.jpg)
Ukraine lawmakers rejected a proposed bill tabled by the Ukrainian government seeking to amend the Ukraine-Cyprus tax treaty, and instead called on their government to go back to the negotiating table to find a compromise to sort the issue.
Informed sources who are closely following the deliberations told the Financial Mirror that the majority of Ukrainian MPs did not approve to change the bill on the basis that “Cyprus is a friendly country to the Ukraine and a compromise formula needs to be worked out to bring the issue to an end.”
Working closely with Cyprus Finance Minister Charilaos Stavrakis, many Cypriot auditors, accountants and lawyers with extensive contacts and business dealings in the Ukraine have united to press all parties to find a compromise solution.
One of the experts with extensive dealings with Ukraine businesses setting up a base in Cyprus told the Financial Mirror that the problem is not related to the attempt by Stavrakis to amend Cyprus’ banking secrecy law, which is an issue raised by the Russians, a number of EU and other countries wishing to close tax loopholes.
“The problem between Cyprus and Ukraine is that in 2006, the Cyprus tax authorities agreed to change the previous double tax avoidance treaty, which then Cypriot officials realised was a mistake and went back to the negotiating table to keep it in its original format. The Ukrainians on the other hand are insisting that since the authorities agreed to renegotiate, why allow us to take it back to the original text,” said the informed source.
The Financial Mirror understands that intense negotiations are continuing with a view to find an amicable solution or compromise with Cypriot officials not content to let their guard down, following the Ukraine parliament vote, which can turn anytime if the government again takes a similar motion to the floor.
Majority collapse
Additional ‘breathing space’ for Cypriot officials and lobbyists attempting to find a compromise has come from news that two MPs resigned on Friday from the Ukrainian legislature's ruling coalition to shatter pro-West forces' majority control of legislature. The decision reduced the ruling majority to 225 seats in the 450- member house, leaving a two-party alliance that had barely controlled parliament since October elections, one vote short of the 226-vote count needed for a majority.
MP Ihor Rybakov had been a member for the Yulia Tymoshenko party(BYuT), and MP Yury But had been a member for the Our Ukraine- National Self Defence party (OUNSD). Both support market reforms and closer Ukrainian relations with the EU.
Ukrainian President Viktor Yushchenko would by constitutional statute be able to call new elections in 60 days, if MPs are unable to form new ruling majority, according to an Interfax news agency report.
BYT leader Tymoshenko since the beginning of the year has been in open conflict with Yushchko, titular head of OUNSD, over a host of issues including cabinet appointments, foreign investment, fighting inflation, and government intervention in currency and retail markets.
MP Valery Pisarenko, a BYT spokesman, argued the departure of the two MPs did not affect the ruling coaltion as parliament by law stipulates replacement of a MP resigning from a ruling coalition by a party list member.
The Ukrainian constitution does not make fully clear whether an MP quitting a ruling coalition may retain his seat, but recently the Supreme Court ruled that at least in some cases he would, tending to bear out the argument a new ruling coalition must be formed.
Disputes over the make-up of Ukraine's parliament have sparked constitutional crises in the former Soviet republic every year since the country's pro-democracy Orange Revolution in 2004-5.
Formidable partner
Irrespective of the political issues and the tax deliberations, Cyprus remains a very close business and financial partner of the Ukraine. According to the State Statistics Committee of Ukraine data, the level of direct investments from Ukraine to European Union countries reached USD5.9 bln as of January 1, 2008, compared to USD 74.8 mln, as of January 1, 2007.
The growth of Ukraine’s investments to Cyprus – from USD 10.3 mln in January 2007 to USD 5.85 bln as of January 1, 2008 was the principle reason leading to the increase.
As of 1 April, 2007, the direct foreign investments into the Ukraine amounted to USD 22.44 bln of which USD 3.24 bln or 14.4% of the total was booked through Cyprus. FDI flows from Austria amounted to USD 1.78 bln (7.9%), the UK in third place with USD 1.7 bln, the Netherlands at USD 1.69 bln, the USA at USD 1.36 bln and Russia at USD 1.08 bln.
