On 19 August 2022, the State Tax Service of Ukraine signed the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (“MCAA CRS”). The document establishes an international framework for the automatic exchange of financial account information, known among the tax advisors and bankers as the CRS. Its signing is yet another (although not final) step towards the long-awaited implementation of the CRS in Ukraine.
What is CRS? CRS, or Common Reporting Standard, suggests that a financial institution in one country (for example, a Swiss bank) which maintains an account for a tax resident of another country (for example, for a Ukrainian individual) collects information about the account holder and share this information with the tax office in its own country (Switzerland in the example). The Swiss tax office will then share this information with the Ukrainian tax authority on an annual basis. Such exchange is called "automatic" because Ukraine (in this example) will not be required to make any request to obtain this information. The only condition is that there is an appropriate agreement between Ukraine and relevant jurisdiction.
More than a hundred countries have joined the CRS since its emergence in 2017. In other words, if you are a Ukrainian resident having a foreign bank account, your bank has likely collected all the necessary information about you already (and perhaps continues doing so regularly). However, it has likely not shared this information with its tax office yet because Ukraine is not a part of the CRS, and no country has the appropriate agreement with Ukraine. That is going to change soon.
Other participants of the MCAA CRS include, for example, Cyprus, Liechtenstein, Malta, Switzerland, the United Kingdom, etc. With eventual implementation of the CRS, Ukraine gets the chance to obtain the information about its residents' offshore bank accounts from the Cypriot, Swiss, English and many other banks over the world. Importantly, not only the individual accounts will be "reportable", but also (in certain cases) the accounts of companies, trusts, foundations where Ukrainian residents are involved as UBOs, settlors, beneficiaries or likewise.
The upcoming automatic exchange means that the tax authorities are getting a quite powerful tool to identify more data about foreign assets of the Ukrainians. Complementing the controlled foreign companies' rules and recent tax amnesty/voluntary disclosure program, the automatic exchange of information is another important ingredient in the Ukrainian recipe of tackling the offshore tax avoidance and aggressive tax planning.
Next steps. The only thing left on the part of legal framework to implement the CRS in Ukraine is domestic legislation. The Ministry of Finance has already developed a relevant bill which awaits approval of other interested government agencies and will soon be submitted for parliamentary consideration. It is expected to be adopted by the Parliament by the end of November this year. After that, the Ministry of Finance and the tax authorities will have to adopt a bunch of secondary legislation. According to the roadmap presented by the Ministry of Finance, the CRS reporting will be launched during 2023, which will be the first reporting year. However, the dates of launch may be postponed considering the state of martial law in Ukraine.
For further information regarding the automatic exchange and its potential impact on your tax affairs, please contact Asters' Tax and Private Clients Partner Constantin Solyar and Senior Associate Yurii Dmytrenko (yurii.dmytrenko@asterslaw.com).
The Parliament, Government and Energy Regulator are Taking Important Decisions for the Renewable Energy Sector During the Martial Law in Ukraine
In summer 2022 the Parliament of Ukraine, the Cabinet of Ministers of Ukraine, the Ministry of Energy and the National Energy and Utilities Regulatory Commission (Regulator) have taken several important decisions for the renewable energy sector, including on:
Sale of Renewable Energy at Open Markets. On 29 July 2022 the Parliament of Ukraine adopted draft Law No.7427, which allows RES producers under the "green" tariff scheme to sell electricity at the Day-Ahead Market and/or Intra-Day Market and/or Bilateral Agreements Market and the Balancing Market. In such case, the sale of electricity is organized by the RES producer without assistance of the Guaranteed Buyer. RES producers who decide to use this right are temporary leaving the balancing group of the Guaranteed Buyer without losing the "green" tariff, and they may resume participation in the balancing group of the Guaranteed Buyer if they decide to come back to the "green" tariff scheme. The draft law is pending signing by the President of Ukraine. Adoption of this law has been a highly anticipated by the RES producers and should improve compensation for the produced electricity during the martial law.
Introduction of Virtual cPPAs. Additionally, the draft Law No.7427 took the first step in introduction of virtual/financial corporate PPAs in Ukraine. The draft law provides for the possibility of concluding contracts for difference between RES producers and buyers of electricity from alternative energy sources, i.e., in nutshell, such draft law is not about concluding an agreement for the sale of electricity and its delivery to the buyer, but rather on fixing the price of electricity and hedging the risks of price fluctuations.
Resolving the Situation with High Imbalances Invoices. On 26 July 2022 the Regulator by its Resolution No.821 amended the Resolution No.641, which provided for a procedure on purchase of renewable energy electricity by the Guaranteed Buyer. The changes introduced by the Resolution No.821 are aiming to resolve the situation with unreasonably high imbalances invoices to be paid by RES producers since the start of the war. One of the reasons for high imbalances invoices by the Guaranteed Buyer is that since the start of the war, there was a disruption in exchange of information between NPC "Ukrenergo" (Ukrenergo) and the Guaranteed Buyer on the volumes of curtailed electricity by RES producers. Consequently, lacking this information, the Guaranteed Buyer has calculated high imbalances for the RES producers. The main idea of the adopted changes is to allow the Guaranteed Buyer to adjust imbalances costs based on the corrected information on the curtailments.
