The BEB reform has not changed its approach to business: companies continue to face pressure from the Bureau
Kyiv • UNN
Despite the reform and change in the BEB leadership, businesses continue to complain about the Bureau’s actions. The situation involving airlines, against which criminal proceedings were opened due to the interpretation of leasing payments as royalties, is illustrative.
The reform of the Economic Security Bureau is ongoing; however, businesses’ complaints about the agency’s actions indicate that, so far, there has been no significant change in its operations. This creates additional risks for Ukrainian businesses and Ukraine’s investment climate. It raises the question of whether the reform will lead to real changes in the EСB’s approach to its work, or whether it will be limited to a change in leadership and a formal relaunch of the agency, UNN writes.
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Recently, a mission of the International Monetary Fund of Ukraine was working in Ukraine, among other things monitoring the fulfillment of structural benchmarks and overall reform progress. However, this time the mission left without making any public statement.
Despite the reform of the Economic Security Bureau, the number of business complaints about the agency’s work indicates that, so far, no significant changes have taken place in its operations.
Thus, according to data from the Business Ombudsman Council, almost one-third of business complaints about the actions of law enforcement agencies concern the work of the ESB. It is worth noting that this trend has persisted for the second year in a row. The problems entrepreneurs report include property seizures and questions regarding the admissibility of investigative actions.
Economist Viktor Halchynskyi noted in a comment to UNN that the ESB reform cannot be described as not being carried out at all: a competitive selection process for the leadership was conducted, and changes in the agency’s operations were launched. However, it is still too early to speak of a specific result.
As for businesses’ complaints about the ESB, I would refer here specifically to the wording from the IMF report—about the reforms "stalling"… As for the investment climate, this is, so to speak, one of the risks. Today, the main factor holding back investment is hostilities and life under martial law. There are high risks of businesses being destroyed and of operating in wartime conditions. But it is definitely one of the factors. If a business encounters unlawful or biased actions by law enforcement agencies, this affects its willingness to operate and invest in Ukraine
Problems involving pressure on businesses matter not only for individual companies. Member of Parliament Yaroslav Zhelezniak previously stated that unjustified investigative actions by law enforcement agencies are one of the main barriers to international investment in Ukraine. According to him, foreign investors are currently particularly interested in Ukraine’s defense industry.
An illustrative example of how the ESB’s work creates additional risks for businesses was the situation involving airlines. The ESB is investigating cases involving at least five airlines, including MAU, "Konstanta Airline," "Urga," H3Operations, and "Skyline," over the alleged failure to pay an additional 15% tax on nonresidents’ income to the Ukrainian budget under aircraft and helicopter leasing agreements. Investigators equate leasing payments with royalties and treat aircraft not as means of transport but as "equipment."
However, according to lawyers interviewed by UNN, during the investigation the investigators ignore the current international conventions on the avoidance of double taxation. Agreements with foreign states ratified by the Verkhovna Rada take precedence over national legislation and determine in which state and at what rate the relevant income of a nonresident may be taxed. Therefore, the automatic assessment of an additional 15% tax in Ukraine without taking into account the provisions of a specific convention is at least debatable, the experts emphasize.
As UNN reported, representatives of the aviation industry publicly stated that they were being pressured by the Economic Security Bureau because investigators interpret aircraft-leasing transactions as royalties, initiate criminal proceedings, and attempt to assess additional taxes for a seven-year period. According to them, civil aviation has come under threat of destruction due to the actions of state regulatory authorities, which could ultimately finish off companies that survived the closure of the airspace and relocation abroad because of the full-scale war.
For the aviation business, this means more than just legal disputes. Criminal proceedings create additional uncertainty for companies, their partners, lessors, and potential investors. And for an industry that depends to a significant extent on international financing and leasing mechanisms, the predictability of government policy is critically important.
That is why, in the opinion of economist Viktor Halchynskyi, the problem is not limited to who heads the BEB.
What could change the situation? I think it could work if the staff were completely replaced with motivated people who respect the new legislative framework governing the BEB's work. But we can see that this process is difficult. The system often does not know how to do much besides one very important thing—to protect itself. If the new head of the BEB manages to form a critical mass of a team made up of impartial people for whom the rule of law is not merely words but a working principle, then we will be able to speak of real change. The purpose of the reform is for the Bureau to genuinely protect the state's economic interests and the interests of honest and transparent businesses, rather than obstructing businesses that operate within the law
Ultimately, the BEB reform should be assessed not by whether a competition was held or the leadership changed, but by whether the agency's actual working practices have changed. For now, businesses continue to complain about the Bureau's actions, while certain industries, particularly aviation, are facing criminal proceedings over disputed tax matters.