Ecovis Germany

Aviation Industry in Ukraine – Challenges and Opportunities

The Ukrainian aviation industry is dynamic and constantly developing, which generates economic growth, creates jobs and facilitates tourism and international trade. The industries directly supported by aviation are growing accordingly.

Although the beginning of 2020 was marked by the worldwide spread of the COVID-19, which also had a strong impact on the aviation industry in Ukraine, its consequences for civil aviation will need to be assessed over time.

The popularity of domestic and international flight in Ukraine has significantly increased in the past year. According to a report by the Head of the State Aviation Administration of Ukraine, air transport increased by 18,4% in 2019 compared to 2018. More than 335 thousand flights were serviced through Ukrainian airspace.

In the meantime, the administration has outlined the priorities for the development of the aviation market in 2020:

• Improve aviation safety and security
• Increase the quality of air transportation organisation processes
• Liberalisation of air traffic
• Minimisation of the negative effects of civil aviation on the environment
• Harmonisation of Ukrainian legislation with European Union legislation and ICAO standards
• Creating an integrated information system for the State Aviation Administration

It is obvious that one of the conditions for the sustainable development of the Ukrainian aviation industry is proper government regulation. It is fair to say that the efforts of the Ukrainian state authorities during this past year have had some positive impact on the development of the industry. A number of legislative acts have come into force in this sector and several drafts were presented for public discussion.

One of the main conditions for overcoming the existing crisis in the Ukrainian aviation industry is the consistent government support of the industry.

Mariia Stepanenko, Associate, ECOVIS Bondar & Bondar, Kyiv, Ukraine

The main focal points in Ukrainian aviation in the past year include:

• The order from the Ministry of Infrastructure “on establishment of the charges for the provision of air navigation services for aircraft in the airspace of Ukraine”, which came into force on 12 July 2019. This act has significantly changed the calculation of the air navigation service charge.
• A draft law on amendments to the Air Code concerning the improvement of the mechanism of collecting state charges for each passenger departing a Ukrainian airport and for each tonne of cargo sent from or arriving through a Ukrainian airport was preliminarily adopted by parliament. The state aviation charge has been the subject of various legal disputes between aviation companies and the government for many years. The fact that a law has been drafted on this issue instead of a by-law already represents progress, but in order to make collection of the charge legal, the Ukrainian Tax Code must also be amended accordingly.
• A draft order for the approval of amendments to the Ukrainian “Rules of Air Carriage and Passenger and Baggage Services”. The draft order replaces the previous version of the rules that came into force on 5 March 2019. In general, the changes concern the simplification of procedures, as well as changes to the limits of the carrier’s liability.
• A draft order for the approval of the Ukrainian aviation rules on “Access to the Ground Handling Market at Airports” developed by The State Aviation Administration. The main objective of the draft order is to establish free, transparent and competitive procedures for access to the ground handling market.

However, all these results can only be achieved if state authorities properly monitor this procedure, explain the Ecovis experts. They know the environment and can advise clients who work in the aviation industry or are planning to do so. The areas of advice include corporate, financing and tax matters, competition and antitrust investigations, multi-layer dispute resolution cases and PPP projects.

To succeed in regulating of the aviation industry, the State Aviation Administration and other state authorities must effectively respond to all the challenges they face, say the Ecovis advisors.

For further information please contact:

Mariia Stepanenko, Associate, ECOVIS Bondar & Bondar, Kyiv, Ukraine
Email: mariia.stepanenko@ecovis.ua

Government Support for Businesses in Vietnam – Fighting COVID-19

The Vietnamese government has used drastic measures to prevent and control the COVID-19 pandemic at all levels. It has achieved encouraging results. This consistent approach is paying off: In the April 2020 World Economic Outlook, the International Monetary Fund forecasts growth of 2.7 percent. The rating agency Moody’s expects 2.8 percent growth in 2020.

The government has always supported businesses, helping them to overcome difficulties, stabilise and restore production. The package of government support designed to stabilise the economy includes:

1. Reduction of 10% in the retail price of electricity for the manufacturing and business sectors

The retail price of electricity for the manufacturing and business sectors will be discounted by 10% during peak, normal and off-peak hours, as specified in Decision 648 / QD-BCT dated 20 March 2019. Tourist accommodation establishments will also be able to pay the same retail electricity price as manufacturing industries.

2. Financial support

The Vietnamese Prime Minister Nguyen Xuan Phuc issued a directive to the State Bank of Vietnam to instruct credit institutions to meet capital needs for production and accelerate administrative procedures such as shortening processing time for loan applications and reducing fees, interest rates, etc. for customers who are in difficulties due to COVID-19 (a package worth approximately VND 250 trillion).

We can advise clients on all tax issues raised by the pandemic and help them explore the opportunities that state support can offer for businesses in Vietnam.

Mai Huong, Board of Directors Assistant, ECOVIS VSBC, Hanoi, Vietnam

3. Tax and rent support

The government issued Decree 41/2020 / ND-CP, extending the time for paying taxes and land rents, which is worth approximately VND 180 trillion. According to the Minister of Finance, about 740,000 businesses, or 98% of companies in operation, would benefit from the land rent and tax payment extension policy. The Ministry of Finance has issued Circular 14/2020/TT-BTC adjusting prices by 10-50% for nine service groups and completely exempting six service groups in the field of securities.

