The Cabinet of Ministers of Ukraine approved the draft law on the denunciation of the Cyprus – Ukraine Income Tax Treaty (2012), on December 17, 2014.
Prime Minister of Ukraine, Arseniy Yatseniuk said that when the convention was signed in 2012, it was meant to protect the wealthiest part of the population, as it included a 0% tax rate on the sale of property. He alleged that pro-Russian oligarchs have set up companies in Cyprus in recent years, used specifically for capital flight and the country loses some $300 million annually to tax-free investments in Cyprus. Since the property was sold via offshore companies, tax was paid neither in Ukraine, nor in Cyprus.
Furthermore, the existing tax treaty sets forth more beneficial tax rates with respect to interest income which makes it not in line with the OECD Model Convention and makes ineffective its application in terms of prevention of the cash flows. That’s why the government addressed parliament to back the denunciation of this document.
