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The Tax Disputes Practice of ADER HABER Law Firm acted as legal counsel to PJSC Southern Mining and Processing Plant in a complex tax dispute against the Eastern Interregional Office of the State Tax Service for Large Taxpayers (Case No. 160\/11425\/25). The court upheld the taxpayer’s right to apply the preferential 5% withholding tax rate to dividends paid to non-residents.<\/p>\n
Background of the dispute<\/strong><\/p>\n The tax authority denied the client the application of the 5% preferential tax rate and assessed additional tax liabilities and penalties based on the standard 15% withholding tax rate.<\/p>\n The case was further complicated by adverse precedent. In separate proceedings (Case No. 160\/18691\/23), the Supreme Court had previously ruled against the client, finding that the direct recipients of the dividends \u2014 12 Cypriot companies \u2014 were merely conduit (intermediary) entities rather than the beneficial owners of the income.<\/p>\n ADER HABER’s strategy<\/strong><\/p>\n Working closely with the legal team of PJSC Southern Mining and Processing Plant, ADER HABER successfully demonstrated the validity of a fundamentally new legal position based on new evidence and factual circumstances.<\/p>\n \u2219 Look-Through Approach. \u2219 Substantiating the entitlement to treaty benefits through indirect ownership.
\nThe team proved that the actual beneficial owners of the dividend income were the parent holding companies resident in the Netherlands and Cyprus. Accordingly, the applicable double taxation treaties were those concluded with the countries of residence of the ultimate beneficial owners, both of which provide for a 5% withholding tax rate.<\/p>\n
\nThe team disclosed the ownership structure and demonstrated that each parent holding company indirectly held more than 20% of the share capital of the Ukrainian company. Consequently, the payment of dividends through authorised intermediary entities did not deprive the client of its entitlement to the reduced treaty withholding tax rate.<\/p>\n