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Тaxation of business with the foreign element: what is new in the Ukrainian legislation?

28/ 04/ 2021
  A joint meeting of the EBA Legal and Tax&Accounting Committees of the Western Ukrainian Office of the Association together with the invited expert - Oleh Chaika, Head of Practice Taxes / Transactional and International Taxation ARZINGER was held on April 28. The main theses of the meeting: • Accession to one universal international agreement allows countries to implement the mechanism of taxation and avoidance of double taxation more efficiently and faster. Today we have such an agreement MLI, developed by the international organization OECD. It provides the adjustment of many double taxation agreements. For Ukraine, MLI came into force on December 1, 2019; • In 2020 the definition of Permanent Representation has changed significantly. The presence of a permanent establishment of a non-resident in Ukraine is essential when a person in Ukraine discusses the essential terms of transactions for a non-resident or enters into agreements on behalf of a non-resident. Similar changes apply to the storage of goods of a non-resident and delivery on his behalf; • The main business purpose test (RRT) is a continuation of the purpose and objectives of double taxation agreements. However, remember that if one of the main purposes of structuring transactions is to avoid taxation or the desire to use a tax benefit under the Convention, the tax authorities of the concerned State may refuse because of lack of proper commercial reasons. But even if the RRT is not complied with, the taxpayer has the right to demonstrate that the provision of the tax benefit is in line with the purpose of the double taxation agreement; • A beneficial owner is a person who has the right to receive income and be its beneficiary. In 2020, the concept of Beneficiary Owner received a second wind: the agents, nominal owners and a person who does not have sufficient economic assets, capital, fixed assets and does not bear sufficient economic risks can not be considered as the Beneficiary Owner; • As for the change in the application of the rules of thin (insufficient) capitalization, the changes affected the restrictions on the inclusion of interest in tax expenses: 30% of adjusted EBITDA (previously 50%). Also, now in excess of the ratio of equity and debt capital (1: 3.5), the restrictions apply only to interest accrued in favor of non-residents; • Innovations also affected the low-tax liquidations of foreign entities. It was clarified that they apply only to those foreign companies that were established before 23.05.2020. Oleh Chaika also drew attention to the existence of a draft generalized tax consultation on low-tax liquidation of foreign entities. The participants also got acquainted with the current case law of the Supreme Court on international taxation. We thank the expert - Oleh Chaika, for an informative and interesting speech, and our moderators - Natalia Anokhina and Igor Pihurka!

A joint meeting of the EBA Legal and Tax&Accounting Committees of the Western Ukrainian Office of the Association together with the invited expert – Oleh Chaika, Head of Practice Taxes / Transactional and International Taxation ARZINGER was held on April 28.

The main theses of the meeting:

• Accession to one universal international agreement allows countries to implement the mechanism of taxation and avoidance of double taxation more efficiently and faster. Today we have such an agreement MLI, developed by the international organization OECD. It provides the adjustment of many double taxation agreements. For Ukraine, MLI came into force on December 1, 2019;

• In 2020 the definition of “Permanent Representation” has changed significantly. The presence of a permanent establishment of a non-resident in Ukraine is essential when a person in Ukraine discusses the essential terms of transactions for a non-resident or enters into agreements on behalf of a non-resident. Similar changes apply to the storage of goods of a non-resident and delivery on his behalf;

• The main business purpose test (RRT) is a continuation of the purpose and objectives of double taxation agreements. However, remember that if one of the main purposes of structuring transactions is to avoid taxation or the desire to use a tax benefit under the Convention, the tax authorities of the concerned State may refuse because of lack of proper commercial reasons. But even if the RRT is not complied with, the taxpayer has the right to demonstrate that the provision of the tax benefit is in line with the purpose of the double taxation agreement;

• A beneficial owner is a person who has the right to receive income and be its beneficiary. In 2020, the concept of “Beneficiary Owner” received a second wind: the agents, nominal owners and a person who does not have sufficient economic assets, capital, fixed assets and does not bear sufficient economic risks can not be considered as the Beneficiary Owner;

• As for the change in the application of the rules of thin (insufficient) capitalization, the changes affected the restrictions on the inclusion of interest in tax expenses: 30% of adjusted EBITDA (previously 50%). Also, now in excess of the ratio of equity and debt capital (1: 3.5), the restrictions apply only to interest accrued in favor of non-residents;

• Innovations also affected the low-tax liquidations of foreign entities. It was clarified that they apply only to those foreign companies that were established before 23.05.2020. Oleh Chaika also drew attention to the existence of a draft generalized tax consultation on low-tax liquidation of foreign entities.

The participants also got acquainted with the current case law of the Supreme Court on international taxation.

We thank the expert – Oleh Chaika, for an informative and interesting speech, and our moderators – Natalia Anokhina and Igor Pihurka!

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