The best example is neighboring Poland, which is an attractive country for attracting as a foreign element due to open beneficiaries, rich financial resources and favorable investment conditions. Thus, Poland has become the most successful beneficiary of EU funding in 2014-2020, having received over EUR 111 billion of business compensation for innovation, investment in job creation, research, agriculture, green energy, etc.
The speaker advises the Ukrainian business to invest, buying or creating business in Poland, which will be, among other things, a way of protecting against third-party encroachments. In addition, special economic zones (SEZs) are created for investors in Poland, where they can operate on preferential terms. Having received permission to work in the SEZ and investing at least 100 thousand euros, the company may claim a refund of 15% to 70% of capital expenditures, or labor costs for 2 years.
“Soon the question will not be about not paying taxes, but about when to pay, where to pay, how much to pay, to whom and how”, – said Yaroslav Romanchuk.
