Ukraine

Ukraine: The Ministry of Finance publishes a route map for the implementation of the BEPS Action Plan

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On 16 May 2017, the Ministry of Finance published a route map for the implementation of the BEPS Action Plan and presented it to experts.

Minister of Finance Oleksandr Danyliuk said that the government must ensure that profit tax is collected where added value is generated and where business activity is pursued. They will be resisting deliberate profit shifting aiming to evade taxes in Ukraine.

On January 1, 2017, Ukraine joined the Extended Cooperation Program of the OECD and obliged itself to implement the so-called minimum standards of the BEPS Action Plan. The implementation of the minimum standards will enable Ukraine to effectively tackle aggressive tax planning, base erosion and profit shifting.

Ukraine: STS clarifies the definition of related parties for the recognition of controlled transactions

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On 16 May 2017, the State Fiscal Service of Ukraine published a letter No. 9012/6/99-99-15-02-02-15 concerning the definition of related parties for the recognition of transactions controlled and guided by article 52 of the Tax Code of Ukraine.

The letter clarifies that for the purpose of the transfer pricing rules, a resident entity and non-resident entity will be deemed related if the entity directly and / or indirectly owns corporate rights in each such legal entity in the amount of 20 percent or more.

Ukraine: Cabinet of Ministers adopts the changes to advance pricing agreements

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The Cabinet of Ministers of Ukraine on March 29, 2017 adopted amendments to the Regulation No. 504 of 17 July 2015 regarding the procedure of issuing advance pricing agreements (APAs).

According to the adopted amendments to the Regulation No. 504 of 17 July 2015, an APA will become effective on the date agreed by the State Fiscal Service and a taxpayer (depending on the terms and conditions of the controlled transactions) or on 1 January of the year following that in which the APA was signed.

The validity of an APA is extended from 3 to 5 years.

Ukraine ratifies the DTA with Malta

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On 1 May 2017, Mr. Petro Poroshenko, the President of Ukraine signed a law ratifying the Double Taxation Agreement (DTA) with Malta.

Under the provisions of the treaty, the withholding tax on dividend income shall not exceed 5% of the gross amount of the dividends if the beneficial owner is a company which controls directly or indirectly at least 20 per cent of the company paying the dividends and 15% of the gross amount of the dividends in all other cases. For interest and royalty income a maximum 10% withholding tax applies.

Ukraine: Parliament ratifies the double tax treaty with Malta

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The Parliament of Ukraine on 13 April 2017 ratified the income and capital tax treaty with Malta. The Convention and the protocol to it were signed by the Government of Ukraine and the Government of Malta in September 2013.

Under the provisions of the treaty, the withholding tax on dividend income shall not exceed 5% of the gross amount of the dividends if the beneficial owner is a company which controls directly or indirectly at least 20 per cent of the company paying the dividends and 15% of the gross amount of the dividends in all other cases.

For interest and royalty income a maximum 10% withholding tax applies.

Ukraine updates tax code concerning transfer pricing changes

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Transfer pricing legislation in Ukraine has been changed effective from January 1, 2017. The law introduces changes to the Tax Code of Ukraine with respect to transfer pricing rules (TP). The following changes have been introduced on ā€œAmending the Tax Code of Ukraine (on the Improvement of Investment Climate in Ukraine )” No. 5368.

Thresholds: The threshold for the recognition of transactions as controlled transactions (CTs) has been increased whereas taxpayer’s annual income has been increased to UAH 150 million (from UAH 50 million), and taxpayer’s volume of transactions with each counterparty has been increased to UAH 10 million (from UAH 5 million).

Documentation-Deadline: The deadline for submitting the report of controlled transactions has been changed from previous date of 1 May to 1 October of the year following the reporting year.

Reporting and documentation: In addition to the previous requirements transfer pricing documentation is expanded including copies of the agreements specifying terms and conditions of the controlled transactions; information about the payments made in the transaction; information about the taxpayers involved in the business; information about the cost allocation algorithm used in calculating the profit level indicator; and description and calculation of comparability adjustments of terms and financial results of the controlled and uncontrolled transaction.

Comparability analysis: It is possible to determine a profitability margin and perform a benchmarking study if no direct comparable data is available and in such cases, the benchmarking study can be done based on financial informationĀ  of comparable legal entities. Taxpayers will be able to adjust their taxable profit for Transfer Pricing purposes to maximum or minimum values of the range of prices instead of the median.

Penalty for documentation failure: Starting from January 2017, penalties are based on the living wage for persons capable of work as of January 1 of the reporting year (previously penalties were based on the minimum wage). In case of non-submission of report on controlled transaction 300 living wages is imposed. For late submission of report on controlled transactions, 1 living wage for each calendar day of the delay but not more than 300 living wages. Failure to declare a controlled transaction in report on controlled transactions, 1 % of undeclared amount but not more than 300 living wages. For late declaration of controlled transactions, 1 living wage for each calendar day of the delay but not more than 300 living wages. Failure to submit TP documentation, 3% of the amount that document was not submitted but not more than 200 living wages. For delayed submission of TP documentation, 2 living wage for each calendar day of the delay but not more than 200 living wages. Failure to submit the report on controlled transactions or transfer pricing documentation within 30 calendar days following the last day of the payment of the penalty, 5 living wages for each calendar day of non-submission after expiration of 30 calendar days.

Ukraine: President sign the law to ratify income tax treaty with Luxembourg

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The Ukrainian President signed a law to ratify the income tax treaty with Luxembourg on 3 April 2017.

The Convention between two states was signed as long ago as on 6 September 1997, but has not been ratified until now. On 30 September 2016, parties amended several provisions of the Convention by the Protocol, including articles regarding taxation of dividends, interest and royalties. Luxembourg ratified the amended Convention on 23 December 2016.

The Convention will apply to taxes chargeable and income derived on or after 1 January 2018.