UKRAINE: Cabinet dissolves double tax with Cyprus, losing $300m a year

Ukraine’s Prime Minister Arseniy Yatseniuk said on Wednesday that his country was losing about $300 mln a year to tax-free investments in Cyprus, an argument he sued to justify the abolition of the present double-taxation avoidance treaty.

This is the second blow to the struggling Cyprus economy in a month, with Russia’s President Vladimir Putin introducing a bill last month that aims to repatriate Russian-owned investments on the island as of January 1, 2015, within the context of the “de-offshorisation” plan.
Yatseniuk has had his sights on Cyprus for quite some time, alleging that cronies and relatives of ousted President Viktor Yanukovych, as well as pro-Russia oligarchs had set up companies on the island used for capital flight.
During Wednesday’s Cabinet meeting, “the denunciation of a convention between Ukraine’s government and the Republic of Cyprus” was at the top of the agenda and was promptly approved.
Yatseniuk said that when this convention was signed in 2012, it was meant to protect the wealthiest part of the population, since it included a 0% tax rate on the sale of property.
"Since the property was sold via offshore companies, tax was paid neither in Ukraine, nor in Cyprus. That's why the government is addressing parliament to back the denunciation of this document," he said.
However, toning down his rhetoric, Yatseniuk said that the Ukrainian government wants to renegotiate a new treaty with Cyprus, something which government officials in Nicosia have confirmed.
The government in Kiev said it will immediately start negotiations with Cyprus on a new treaty that will comply with the standards of the Organisation for Economic Cooperation and Development in Europe (OECD),” a benchmark already used by Cyprus for other treaties.