Ukrainian tax crackdown continues as partnership with Switzerland blossoms

Ukrainian tax crackdown

30th September 2019

Ukraine, a growing economic power, is following the lead of many other countries in Europe, and toughening up on tax and compliance. The latest measure the country has taken is signing a series of amendments to its Double Taxation Avoidance Agreement with Switzerland.  The ex-Soviet state is just one of a number of nations that has recently linked up with the country, as the latter seeks to rehabilitate its severely damaged tax haven reputation. Here’s what recruiters need to know about the Ukrainian tax crackdown.

What is Double Taxation?

Double taxation agreements aren’t limited to Ukraine, and have been used by countries all over the world as part of tax crackdowns. Essentially, double taxation occurs if someone is a resident in two countries at the same time or resident in a country that taxes worldwide income, with income and gains from another. This may leave individuals liable to pay tax on the same income in both countries.

Therefore, many countries sign double tax agreements designed to prevent this. If there is a double taxation agreement, this may state which country has the right to collect tax on different types of income. A double tax agreement effectively overrides the domestic law in both countries.

Ukrainian tax crackdown – More international agreements

Earlier this month, the Ukrainian parliament, or Verkhovna Rada, ratified amendments to its double taxation avoidance agreement with Switzerland. A total of 307 out of 450 MPS backed the ratification of these amendments – showing its vast popularity.

The changes to the pact will include an increase in tax rates and commitments to improve to coordination between the two countries. Amendments will also incorporate a pledge to optimise the methods for the exchange of information, which will provide a significant expansion of the parties’ ability to fight tax fraud.

This agreement follows on from earlier legislation which came into force last month where the Verkhovna Rada also ratified Amendments to its DTAA with Turkey for avoidance of double taxation, with 320 MPs backing the ratification.

These actions are much needed in the developing nation, with a number of Ukrainians admitting they would be comfortable evading taxes. According to a poll conducted under the USAID Financial Sector Transportation (FST) Project, 41% of Ukrainians claimed they would avoid tax if given the opportunity.

Switzerland – A pattern of co-operation

Switzerland’s contribution to the Ukrainian tax crackdown is not unique, and the country been especially active in reaching out to cooperate with other nations, something we have previously covered on this blog.  For example, it was recently announced that Swiss banks will now begin sharing details of all Indian taxpayers with accounts in the country. Under this agreement, Switzerland will share bank details, credit balance and all kinds of financial income for Indian clients with Swiss bank accounts.

The information available will be wide-ranging, including interest income, dividends and other financial revenue, receipts from certain insurance policies and proceeds from the sale of financial assets.

Recruiters should be aware

Ultimately, with more and more countries collaborating over tax evasion, be it through treaties, or through information sharing under the Common Reporting Standard, the Ukrainian tax crackdown is not a one-off occurrence.

This had led to an environment where remaining compliant has become extremely difficult for overseas contractors, making it a real possibility that workers unintentionally find themselves breaching the law – and facing huge penalties.

Unfortunately, agencies are not exempt from risk, especially with the introduction of laws such as the Criminal Finances Act 2017, which essentially stipulates that a recruitment agency could be held fully liable for the non-compliant actions of a contractor.

Therefore, in order to avoid any potential negative consequences, it is advisable to engage the services of an expert contractor management firm that knows how to operate in the uncertain landscape of global tax and compliance. Contact us today:


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