The Regulator obliged Ukrenergo to transfer to the Guaranteed Buyer information on the curtailed electricity of RES producers for the period of February-June 2022 by 1 August 2022.
The Regulator instructed the following market participants to resolve all possible issues that emerged since the start of the martial law based on the changes to the Resolution No.641 by 31 December 2022:
Licensing Terms for Energy Storages Systems. On 22 July 2022 the Regulator adopted Licensing terms for carrying out energy storage business activities. The licensing terms were developed to implement the Law of Ukraine "On the Electric Energy Market", taking into account the changes made by the Law of Ukraine No. 2046-IX "On Amendments to Certain Laws of Ukraine Regarding the Development of Energy Storage Installations", which entered into force on 16 June 2022. The Licensing terms for carrying out energy storage business activities regulate the activities of energy storage licensees on the electricity market. They establish an exhaustive list of documents to be attached to the application for obtaining a license to carry out economic activity in energy storage, as well as determine an exhaustive list of requirements that must be fulfilled during the conduct of such activity.
Development of the Biomethane Market. On 22 July 2022 the Cabinet of Ministers of Ukraine adopted Resolution No.823 governing the procedure for functioning of the biomethane register. Within 6 months, the State Agency on Energy Efficiency and Energy Saving should launch the biomethane register. Additionally, on 2 August 2022 the Regulator adopted a Resolution to reduce the requirements for the molar part of oxygen in natural gas from 0.02 mol.% to 0.2 mol.% - which should allow access for biogas access to the gas transmission system (GTS) and up to 1.0 mol.% - for biogas access to gas distribution systems (GDS). By this resolution, the Regulator made appropriate changes to the Gas Transportation System Code and the Gas Distribution Systems Code.
Renewable Energy Auctions. On 2 August 2022 the Cabinet of Ministers of Ukraine adopted a resolution developed by the Ministry of Energy "On Amendments to Resolutions of the Cabinet of Ministers of Ukraine No. 420 of 23 May 2018 and No. 1175 of 27 December 2019", which regulator renewable energy auctions. The resolution has not been published yet. According to the statement of the Ministry of energy, the changes improve the procedure for holding renewable energy auctions for the construction of renewable energy facilities, taking into account the European standards and practices. The auction procedure will become more flexible, transparent and efficient. It provides an opportunity to reduce the price of "green" electricity on a competitive market basis, allows the state to regulate the amount of introduction of new renewable energy capacities, their types (solar/wind/biomass) and locations in accordance with the capabilities and needs of the power system. The resolution introduced the schedule of auctions for the next year and the establishment of indicative indicators of quotas for 4 years.
Ukraine adapts nuclear legislation to EU standards
On 20 September 2022, the Parliament approved three draft laws in the first reading: No. 6425, No. 5860, No. 3869, which introduce several important changes to the legislation in the field of nuclear energy for its harmonization with the EU law, in particular:
a) optimization of permitting activities in the field of nuclear energy use
b) change of State Nuclear Regulatory Inspectorate of Ukraine (hereinafter – SNRIU) competence and improvement of terms in the field of nuclear energy use
c) introduction of radiation protection experts
Optimization of permitting activities in the field of nuclear energy use
Draft Law No. 6425 "On Amendments to the Law of Ukraine "On Permitting Activities in the Field of Nuclear Energy Use" regulates the issuance of permits in the field of nuclear energy use in accordance with Council Directive 2013/59/Euratom.
The amendments provide for:
Change of SNRIU competence and improvement of terms in the field of nuclear energy use;
Draft Law No. 5860 "On Amendments to the Law of Ukraine "On Nuclear Energy Use and Radiation Safety" harmonizes the terms used in the law with EU law.
In addition, the SNRIU competence is changed. The SNRIU board will no longer approve the list of documents required for radiological control at the state border. Currently, such control is carried out by the State Border Guard Service of Ukraine together with the State Environmental Inspectorate of Ukraine, and the SNRIU is not involved in such control. In addition, the law does not refer radiological control at the state border to activities in the field of nuclear energy use.
The SNRIU will organize check-up of its activities and legislation in the field of nuclear energy use. Such check-up will be conducted at least once every ten years with the participation of international experts. The inspection board will inform foreign states on the results of such check-up upon request.
Introduction of radiation protection experts
The draft law No. 3869 "On Amendments to the Law of Ukraine "On the Use of Nuclear Energy and Radiation Safety" on Radiation Protection Expert" introduces radiation protection experts. Such persons will advise entities in the field of nuclear energy use on compliance with nuclear and radiation safety. The involvement of such experts is provided by Council Directive 2013/59/Euratom.
The draft law also establishes the procedure for submitting documents to confirm competence and the grounds for such refusal. A person wishing to become a radiation protection expert must submit an application with a list of relevant documents to the SNRIU. The SNRIU board makes a decision on recognition or refusal to recognition of competence within one month. Recognition of competence is granted for a period of up to five years with the possibility of renewal.
The Government should also approve the regulation that will define the requirements for the scope of knowledge, skills of experts and their qualification characteristics.
Such changes in nuclear legislation bring Ukrainian legislation closer to the European one. Moreover, they will contribute to the development of this sphere.
For further information, please contact Asters' Partner Yaroslav Petrov.