Censor.NET reports referring to a Washington Post publication by president of the Kyiv School of Economics and associate professor of economics at the University of Pittsburgh Tymofiy Mylovanov and lawyer and VoxUkraine Law team member Zoya Mylovanova.
They recall that the journalists of the Organized Crime and Corruption Reporting network, based on the leaked documents from Panamanian law firm Mossack Fonseca, concluded that the actions of Poroshenko may be illegal because he started a new company while president and he did not report the company on his disclosure statements. The authors argue that according to the Ukrainian Constitution, the president may not engage in any entrepreneurial activity. The president may own shares, but it is unclear whether restructuring assets is exempt. The irony here is that Poroshenko had promised to divest his assets and thus in order to keep his promise, some business activity is inevitable.
"It is also true that Poroshenko did not disclose the ownership of the shares in his declaration. Yet, failing to disclose the assets could be defended on technical grounds: there was no actual payment for the shares and so the requirement does not apply," the authors say. They also pay attention to the fact that perhaps the restructuring of the president's assets was intended to decrease taxes paid in Ukraine. This specific type of restructuring is typical for businesses in Ukraine and is usually driven by poor corporate governance and property rights protection in the country and tax optimization.
The authors doubt that the president was trying to avoid paying taxes. At the same time, there may be scenarios under which the future sale of business will result in loss of tax revenues by Ukraine. While the choice of the British Virgin Islands, Cyprus and even the Netherlands for subsidiaries can be in full compliance with Ukrainian business practices, it shows poor political judgment. Such structures are typically used to sell profitable businesses with the capital gains taxed at a minimum level and outside of the country in which the profit is generated. The experts also highlight a surprising aspect, saying that Poroshenko has deviated from business as usual in Ukraine. He chose to indicate himself as a direct shareholder of an offshore company. By contrast, the standard is for the real owners to stay behind foundations, trusts or nominee shareholders. The Roshen group also generates significant tax revenues for Ukraine. In 2015, the chocolate business of the president was ranked 74th among top taxpayers of the country, with payments over 1.3 billion UAH.
"So far, the leaked documents have not revealed any major wrongdoing by the president. The offense is essentially technical in nature. The incident comes at a time of the most severe political crisis in Ukraine after the Euromaidan. The president is vulnerable and he might be struggling to keep the situation under control. The revelations depict the president as a shrewd businessman, but the extent to which this is what the country wants out of its president remains an open question," the article reads.
The authors add that the incident is one of the many recent dramatic political events in Ukraine. Jointly, they make early parliamentary elections more likely. They will also likely force Ukrainians to reflect on their expectations about the leaders of the country, conflicts of interests, the separation of business and politics, and more generally about the institutions and laws they should create in the new Ukraine.
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