Deadline approaching to settle WHT liabilities for transfer pricing adjustments

In Ukraine, the first deadline to settle withholding tax liabilities associated with transfer pricing adjustments is 30 September 2022. As from 1 January 2021, transfer pricing adjustments (and certain other payments to nonresidents related to a company’s capital) are treated as dividend-equivalent payments subject to a 15% withholding tax. However, the withholding tax may be reduced (even eliminated) under a double tax treaty to which Ukraine is party.

In this respect, the following should be considered when determining whether a reduced withholding tax rate applies under a double tax treaty:

• The characterization of the excessive amounts paid in a controlled transaction under the relevant double tax treaty (e.g., dividends, business income, other income);
• The ownership structure between the parties (e.g., direct, indirect, none);
• Whether the recipient of the payments is the beneficial owner of the income and, in certain cases, whether a business purpose exists;
• The tax residency status of the recipient of the payments and the availability of the relevant tax residency certificate; and
• Whether the recipient of the payments carries out business in Ukraine through a permanent establishment.

A detailed analysis should be performed as to how payments made in fiscal year 2021 for each controlled transaction that may not have been performed at arm’s length should be treated under the relevant double tax treaty. In addition, tax residency certificates should be obtained from counterparties in such controlled transactions. In order to obtain the benefits from a double tax treaty for fiscal year 2021 controlled transactions, it is recommended to obtain the tax residency certificates (if not readily available), legalized or apostilled and translated into Ukrainian, before 1 October 2022.

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