Biznews (#12 December 2014)

Ukraine rises in Doing Business-2015 ranking

Despite a significant deterioration of the economic situation in the country, Ukraine is going up in the ranking Doing Business-2015 that has been developed by the World Bank and the International Finance Corporation. The country is now 96th, up 16 places. Traditionally, the global leader in the world ranking is Singapore. The top 10 countries include New Zealand, Hong Kong, Denmark, South Korea, Norway, the US, the UK, Finland and Australia.

The ranking of 189 countries is based on 10 indicators and the data from May 2013 till 1 June 2014. Ukraine managed to improve its rating: Ukraine is 49 points higher in the category Paying taxes due to introduction of the tax return e-filing system for companies. However, no other significant improvements in taxation took place during the period.

Ukraine found itself 29 points higher in the category Registering Property due to a new system of state registration of real estate titles, which entails state registration in a single State Register of ownership rights and encumbrances both for land plots and real estate objects.

The report emphasizes that Ukraines situation is not very optimistic in the other eight categories. There was a minimum increase under the category Enforcing Contracts. Most of all, Ukraine is skewed down by the category Getting Electricity, where it is ranked 185th. In this segment, the number of licensing procedures reaches 10, the process of obtaining permits lasts up to 277 days, and the cost exceeds 165.5% of the per capita income.

Warsaw opens Hub for high-tech Innovative start-ups

The Warsaw-based non-for-profit foundation StartUp Hub Poland (SHP) has, along with the Polish National Center for Research and Development (PCR&D) and Giza Polish Ventures Venture Capital Fund (GPV), announced the opening of the first innovation hub dedicated to inventors from Central and Eastern Europe (CEE). The SHPs mission is to help innovators and entrepreneurs from the CEE region to start-up high-tech companies and strengthen innovation in the region. StartUp Hub Poland has just announced its first call for applications from innovators. SHP will help inventors receive EU visa and provide all the necessary logistical support. The Polish President recently stepped up his support of the startup environment in the CEE region by announcing the start of a USD 100 million fund for SMEs in Ukraine.

Large corporations bring large corruption to Ukraine

According to research by Transparency International called Transparency in Corporate Reporting: Assessing the Worlds Largest Companies the major multinational corporations hide corruption. 90 out of 124 companies do not disclose information about the taxes they pay in other countries, and 54 of them do not disclose information on their foreign income.

The research about transparency of corporate accounting analyzed 124 of the worlds largest public companies from the Forbes company list. The companies, whose total value exceeds USD 14 trillion, have been ranked in scale from zero to 10 based on the transparency of their reporting. The most transparent companies received the highest scores. They were evaluated on the basis of three criteria, including their anti-corruption programs, information about subsidiaries and holdings, and disclosure of foreign financial transactions. According to the criteria, British companies turned out to be the most transparent, and Chinese companies the most non-transparent.

Some Russian companies were mentioned in the research with negative indicators, including Rosneft 4.2 points, Gazprom 3.5 points. Sberbank got only 1.5 points, which is evidence of corruption risks. The worst results were traditionally demonstrated by Chinese companies. Honda Motor Co LTD with 1.3 points and Bank of China with 1 point are last in the list. Three corporations Statoil, Telefónica and Vodafone disclose most of the information on the taxes they pay in other countries.

The research shows that the worlds largest oil, gas and mining companies are not ready to accept the transparency rules that come into effect in the EU in July 2015. The rules require that mining companies should report all their payments and taxes in each country and on each project. The rules will apply to the large companies that are registered in EU and also the companies listed on European or US exchanges. Of 24 mining companies, only 4 (BHP Billiton, Statoil and the Indian companies ONGC and Reliance) disclosed their tax payments in all countries where they are present.

The IT sector, which makes it possible to increase transparency, is one of the least transparent sectors. The American technology giants IBM (2.9 points), Apple (2.7 points), Amazon (2 points), and Google (2.2 points) are low in the rating. Overall, only two American companies reported their tax payments in foreign countries ConocoPhilips in Canada, and Walmart in Chile.

Recommendations for companies include a call to companies to ban payments for simplifying procedures, to publicly disclose political donations, to disclose all subsidiaries and holdings, and to publish financial reports for each country where they are present.

Major international banks to pay fine of USD 3.2 billion

Supervisory authorities in the UK, USA and Switzerland fined five major international banks totaling USD 3.2 billion for their manipulations on the currency market in 2009-2012, including Swiss UBS USD 800 million, Britains Royal Bank of Scotland USD 634 million and HSBC USD 618 million, American Citigroup USD 668 million, and JP Morgan Chase USD 662 million. Negotiations still continue with a sixth bank Barclays which faced similar charges. According to the accusations, foreign exchange departments of the banks exchanged information in order to set exchange rates in the global market in their own interests. The main British financial regulator, the Financial Conduct Authority (FCA), began its investigation of Forex manipulations in October 2013.

EY New: 51 jurisdictions agree to automatically exchange financial account information

On 29 October 2014 51 jurisdictions, many represented at Ministerial level, translated their commitments into action during the mass signing of a Multilateral Competent Authority Agreement that will activate automatic exchange of information (pursuant to the web-site of the Organization for Economic Cooperation and Development (OECD). The first information exchange should be launched by September 2017. Pursuant to the agreement the information will be automatically exchanged on an annual basis. The relevant authorities of participating jurisdictions will request financial account information about non-residents from the financial institutions and transmit such information automatically to the relevant authorities of the interested jurisdictions where such persons are tax resident. The name of the bank account holder as well as information about income gained from bank deposits, dividends and capital gains, etc., will be included in financial account information. All EU member states, certain OECD member jurisdictions and UK offshore territories (Guernsey, Jersey, Isle of Man, Bermuda, British Virgin Islands and Cayman Islands) are among the signatories to the agreement. Ukraine has not yet made a commitment to sign up to the agreement.

Support to banks liquidity

According to the Resolution of the NBU On Changes to the Regulation on Provision of Stabilization Loans to Banks by the National Bank of Ukraine of 30 October 2014, No.691 expanded the list of securities under stabilization loans. In particular, government-guaranteed corporate bonds (with adjustment ratio 0.9) will be accepted as a security.

This type of securities should meet obligatory conditions, including the maturity term of the bonds (not earlier than 10 days after the loan repayment) and their book-entry form. Corporate bonds, with guarantees from the Cabinet of Ministers of Ukraine should be freely traded on the stock market and be serviced by the depository system in accordance with national legislation.

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