Proposal for tax treaty with Ukraine rejected by treasury due to ‘lack of capacity’

Treasury snubs a request to make it easier for Australian companies to invest in the war-torn country and help it rebuild.

Ukraine President Volodymyr Zelensky. Picture: Getty Images

Treasury has snubbed a request from Ukrainian business figures to make it easier for Australian companies to invest in the war-torn country and help it rebuild, prompting warnings over the damage the move could have on Australia’s global reputation.

The Australian can reveal Treasury has rejected a plea from the Ukrainian Australian Chamber of Commerce and ­Industry to consider striking a deal between the two countries that addresses “double taxation” on one source of income.

Australia has tax treaties that address the issue of double taxation with more than 40 countries, including Russia.

UACCI’s South Australian president, Alexander Podoro­shko, wrote a letter to the federal government arguing the issue needed to be addressed so ­Australian businesses could ­“assist Ukraine in rebuilding the country”.

A senior Treasury official told the Ukrainian business body in November: “Our tax treaty negotiation ­capacity is unfortunately fully deployed. Scope does not exist to add Ukraine to the program at this stage.

“However, your views on the merits of adding Ukraine to the program will be used by the government to help inform its consideration of Australia’s future tax treaty program when it is next considered.”

The revelation comes as the government comes under pressure to increase its support to Ukraine, with the Prime Minister last week announcing a further $110m in military and humanitarian aid.

Opposition Treasury spokesman Angus Taylor said the ­response from the government to a “sensible proposal” was “nothing more than dismissal”.

“Proactive engagement now will support the future of our Ukrainian business community in Australia and support the rebuilding of the Ukraine, once the time comes,” Mr Taylor said.

Opposition foreign affairs spokesman Simon Birmingham said a “clear pattern” was emerging that showed the government did not have “the agility nor foresight to be proactive”.

The Australian approached Treasurer Jim Chalmers for comment.

Strategic Analysis Australia director Michael Shoebridge said it was concerning the federal government had rejected the proposal. “If the Australian government were motivated to support Ukraine both with military support and reconstruction, it wouldn’t be generating obstacles to that support – it would find a way,” he said. “The fact that Australia has tax agreements ranging from … Chile to China to South Korea shows that we can enter into those arrangements with countries when we want to, and we should be doing that with Ukraine.

“The long-term reconstruction of Ukraine is something that will really underpin the morale of Ukrainians and to see partners like Australia acting with that ­future in mind is an important psychological factor of this war.”

Mr Podoroshko’s letter was sent to Trade Minister Don Farrell last October and referred from the minister’s office to Treasury.

Mr Podoroshko noted in the letter that Anthony Albanese had made a commitment to help ­rebuild Ukraine when the war was over. He said the issue of double taxation needed to be ­addressed “with some urgency” to give companies investment ­certainty.

“This commitment has been made without consideration of the negative taxation effects on Australian companies that take up this offer in the future,” he wrote.

“With the need for Ukraine to be rebuilt after the war, it is imperative that a double-taxation agreement be installed, otherwise there would be a disadvantage for Australians involved in this process … This would effectively discourage and penalise Australian companies and organisations that would like to assist Ukraine in rebuilding their country.”

The Ukrainian conflict began in February 2022, with the Western world rushing to support the Zelensky government following the invasion by Russia.

Labor has defended itself against criticism over its support to Ukraine, with Defence Minister Richard Marles pointing out Australia is one of the largest non-NATO contributors to the war-torn country.

An Australian National Audit Office report on Thursday found Australia’s provision of military assistance to Ukraine was “largely effective”, but there were “opportunities for improvement”.

As of February 2023, the government had poured more than $688m of support into Ukraine, of which $510m consists of military assistance.

As of this month, 40 flights of military assistance have taken place.