OVERCOMING UKRAINE'S VAT TAXES ON EXERCISES SEA

UNCLAS STATE 040420

SIPDIS

E.O. 12958: N/A
TAGS: PREL PGOV US UP
SUBJECT: OVERCOMING UKRAINE'S VAT TAXES ON EXERCISES SEA
BREEZE AND RAPID TRIDENT


1. (U) This is an action cable. Post is requested to
deliver points in paragraph 5 to appropriate Ukrainian
interlocutors.


2. (U) Background. Despite repeated assurances to us over
the years that Ukrainian law will be changed to provide for
exemption from VAT, excise, use, and other taxes for official
purchases made by U.S. forces for exercises "in support of"
the Partnership for Peace (PfP),Ukraine still has not done
so. We are now facing another year of exercises where we are
being told we must pay VAT and other taxes. Exercise Sea
Breeze is scheduled to take place from July 9-28 and Exercise
Rapid Trident is scheduled for September 4-19.


3. (U) Paying the taxes is against Department of Defense
(DoD) policy. In the past, waivers from established DoD
policy on foreign tax relief have been granted. We have told
the Ukrainians many times that we want the exemption, but
allowed the exercise to continue anyway even though they did
not provide the exemption. Additionally, the Ukrainians have
not reimbursed us for taxes that we have paid in the past.
This year, we are funding -- at significant cost -- the
Ukrainians, participation in Sea Breeze and Rapid Trident
due to shortfalls in the Ministry of Defense (MOD) budget.


4. (U) Although we agree on the importance of Ukrainian
participation in these exercises, we also believe the
longstanding VAT problem needs to be resolved, and we must
continue to press the Ukrainians to change their tax laws.
While recognizing that it may not be possible to achieve that
goal in advance of this year,s Sea Breeze and Rapid Trident
exercises, we need to send a strong message that Washington
believes it is time to break this pattern and the Ukrainians
must exercise whatever flexibility they can. Post should
explore the possibility of obtaining a presidential waiver
from paying the taxes this year.


5. (U) Action for Post. Please draw from the following
points in raising the issue with appropriate Government of
Ukraine officials.

Begin talking points.

-- The United States recognizes the value of the annual Sea
Breeze and Rapid Trident exercises as important activities
supporting Ukraine,s Euro-Atlantic integration and
NATO-interoperability efforts.

-- In view of this, we are also providing additional funding
to support Ukraine,s participation in these exercises this
year.
-- However, we remain concerned that despite years of
repeated assurances that the Ukrainian law will be changed to
provide exemption from VAT and other taxes for official
purchases made in support of these exercises, your government
still has not done so and we are again being asked to pay
these taxes for this year,s exercises.
-- It is against U.S. Department of Defense policy to pay
these taxes. In the past, we have obtained waivers to allow
the exercises to continue, and Ukraine is the only country
where we are paying them.
-- The United States believes it is time to break this
pattern and obtain final resolution of the VAT issue. While
we recognize it may be difficult for your government to
change the necessary law in advance of this year,s Sea
Breeze and Rapid Trident exercises in July and September, we
ask you to exercise whatever flexibility you can.
-- Specifically, we ask you to pursue a presidential waiver
from these taxes this year, as a measure of good faith and as
a first step toward permanently resolving the issue.
-- We continue to place great importance on our strong
defense relationship and we hope that you can work with us to
obtain a solution to this very important matter.
End talking points.
CLINTON