Draft Law on Implementation of the BEPS Action Plan in Ukraine Made Public
Tax & Legal Alert
26 October 2018
On Wednesday, 24 October 2018, the Ministry of Finance of Ukraine published the draft law “On amending the Tax Code of Ukraine towards the implementation of the Base Erosion and Profit Shifting Action Plan” (“Draft Law”).
As the Draft Law has not yet been brought before the Ukrainian Parliament, it may undergo significant changes until approved and signed.
The Draft Law lays a foundation for implementing the OECD/G20 Action Plan on Base Erosion and Profit Shifting (BEPS).
In particular, the Draft Law envisages:
- Introduction of regulations for taxation of individuals – Ukrainian resident individuals having control of foreign companies will be subject to personal income tax on the profit of controlled foreign companies (CFCs).
- Introduction of new transfer pricing reporting forms for international groups of companies: country-by-country reports and a master file. Along with multinational companies with turnover exceeding EUR 750 million, country-by-country report filing requirements will also apply to Ukrainian businesses with annual revenue exceeding EUR 50 million. The Draft Law contains a series of criteria for a business to qualify as “Ukrainian business”.
- Expansion of certain provisions regarding the concept of a “permanent establishment” and introduction of a new approach for attributing profits to a permanent establishment.
- Other provisions contained in the BEPS Action Plan, in particular, introduction of the “principal purpose test” for applying double tax treaties, TP rules to the transactions that involve primary commodities, etc.
- Elaboration and expansion of the concept of a beneficial owner.
- Taxation of non-residents’ transactions that involve the sale of shares, if the value of such shares is, for the most part, generated (directly or indirectly) from real estate located in Ukraine.
- Introduction of an “arm’s length price” for individuals’ transactions with investment assets.
The Draft Law contains a number of provisions that may be regarded as rather “fiscal”, in particular:
- Introduction of the concept of the so-called “constructive dividends”, which equates, for taxation purposes, transfer pricing violations and a number of payments to non-residents, with dividends.
- Introduction of a “business purpose” criterion to be applied to transactions with non-residents. The tax authorities will have the right to challenge the taxable result of transactions appealing to the absence of “business purpose” of such transactions.
The Draft Law will have a significant impact both on the majority of international groups and Ukrainian companies engaged in international business and on the individuals – tax residents of Ukraine who own or control such business. These changes will require the businesses and their owners to make a revision of their existing group structures and established business practices.
According to the Draft Law, if adopted, the changes will take effect on 01 January 2020. Country-by-country report filing provisions will apply to the 2019 reporting year.
We follow up the status of the Draft Law and will keep you informed on future developments.
Should you have any questions regarding this Alert, please feel free to contact our Tax & Legal professionals.