Opening speech by Prime Minister of Ukraine Arseniy Yatsenyuk at a session of the Government on December 17, 2014

I greet you, dear colleagues!

We appreciate our cooperation with parliamentary groups on the coordination of positions on the budget and taxes. We call on our colleagues in the Parliament to show pragmatism and understanding of the situation and in any case not to play politically in adopting difficult but the right bills for the country. I hope that there will be a full understanding of the entire parliamentary coalition of their responsibility for the fate of the state.

During the election it was talked a lot about reforms, a reform plan clearly reflected in the Action Program of the Cabinet of Ministers of Ukraine and in the coalition agreement. By the way, after our last trip to the EU and meeting with our partners from international financial institutions it was clearly stated that they perceive each item of the reform plan, which is reflected in our program of the Government, they find it right and ambitious. Now, in order to implement it, it is necessary that the Government, the Parliament and the President take concerted action.

We have to make tough decisions. Such decisions were taken in Poland and in other member states of the European Union, Spain, Italy, Greece, the Baltic countries. So, the path of reforms is difficult, but the only right. And now we must go from words to actions, to very practical and clear things regarding each item of tax and budget reform and the new Law of Ukraine on “The State budget.” In particular, this concerns the balancing of the largest gap that exists in the Ukrainian economy, it is Naftogaz Ukrainy, in which we are subsidizing, but should give subsidies only to the poor.

Much has been done to bring order to NJSC Naftogaz Ukrainy in terms of direct contracts between Ukraine and European companies that supply gas. There are no more intermediaries and this has enabled Ukraine to save hundreds of millions, billions of dollars, while the main problem remaining in the pricing of Naftogaz Ukrainy has not been solved yet.

So, on the one hand, it is about balancing NJSC Naftogaz Ukrainy, on the other hand - a targeted subsidy for everyone who needs help. I am convinced that in the same terms should work all the MPs, who should do everything possible to stabilize the situation in 2015. The stabilization of the situation in 2015 is directly connected with tough and correct reforms and appropriate financial aid from Western partners.

I recall once again that Ukraine has received a $9-billion financial assistance in the current year while we paid off $14 billion for debt. All this was done by de-shadowing economy, increasing tax revenues by 5% compared to the last year. But it is impossible to press the economy through tax levers forever.

Therefore, we will in our package, which is being working out with factions, present both a plan for de-shadowing and taxation of additional income.

I would like to remind that the Government took a range of decisions to increase the tax burden on profitable businesses, owned by Ukrainian oligarchs. We raised four times the tax rate on ore rent - it is something that couldn’t have been done for twenty years. We also raised the tax rate on rent for oil and gas. In fact, the increase was three to five times. In addition, it was decided to tax excise goods - alcohol and tobacco.

Due to these actions we managed to attract necessary funds to the state budget, despite the incredible economic decline. We lost 20% of the Ukrainian economy due to Russian military aggression.

That’s why our tax and budget packages preserve the key principle - the principle of justice. On the one hand, it is necessary to optimize the benefits, and, on the other - to make the Ukrainian oligarchy pay taxes. This is the right way. I hope that the big Ukrainian business support such policy, because the country is in a very difficult situation.

As a part of our work today, the Government is to consider two bills aimed at taxation the most profitable and large business to ensure a fair and honest taxation principle for such business. We are not talking about confiscation, on no account. We are talking about honest, correct European-like tax rules.

Hence, I want to commence from the first bill, that is to be approved by the Government today, On the denunciation of the Convention between the Government of Ukraine and the Republic of Cyprus. Unfortunately, back in 2012 when the Convention was being signed with the Republic of Cyprus, it advocated a principle of protection of the wealthiest layers of the population, as it contained a zero tax rate for selling any property. That is, through an offshore company there was sold certain property and taxes were not paid, neither in Ukraine nor in the Republic of Cyprus.

That’s why the Government of Ukraine submits to the Verkhovna Rada of Ukraine a bill on denunciation of this Convention. And in order to repeal the deal the Government immediately launches a negotiation process with Cyprus on a new agreement to adapt with the European standards.

The point is that the tax, which will be introduced in Ukraine, must comply with the rates and taxes, existing in the European Union’s member states, including also to abolish a zero tax rate, at last, for operations of sale of any kind of property, shares and other assets, which aren’t subjected to taxation as the Parliament refused then to repeal the mentioned agreement.

According to our calculations, the total losses make up approximately UAH 6 billion per year. So, I believe that the Parliament will support this initiative, as the current Parliament represents the interests of the people of Ukraine, but not the interests of large business. At least, voting will either confirm or refute it.

Regarding another law, which, I believe, will be approvingly accepted by the entire Ukrainian business is the law of Ukraine On improvement of tax control over transfer pricing.

The Government submits this law and asks to adopt it immediately. The more so, at a meeting now we have approved a decision that this law is due to take effect this year and taxation of profits of large companies by 2015 should be held based on this law.

What does this law mean if the following story is taking place now. For instance, ore, which costs USD 100 on the stock exchange market, is sold to an offshore company at USD 50, but as an offshore company in turn sells it at USD 100, no taxes are paid. Now, no matter how many offshore companies are in the chain, there is a stock market price of the goods, thus, Ukraine will get relevant taxes not based on undercharge but on a real price, which ought to correspond to the market and stock price.

The law will apply to each financial transaction, at this, those coming with the purview of the law will be also chemical and metallurgical enterprises. Hence, it will be impossible to hide incomes in offshore companies and abroad.

I address the entire big business to get ready to file fair and open tax reports for 2015 regarding taxation of a profit tax. Under the State Fiscal Service there will be established a control department over the so-called transfer pricing. We receive a technical assistance from our Western partners to verify whether the price at which they sell corresponds to the world price, and also in order to help Ukraine’s big business to pay taxes honestly and fairly, as also to keep track of all financial transactions, wherever they are carried out, no matter which country and which company is involved in this process.

To summarize, if we say that people must save, it means those must pay who are obliged to pay - big business. And this principle of social justice in tax area is advocated by the new Ukrainian Government.

Concerning our further work on the budget, I want to remind you that we will have submitted by Tuesday relevant draft laws and I am convinced that the Parliament will constructively work to support them, but excessive left-wing political rhetoric proves ineffective now. Now we are talking about stability within the country, about the need for reforms, those demanded by everyone, and that the year of 2016 should become a year of economic growth. And in 2015, we ought to demonstrate that we are ready to the strongest, the most radical measures, which we launched a few months ago, but they ought to be continued.

Therefore, in fact, the two laws are approved by the Government. We expect the Ukrainian Parliament to approve and support these bills.