On 27 Aug 2021, the Ukrainian Ministry of Finance has issued Order No. 480 regarding the taxation of income of non-residents, which are equated to dividends. The Order provides clarification on the application of the new rules of taxation of income of non-residents, which are equated to dividends, in terms of the following aspects of the application of the Tax Code:
- Determination of the object and tax base for non-resident income tax in controlled transactions;
- Calculation of the amount of non-resident income tax on income equated by the Code to dividends (“constructive dividends”). In particular, this Code of Criminal Procedure explains the peculiarities of the application of the calculation formula given in the third paragraph of sub-clause 141.4.2 of clause 141.4 of Article 141 of the Code; the rules of calculation of tax liabilities are given in cases when the relevant convention on avoidance of double taxation determines the maximum tax rate that can be withheld / paid from the income of a nonresident – six examples of calculating the amount of income tax of a nonresident in different scenarios;
- The procedure for applying conventions in the payment of dividends in a controlled transaction related to the sale of goods, works or services (a step-by-step algorithm for analyzing such transactions) ;
- The procedure for applying the conventions to interest and royalties paid in a controlled transaction and equated by the Code to dividends (also in the form of a step-by-step algorithm);
- Features of application to payments equated to dividends, the requirements of paragraph 103.2 of Article 103 of the Code to confirm the existence of a non-resident status of the beneficial owner of income and to analyze the main purpose of the transaction;
- Calculation of tax liabilities on interest and royalties, which were paid to a non-resident and from which the income tax of a non-resident was withheld before the non-compliance of the terms of the “outstretched arm” operation was established;
- Requirements for tax control over the taxation of income equated to dividends.
