Explanatory note to the draft law on the termination of the double taxation treaty between Cyprus and the Former USSR (#7091 dated 6 September 2010) discloses details of the current state of negotiations between the governments of Cyprus and Ukraine in relation to the new treaty.
These facts are as follows:
1. Treaty negotiations started in April 1997. In total there were 5 rounds of negotiations with a gap of 9 years between first and second rounds.
2. The text of the new treaty was developed in 2006 – 2007. Ukraine's Government approved the draft text on February 21, 2007. The government of Cyprus has also approved draft treaty.
3. Cyprus has delayed the treaty signing since 2007 for various reasons. In March 2010 Ukraine was notified that Cyprus was withdrawing its decision in relation to the approval of the text of the treaty.
4. The Cyprian Government suggested that Ukraine considers the following amendments to the treaty:
- (i) to remove the condition allowing taxation in the source country (i.e. Ukraine) of capital gains from the disposal of shares in real estate companies (shares value of which is earned by at least 50% from real estate);
- (ii) to reduce the tax rate on interest income from 10% to zero;
- (iii) to reduce the tax rate on royalty income from 10% to 5%.
The explanatory note states that the proposal of the Cyprian Government is unacceptable for Ukraine and thus, the Cyprus/USSR double tax treaty must be terminated to put pressure on the Cyprian Government to sign the treaty in the wording originally agreed in 2007.
World Bank (Policy Notes for Ukraine of March 2010) recommends that in the course of fiscal reform Ukraine should eliminate the preferential treaty with Cyprus dating from the Soviet era. Technically Ukraine will satisfy this recommendation if the old treaty is replaced with new one.
(Source: Draft law registration # 7091 of 6 September 2010 submitted by People's Deputy Mr. Karmazin).
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