Transfer Pricing Insider
Volume 3, Issue 1
Quick Links
Events
-
Trade Shows
- 12/1/2009
- TEI New York Symposium 09
White Papers
Newsletters
Tax Regimes in CIS Countries
Douglas A. Townsend, Senior Advisor with the International Tax and Investment Center (ITIC) in the United Kingdom. Movlan Pashayev, Director of Tax and Legal Practice of PricewaterhouseCoopers in Azerbaijan. Sergey Bezborodov, Manager of International Tax Structuring with PricewaterhouseCoopers in Kazakhstan
This article provides an overview of tax regimes in the former Soviet Union countries, including major areas for reform, and considers the impact of European Partnership and Cooperation Agreements on CIS tax laws.
The official mantra in many Commonwealth of Independent States (CIS) countries (countries of the former Soviet Union)1, is "catch up with and overtake the West." This competitive spirit is reflected in country, regional, and global specialist surveys conducted by international financial institutions, intergovernmental organizations, private financial houses, international ratings agencies, and think tanks. For taxpayers, the comparisons in the annual World Bank survey, "Paying Taxes," compiled by PricewaterhouseCoopers, give valuable information. 2
Across the CIS, the state continues to play a strong role in the promotion and regulation of economic activity. This includes, in some instances, a definitive say in broadly defined "strategically important" economic sectors extending to the ability to enforce changes to contracts in those industries, which is particularly significant for investors. Strong government can be seen as necessary to protect the integrity and interests of the state and to achieve a competitive economy with higher national living standards and modern infrastructures. For CIS citizens perhaps beset with reform fatigue, as chronicled by the European Bank for Reconstruction and Development (EBRD) in its 2007 Transition Report and 2008 "Histories of Hope in the First Person," an improved but imperfect present heralds a better future (see Exhibit 7 on expected major changes in 2009/2010).3
The rapid shift towards greater globalization and economic integration in the last decade has played a large part in driving strong economic growth, including in the CIS. This has put a premium on countries delivering a favorable political and economic environment to attract and retain a share of the increasing flow of cross-border investment that has been a critical factor in fuelling that growth. U.N. Conference on Trade and Development (UNCTAD) figures show that globally in 2006 there were 147 policy changes aimed at making host-country environments more favorable to foreign direct investment (FDI). Among the key policy reforms required are stronger regulatory frameworks, greater privatization, liberalization, strengthened property rights, and tax reductions. As to the last, several CIS countries have significantly reduced rates and the complexities of their tax systems. The World Bank's "Doing Business 2008" noted that 200 reforms in 98 economies were introduced between April 2006 and June 2007. Among the list of top reformers, Georgia continued its dramatic improvement, rising in the World Bank's "Ease of Doing Business” ranking from 112th place in 2005 to 18th in 2007. Conversely, in other CIS countries, the investment climate remained tepid, with continuing uncertainties over public governance, property rights, competition, and judicial independence having negative consequences for investment. This in turn may have a harmful effect on the long-term economy, which may depend on investment in non-extractive sectors, once currently high world energy and mineral prices subside. Key elements required to promote investment include stability (political, macroeconomic), policy continuity and transparency, sound legal and administrative frameworks, strong financial systems, adequate physical and human infrastructure, and a competitive and coherent tax regime. According to World Bank research, countries that have put these key ingredients in place have seen a boom in investment inflow, resulting in a surge in new business start-ups, faster growth, and job creation.
1 Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Ukraine, and Uzbekistan. Turkmenistan discontinued permanent membership as of August 26, 2005, and is now an associate member.
2 www.tax-news.com/asp/story/World_Bank_and_PwC_Release_Paying_Taxes_2008_Report_xxxx29078.html
3
The source of the statistics in Exhibits 1-7 is the ITIC Fourth CIS Fiscal Experts Seminar, Paris, May 18-20, 2008.
Twitter
Facebook
Twitter
Facebook