“Armed Associations interviewed unanimously support the Defense City, but warn that the initiative contains flaws that need to be changed to the second reading so that a good idea does not sink into poor implementation.”, – WRITE: mezha.media
Attempts to solve regulatory problems of weapons production were mostly limited by point changes in legislation and “experimental” government regulations. Many of them played an important role in deregulation and simplification of rules for defense companies.
But indeed a comprehensive initiative that would not just remove the sticks from the wheels, but would create favorable conditions for the development of weapons production, only now.
The new legal regime was called Defense City (by analogy with the City Action for the IT industry). He deputies plan to introduce tax benefits, simplified customs rules, introduce a mechanism of relaxation, open access to the world market, limit the publication of sensitive data on defense companies and release from responsibility for certain types of offenses.
According to one of the interlocutors of the “defense” in the Ministry of Defense, the initial idea is to support “champion companies”, that is, the largest weapons manufacturers who need to be able to fulfill their potential in full.
The new regime should be implemented by four laws No. 13420, No. 13421, No. 13422, No. 13423which provide for changes in different codes: tax, customs, budget, criminal and criminal procedural. Two of them have already passed the first reading in the Council.
Armed Associations interviewed unanimously support the Defense City, but warn that the initiative contains flaws that need to be changed to the second reading so that a good idea does not sink into poor implementation.
What new weapons get? Defense City residents will have a chance to solve most chronic problems that industry associations have been talking about for years. Among the main changes:
The first is the introduction special tax regime. Companies will not be able to pay income tax, subject to reinvestment of this money into production and refusing to pay dividends to the owners (except where the owner is the state). Weapons will also be exempted from land taxes, real estate and ecology without additional conditions.
This rule potentially has to solve the problem, as weapons believe, the low profitability of companies of the defense sector, which every year needs more money to invest in new developments, development of production and recovery after arrival.
Residents will be able to choose a convenient tax regime at any time. For example, a company may not pay income tax for several years, actively invest in production development, scale and subsequently switch to a standard tax regime without investment obligations and dividend payments.
Second – Simplification of customs rules for imported components. This should accelerate formal procedures during customs control.
Third – for the first time since 2022, defense companies will get clear a mechanism for selling weapons and technology abroad. The weapon manufacturer will need to obtain a special export license and pay a certain amount of fee. Thus, the Ukrainian army will receive the benefit of exports.
And for export of production technologies it is necessary that the recipient of technology abroad is the company of the exporter himself. At the same time, the country to which technology is exported must have an appropriate agreement with the Ministry of Defense.
The fourth – partial closure of public data About companies. Defense associations complain that anyone can go on YouControl and get income data and evaluate the increase in the scale of production of any defense company or get data on its owners. Publication of individual sensitive data on Defense City residents will be suspended.
Fifth – Relocation mechanism in safer regions of Ukraine. This will happen by distributing some of the taxes from the company’s employees into the community budget, which will accept the enterprise and build an infrastructure under it.
Conceptually, such a set of benefits should remove a large part of the “stoppers” for the Ukrainian defense industry. But the devil is in detail.
Rules for all or the “elected club”? Legal regime want to make only available for companies that will be included in the list of the Ministry of Defense in manual mode. And this list will be included according to special criteria. 90% of the income company must receive from the sale or maintenance of weapons for defense forces. It should also not have overdue contracts for more than 60 days and be a resident of other legal regimes, including the City.
“In some cases, 90% of state customers’ income is unrealistic. And if a defense company works in a civilian direction that overlaps 11% of income, then it ceases to be strategic?
Producers of components in these weapons should also be included in the list. We cannot be strategically independent with Chinese components, “said NAUDI Executive Director Sergey Goncharov.
In the Associations “Technological Forces of Ukraine” (TSU) and “Ukrainian Council of Arms” propose to reduce the percentage of the necessary “armed” income and extend criteria to dual -use producers, not just final products.
The issue of spreading new rules to as many defense companies as possible is one of the most acute in developing this reform. The weapons interviewed by the “defense” agree that the criteria should be transparent, and the market rules should be equal for all participants, not just for the closed “elected club”.
Another problem in the TSU considers the impossibility of attachment to the Defense city companies that are already residents of the City. This is especially affected by drone manufacturers. “It is important to keep the opportunity for defense companies there and there. Otherwise, they will have to separate separately R&D centers and manufacturing companies. This is simply an extra bureaucracy and restrictions for the market,” said Kateryna Mikhalko executive director.
The interlocutor of the “defense” from the Ministry of Defense explained that the rate of 90% of income is not final. In the final version of the bill, the figure will be changed in the direction of reduction. The meetings are also looking for possible compromises for the synchronization of Defense City with the City. One option is to allow the company to be in both modes at the same time and choose the most convenient tax regime.
Law enforcement protection or amnesty to corrupt officials? The most Procedure part of Defense City was the time a mud, which provided for changes to the Criminal Code.
