VZCZCXYZ0005
PP RUEHWEB

DE RUEHC #0420 1122130
ZNR UUUUU ZZH
P R 222111Z APR 09
FM SECSTATE WASHDC
TO RUEHKV/AMEMBASSY KYIV PRIORITY 9866
INFO RHEFDIA/DIA WASHINGTON DC
RHMFISS/HQUSEUCOM VAIHINGEN GE
RHMFISS/JOINT STAFF WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC 6228
RUEKJCS/SECDEF WASHINGTON DC

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