Intercompany loans bearing interest are a standard method of financing in the EU, but not in Ukraine.

The AGRARIAN ASSOCIATION OF UKRAINE (AAU) suggests helping the Ukrainian economy by allowing companies to finance each other and charge fair interest. The ban of interest rates similar to Islamic banking, which is currently in effect, harms Ukraine and the only thing it is good for is the fiscal torture of businesses through this illogical regulation.

Now that the economic recession is the baseline scenario and all experts are busy finding and developing models to further support and stimulate business, the question of finding internal, still unused, own resources becomes especially relevant. Of course, support from external donors is essential, and Ukraine needs to do everything possible and expedient to prevent the loss of solvency. But we also need to do something with our own internal obstacles that delay our development.

Unfortunately, in Ukraine, there is still a historical and unjustified anachronism concerning money and their time value. In developed countries, any company can borrow money from another company for interest. Of course, this does not apply to businesses that raise funds from the public and lend money. It is clear that everything related to financial activity on a regular basis should be clearly regulated in view of past bankruptcies and misused funds.

Today, at the legislative level in Ukraine, all possible obstacles are created to prevent the use of free resources of ordinary companies for the needs of other companies that have an urgent need for money. Why cannot a company that has free money and a willingness to help lend it to another, who needs that money right now, and get paid for it? After all, getting a fee for diverting your own resources to the borrowing company is quite understandable, because it has received additional development opportunities.

Why are we killing the free movement of capital within our country? Why are we forcing our companies to set up their own offshore financing structures where there is no such regulation? Our legislation says that without any sanctions, the financing between companies is possible only on a free basis and only for a short term up to one year.

In the ordinary economy, the financing bank requires some pre-financing of the investment by the company itself. This means that a company that intends to carry out a business project must first have its own or private (non-bank) capital to obtain a bank loan later. Moreover, the bank usually insists on co-financing until the loan repayment. To solve both requirements, the investor needs either equity or loan capital, with maturity longer than one year. Legal financing bearing interest clearly declared in the contract eliminates the risk that our tax authorities will easily manipulate tax payer’s revenues and the concept of “market” interest rate. Today, when everyone is afraid of these tax risks, the market is not evolving: there are no effective and transparent instruments for capital distribution – there is no economic growth.

The AAU calls on the authorities, legislators and the NBU to allow private businesses to lend to each other on a paid basis directly, provided that such lending will not show signs of systematic activity and will be carried out at a generally acceptable percentage. This will significantly boost economic activity. We will have competitive alternatives, including the terms and percentages of such lending. The released money will generate additional value with appropriate taxation for both parties, which will also affect budget revenues. All this will be possible thanks to one clear step towards business and to the benefit of our Government and President, who are currently busy saving our economy.