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19 March, 2013 08:15   ▪  

Financial Times: Cyprus ripples are hitting Russia harder than Ukraine

The new tax on bank deposits in the offshore tax haven is unlikely to hit Ukrainian businesses and wealthy individuals hard as they keep large amounts of funds elsewhere, expert says.

On March 16, Cyprus secured a €10 billion bailout from its European partners and the International Monetary Fund to save the banking sector and avoid bankruptcy. In return Euro Group demanded to impose a new tax. Under the new deal, bank deposits in Cyprus with less than €1100,000 will face a levy of 6.7% and those above a 9.9% levy. To take force the decision needs to be confirmed by the parliament. Moscow has already reacted angrily to the EU levy.

“Like Russian ones, many Ukrainian companies do business through offshore special purpose vehicles or holding companies registered in Cyprus. By some estimates, billions of dollars with Ukrainian roots flow through Cyprus into offshore tax havens each year… But this does not mean that most Ukrainian companies exploiting the Cyprus tax loophole actually stash their cash there. And if they don’t, exposure will be limited, analysts say… But, at least in Ukraine, much of the panic had dissipated by Monday on the realization that there may not be enough Ukrainian cash parked for long enough in Cyprus to be vulnerable to the one-off levy on deposits that the island’s leaders are mulling in return for an EU bailout,” FT underlines.

“I really doubt that Ukrainian funds are being caught up by the one-off Cypriot levy on deposits,” says Jorge Intriago, partner at Ernst & Young in Ukraine, as quoted by FT. “In my view Cyprus is not an investment destination in which Ukrainian investors keep large amounts of funds. For Ukrainian business the whole purpose is to use Cyprus as a conduit to repatriate funds out of Ukraine and into other jurisdictions in a tax-efficient manner,” he adds.

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