The Ministry of Finance of Ukraine has issued a clarification concerning the corporate taxes of the Federal Republic of Germany and their relevance to Ukrainian tax law, particularly in the context of transfer pricing regulations on 30 September 2024. This clarification stems from the need to apply Sub-paragraph 39.2.1.1 of Article 39 in the Tax Code of Ukraine, which deals with controlled operations involving non-residents.
Regarding taxes of the Federal Republic of Germany, which can be considered or which are identical to the corporate income tax for purposes of applying Sub-paragraph 39.2.1.1 of Sub-paragraph 39.2.1 Paragraph 39.2 Article 39 Section I of the Tax Code of Ukraine at request of the State Tax Service by the Ministry of Finance of Ukraine clarification is provided.
Ministry of Finance notes that Sub-paragraph “d” of Sub-paragraph 39.2.1.1 Sub-paragraph 39.2.1 Paragraph 39.2 Article 39 Section I of the Tax Code of Ukraine establishes that controlled operations are business operations carried out with non-residents who do not pay income tax (corporate tax), including from income received outside the registration state of such non-residents, and/or are not tax residents of the state, where they are registered as legal entities. List of organisational and legal forms of such non-residents by the state (territory) was approved by Resolution of the Cabinet of Ministers of Ukraine № 480 as of 04.07.2017 (with changes) and includes, in particular, certain organisational and legal forms of the Federal Republic of Germany.
Herewith, if non-resident, whose organisational and legal form is included in the list of organisational and legal forms of non-residents who do not pay income tax (corporate tax), including tax on income received outside the registration state of such non-residents, and/or is not tax residents of the state where they are registered as legal entities, approved by the Cabinet of Ministers of Ukraine according to Sub-paragraph “d” of Sub-paragraph 39.2.1.1 Sub-paragraph 39.2.1 Paragraph 39.2 Article 39 Section I of the Code (hereinafter – List), paid income tax in the reporting year (corporate tax), the taxpayer’s business operations with such non-resident in the absence of criteria specified in Sub-paragraphs “a” – “c” of Sub-paragraph 39.2.1.1 Sub-paragraph 39.2.1 Paragraph 39.2 Article 39 Section I of the Code are recognized as uncontrolled operations.
According to explanation to question 6 of the Generalised tax consultation, approved by Order of the Ministry of Finance of Ukraine № 266as of 14.05.2021, if non-resident, whose organisational and legal form is included in the List, pays income tax (corporate tax) in the state where is registered as legal entity (according to data of relevant business register (trade, bank or other register, in which the fact of the company’s state registration, organisation is recorded) in relevant organisational and legal form), such non-resident may be considered as a tax resident of the specified state.
Sufficient confirmation for this will be document testifying to the tax payment by non-resident in relevant state during the period of operation in the general sense (for example, as registered income tax payer (corporate tax)). Such certificates must contain information about the tax payment by a non-resident who is the taxpayer’s counterparty, and not by other individuals, legal entities or entities without the legal entity’s status (in particular, founders of a partnership as an organisational and legal form of non-resident, etc.). Taking into account requirements of Paragraph 103.5 Article 103 Chapter 10 Section II of the Code, it is advisable to receive from the counterparty document issued by the financial (tax) authority of the relevant state, in form approved by legislation of that state. Such a document must be properly legalised and translated according to Ukrainian legislation.
Paragraph 3 Article 2 of the Agreement between Ukraine and the Federal Republic of Germany on the avoidance of double taxation with regard to income and property taxes, ratified by the Law of Ukraine № 449/95-VR as of 22.11.1995 “On ratification of the Agreement between Ukraine and the Federal Republic of Germany on the avoidance of double taxation with respect to income and property taxes” (hereinafter – Agreement) stipulates that taxes to which the Agreement applies in the Federal Republic of Germany, in particular, are: income tax, corporate tax, tax on property and industrial tax.
According to the tax law of the Federal Republic of Germany, German companies are subject to the following taxes: corporate income tax (Körperschaftsteuer) (https://www.gesetze-im-internet.de/kstg_1977/index.html) and trade / industrial tax (Gewerbesteuer) (https://www.gesetze-im-internet.de/gewstg/index.html). Corporate income tax (Körperschaftsteuer) is a national corporate tax, while trade/industry tax (Gewerbesteuer) is the tax levied at the local (municipal) level.
