On 21 May 2020, the President of Ukraine signed Law No. 466-IX (Draft Law No.1210) “On Amendments to the Tax Code of Ukraine on Improvement of Tax Administration, Elimination of Technical and Logical Inconsistencies in Tax Legislation”, which was approved on 16 January 2020 by the Parliament.

The Law prescribes the introduction of international tax control standards for all participants in international trade and the implementation of rules envisaged by the Base Erosion and Profit Shifting (BEPS). The following important changes were introduced related to BEPS and other provisions:

Three-tiered transfer pricing reporting in line with BEPS action 13

Three-tiered TP documentation was introduced to multinational enterprises (MNE) present in Ukraine consisting of Master File, TP Documentation (Local File), and a Country-by-Country Report.in accordance with BEPS action 13. The first global TP documentation may be requested in 2022 for the financial year ending in the 2021 calendar year. Revenue thresholds are EUR 50 million for master files and EUR 750 million for CbC reports in line with OECD. The first reporting year for master files and CbC reports would be 2021 but not earlier than when Ukraine joins the OECD multilateral agreement for the exchange of CbC reports (CbCR MCAA). The first notification should be provided for 2020.

New penalties are announced for a failure to submit the said notification: 50 subsistence minimums for employable individuals; failure to submit a Master File: 300 subsistence minimums for employable individuals; and failure to submit a Country-by-Country Report: 1,000 subsistence minimums for employable individuals.

Requirements to the contents of Local File are broadened.

Increase of annual income thresholds

The corporate income tax return should generally be submitted on a quarterly basis, but some taxpayers (newly established, agricultural producers, and entities with annual income less than UAH 20 million) have to submit them annually. With effect from 1 January 2021, the annual income threshold that requires application of tax adjustments is increased from UAH 20 million to UAH 40 million.

The value requirement for asset recognition is increased from UAH 6,000 to UAH 20,000.

Restriction on interest deduction

The new rule would apply to transactions with related and unrelated persons if the debt is greater than 3.5 times the company’s equity.  Interest deduction limitation would be reduced to 30% of earnings before interest, taxes, depreciation, and amortization (EBITDA), which was previously 50%. The new rule will no longer apply to lease companies and financial institutions.

General anti-avoidance rule (GAAR)

The Law introduces GAAR. The new rules will be effective from 23 May 2020: “Principal purpose test” introduction related to the application of double tax treaties; and “Business purpose test” for operations with non-residents;

International taxation

  • prevention of abuse in connection with the application of double taxation treaties;
  • prevention of avoidance of the status of a permanent establishment (PE) and taxation of permanent establishments;
  • The definition of related parties is revised, with ownership of the shareholder requirements increased from 20% to 25%, which is also in line with the international approach.

Controlled foreign companies (CFC)

The Law introduces CFC rules. The CFC profit may be taxable at 18%, and in terms of dividends received by CFCs (directly or indirectly) from Ukrainian companies – CPT-payers or non-CPT-payers, the rates are, respectively, 5% or 9%. The new CFC rules will effective from 1 January 2021.

International procedures

  • application of the mutual agreement procedure (MAP), which provides for a mechanism for submitting an application for consideration of the case under the MAP, requirements for such an application, the procedure for actions of the supervisory body, etc.;
  • taxation of payments equated to dividends when conducting transactions with non-residents;

Others

Personal income tax is introduced at a rate of 18%. Moreover, the Law has stated in detail about the Simplified tax system, Excise tax, Rent, Local taxes, Single tax Taxation of income of individuals and individuals – entrepreneurs, Value-added tax (VAT).

The majority of its provisions entered into force on 23 May 2020. Others will become effective later on.