4. Advice for businesses

In terms of tax expenses, businesses should file promptly for exemption and deferral of payment until after business recovery.
Office expenses such as utilities and stationery can be reduced by working online from home.
In addition, businesses should aim to reduce spending on marketing strategies and move gradually into online sales.

In response to this pandemic, ECOVIS VSBC is helping businesses to improve performance, reduce costs and succeed in changing the business environment, for example by providing services related to starting a business, tax consultancy services or especially tax prevention consultancy.

For further information please contact:

Mai Huong, Board of Directors Assistant, ECOVIS VSBC, Hanoi, Vietnam
Email: huong.dothimai@vietsourcing.com

Taxing the Digital Economy: Has Corona Cancelled or Postponed the Global Tax Revolution?

The pressure was high from the outset when, with the finalisation of the BEPS Action Plan in Oct. 2015, the OECD simultaneously began to initiate a further and even more far-reaching project: an Inclusive Framework (IF) on the taxation of the digital economy, due for completion by the end of 2020.

Pillar 1 – New Nexus

The fundamental problem of taxing the digital economy is that in the absence of classical physical connecting factors such as legal entities or permanent establishments, there is no taxing right in the market jurisdiction. Consequently, Pillar 1 proposes linking taxing rights to non-physical factors for businesses that are deemed to be consumer facing or highly digitalised, i.e. creating a new nexus. Once the nexus is met, a share of the resulting residual profit is deemed taxable in the market jurisdiction. After remunerating routine activities following the arm’s length principle, the residual profit is then allocated between the state of residence and the market jurisdiction using an apportionment formula. The formula should be based on factors such as estimated value contributions by the market jurisdiction, e.g. 10% of the EBIT exceeding 10% (10 over 10).

Pillar 2 – GloBE

Pillar 2 is less focused on digitalisation but addresses more general BEPS issues within a Global Anti-Base Erosion Proposal – GloBE. According to GloBE, taxing rights shall move to one country in case the other country – and herein lies the crux – has decided not to tax profits at all or is deemed to not tax sufficiently, effectively leading to both global minimum taxation and interference with fiscal sovereignty. From a tax technical perspective, minimum taxation should be achieved either within an add-back taxation (inclusion or switch-over rule) or by means of deduction restrictions (undertaxed payment or subject to tax rule).

Concerns

The public discussion so far criticizes that the approach lacks definitions and interpretations of terms and that it places a seemingly utopian basic trust in existing dispute resolution, say the Ecovis experts. For instance, what exactly does “consumer facing” mean and how is it measured? Is it realistic that if one state regards the other’s tax regime as too low and is thus questioning its fiscal sovereignty, those states will reach a compromise on avoiding double taxation? And finally, there is the question of whether the only internationally recognised consensus in transfer pricing, the arm’s length principle, should be abandoned in favour of shifting taxing rights? Not to mention new questions that will arise concerning tax bases and consolidation rules.

In addition, it must also be asked whether and to what extent the IF can interact with other concepts for taxing the digital economy. France, for example, has introduced a digital tax (and immediately suspended it again) and there are also legislative procedures in Austria aimed at introducing one.

The OECD has launched a project to tax the digital economy. While there is still no need for action by the companies concerned, the situation should be observed. We can support you in this.

Georg F. Wenz, Transfer Pricing Specialist, Head TP Department, ECOVIS KSO Treuhand & Steuerberatung, Düsseldorf, Germany

Timing

The proposed timing is tight and at the end of May, the answer to the introductory question is surprising. Despite all the possible pit falls, the OECD is working full steam on the project, preparing the plenary meeting scheduled for July 2020 in Berlin and expects the final report by the end of 2020.

So, will international taxation be thrown into chaos on 1 January 2021? Absolutely not. Just as the publication of the BEPS final reports was not implemented overnight (and in some cases has not yet been), Ecovis comments that the final report only represents an intermediate milestone for the IF.

It will take much longer for the proposed measures to be implemented nationally and, with the Corona Crisis in mind, probably much longer than expected. Just think of the money spent on emergency aid and economic stimuli. And these states should now give up taxing rights?

Assessment and need for action

At its core, the IF follows two emerging trends in international taxation. GloBE shows an intellectual affinity with the CCCTB, which has been discussed (and rejected multiple times) within the EU. Pillar 1, on the other hand, can be traced back to an idea that is already repeatedly found in the BEPS discussion papers: Taxing profits where they arise. The IF can therefore be seen as a guideline for the direction in which the international tax system will develop.

Due to the still unclear roadmap and the lack of important decisions, there is currently no concrete need for action. Nevertheless, the IF should not be overlooked as it enjoys broad support within the G20 and the OECD and it will come – even despite corona-related delays. The Ecovis experts recommend that the developments are monitored, sensitivity analyses are conducted in existing business and Transfer Pricing models at an early stage and changes anticipated when new models are introduced.

Latest News

On 18 June, news became known, according to which the US government has proposed a pause in the negotiations on the IF and at the same time threatened retaliatory measures if countries were to introduce their own digital taxes.

For further information please contact:

Georg F. Wenz, Transfer Pricing Specialist, Head TP Department, ECOVIS KSO Treuhand & Steuerberatung, Düsseldorf, Germany
Email: georg.wenz@ecovis.com