Experts of the International Monetary Fund criticized the system of joint investment institutes (CIIs) in Ukraine. In their opinion, it has significant shortcomings, which leads to negative fiscal consequences due to the corresponding tax expenditures. This can be addressed by strengthening regulation and monitoring, consider in the IMF.
«For example, 96% of mutual funds are not collective investments. More than half of funds are owned by one person, and more than 90% of funds have 5 or fewer owners», — IMF experts explained.
In their view, closed-end non-diversified collective investment institutions (CIIs) are highly vulnerable to abuse because they are not subject to government oversight, are not required to obtain licenses, and have minimal reporting requirements. Such funds can be registered as separate legal entities, which allows them to bypass the requirements regarding the structure of assets.
«There are no rules aimed at combating abuses (for example, no oversight of interest pricing or transfer pricing); and they can attract investments without any disclosure«, the representatives of the IMF claim.
It is also noted that CIIs can be a tool for obtaining tax benefits, since they are not taxpayers themselves — except in cases of liquidation, which happens extremely rarely.
«Tax deferral also reduces the effective tax payable due to earnings accretion and the time value of money; a common approach is to channel corporate earnings into CPI to avoid paying tax,» — the message says.
At the same time, the head of the National Commission for Securities and the Stock Market of Ukraine, Ruslan Magomedov, confirmed that CIIs «were quite legally used and are being used by big business to optimize income tax», but added that in order to prevent tax abuse, the Commission plans to change the approach to the reporting of such structures.
