On 24 October 2018, Ukraine published a draft law on the implementation of some of the recommendation of the OECD/G20 reports on Base Erosion and Profit Shifting (BEPS). The draft law was developed by the Finance Ministry and National Bank supported by international tax experts including expert opinion from the OECD and the World Bank. The draft law is designed to implement the changes with effect from 1 January 2020.

In relation to the controlled foreign corporation (CFC) rules the draft law contains disclosure requirements relating to the participation in CFCs and in relation to CFC taxation. The changes are designed to reflect some recommendations of BEPS action 3.

The draft law would also restrict the deductibility of interest for tax purposes to a maximum of 30% of earnings before interest, tax, depreciation and amortization (EBITDA). This is in line with the recommendations under action 4 of BEPS.

To combat the abuse of double tax treaties Ukraine will introduce a principal purpose test in relation to a treaty, so a benefit under the treaty would not be granted if the principal purpose of the relevant transaction was to obtain that benefit, subject to certain other conditions. There will also be expanded beneficial ownership requirements in relation to treaties, generally in line with action 6 of BEPS.

The rules in relation to a permanent establishment are also to be expanded to combat attempts to avoid tax in Ukraine by multinationals by avoiding the creation of a permanent establishment that would be subject to tax in Ukraine on its profits.

In relation to transfer pricing further provisions will be introduced in relation to the application of transfer pricing methods.

An important feature of the OECD/G20 BEPS recommendations is the introduction of a three-tiered transfer pricing requirement for some companies, including a master file and local file and the requirement to file a country by country report outlining the global activities of the group in the jurisdictions where it operates. The draft law would introduce this requirement in line with BEPS action 13.

There will also be new provisions on the application of the mutual agreement procedure. This is a dispute resolution procedure under a tax treaty where the competent authorities of the contracting states endeavour to resolve issues arising under the provisions of the treaty.