Defense City residents wanted to release law enforcement from the pressure of law enforcement agencies, which could allegedly abuse their position, disrupt production and access to sensitive data during searches. Usually in this context mention NABU scandalous searches at the Archer thermal Inspices Manufacturer.
One of the initiators of the draft Danilo Getmantsev on Podcast “Economic Truth” said that the purpose was also to release weapons from responsibility for small offenses, such as non -compliance with environmental standards, violation of labor law, violation of the rules of operation of equipment, etc.
To implement this idea was proposed Two key innovations. The first is that all procedural actions against Defense City residents must agree with the Prosecutor General. The second is that the company’s actions will not be considered violations if they have been committed to strengthen the defense potential of the state and have not posed threats to life or environmental disaster.
If you read the second provision carefully, then the question immediately arises: how will it be determined in court that the company contributed to defense capability by committing one or another offense? Among the weapons, even a joke: “I was forced to give a bribe to the official, because otherwise I would not have received a contract and would not be able to strengthen the state’s defense capability.”
The corruption risks embedded in the bill were outraged by part of the society, and the Ministry of Defense and the deputies had then had to justify before the ambassadors of the G7 countries at a separate meeting.
Voting for the “criminal” part of Defance City in such an edition could simply bury the whole initiative in the eyes of partners and society. Therefore, the deputies decided to simply postpone it for later, not even agreeing to the first reading.
The initiators have now registered a new bill. It removed the scandalous norm for avoiding liability for offenses, but left the part under which all cases against the weapons should be passed through the Prosecutor General. This also raises the issue of anti -corruption through a possible policy of investigations or their absence.
“On all three of the laws, the question is only how to refine them. But the fourth even in the new version is bad. This bill must simply be lost.
Many weapons are really afraid that they will fall under criminal prosecution. However, our deputies do not want to take good lawyers who would install these companies in different codes and clearly prescribe exceptions so that this does not lead to the unbalance of other processes and norms. This is the office of simple decisions, – said the “defenders” representative of the Public Anti -Corruption Council at Tatiana Nikolayenko.
In general the idea as much processes as possible to lock on the Prosecutor General’s Office invested in General logic Monorosty MPs, which we saw on the example of deprivation of independence of NABU and SAP. Therefore, discussions on this issue will continue.
Export with nuances Speaking of weapons export, they usually mention several risks to the state. The first is reputational, because Ukraine allegedly asks for weapons on one side and sells it on the other. The second – the state will be forced to compete for the ability of domestic enterprises with much richer foreigners. The third is that technology leakage will take place in unfriendly countries.
At least on paper looks like the proposed Defense City format should solve these problems. Reputation losses are minimized by the fact that weapons will be wrapped in a “joint production with partners and a mutually beneficial exchange of technology”. With the ability of domestic manufacturers, you will not have to compete, because the Ministry of Defense will issue export licenses for products that can not be bought.
In order to prevent the leakage of weapons into the wrong hands, the state will be able to issue permission only in countries that will consider it safe. And a mandatory license fee, which will pay exporters of weapons, will be aimed at the needs of defense forces, which will bring the army a significant financial benefit and legitimize the idea of export among the military.
Questions arise only to the norm that regulates the transfer of production technologies abroad. This is only allowed if the recipient of technology is a foreign company that is 100% the exporter itself. In other words, you can only transfer military technologies abroad yourself.
The problem is that this makes it impossible to transfer technologies to joint enterprises that Ukrainian companies open with European partners. Some countries simply do not put weapons manufacturers unless they share production with a local company. In this edition, the norm narrows the window of opportunities in the world market.
On the other hand, individual Ukrainian defense companies now and in fact transfer their technologies abroad, which subsequently fall into joint ventures for drones and armored vehicles with European companies. So it seems that in fact, a loophole for the transfer of Ukrainian technologies is now existing. The only question is how legal it is.
Investment control Defense City residents will not be able to pay income tax in exchange for refusal to pay dividends and invest this money in buying, modernization, repair of machine tools, premises, construction of new workshops, training of people and generally all that falls under the definition of “investment in development”.
This will give virtuous manufacturers additional resources for scaling and development of technology. At the same time, this will provide space for poor managers.
It just hopes that the state will be able to control the producers who will enjoy the privilege. After all, “investments” can be wrapped, for example, the purchase of machines, services, intellectual property at inflated prices with subsequent withdrawal of funds.
Since the world defense market is very dynamic and in many segments is monopolized, to determine the “market prices” of certain goods and to notice something suspicious in declarations will be the task.
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In general, the “defense” of the Association’s “defense” characterizes the discussion about Defense City as adequate. Weapons, the Ministry of Defense and deputies from time to time gather at the meeting, express their proposals, fears and gradually prepare the rules for the second reading. According to the plan, it should take place in the second half of August, after the Verkhovna Rada’s vacation.