On 21 May 2020, the President of Ukraine finally signed the Anti-BEPS Bill "On Amendments to the Tax Code of Ukraine Purposed to Improve the Administration of Taxes, Eliminate Technical and Logical Inconsistencies in the Tax Legislation" into Law ("Anti-BEPS Law"). As of today, the Anti-BEPS Law is pending publication in the official editions of Ukraine.
In this context, on 16 January 2020, the Parliament of Ukraine passed the Anti-BEPS Bill, which introduces a number of fundamental novelties into the Ukrainian tax legislation. The new rules are largely aimed at combating tax base erosion and profit shifting practices with the most significant novelties and key developments concerning:
- CFC Rules (the CFC Rules introduce taxation of income of controlled foreign companies at the hands of Ukrainian "controlling" persons);
- Permanent Establishments (the definition of permanent establishment ("PE") would be elaborated in line with the OECD's BEPS Action 7; the methods of PE taxation would now be represented by the Authorized OECD Approach, i.e., applying the transfer pricing methods for determining the profits that would be deemed earned by the PE);
- Corporate Income Tax (amending the earning stripping restriction and business purpose test);
- Withholding Tax (introduction of the principal purpose test, enhancement of the definition of "beneficial owner", taxation of capital gains arising from the sale of real estate rich companies deriving their value from immovable property located in Ukraine, introduction of the "constructive dividends" concept);
- Transfer Pricing (introduction of the global three-tier approach to the transfer-pricing reporting);
- Personal Income Tax (taxation of foreign-sourced investment income);
- Tax Administration (tax audits, tax penalties).
Once officially published, the Anti-BEPS Law shall enter into force on:
- the next day following the official publication of the Anti-BEPS Law - with respect to PE taxation, business purpose test, principal purpose test, definition of "beneficial owner", PIT taxation of foreign-sourced investment income, majority of the transfer pricing provisions, tax audits;
- 1 July 2020 - with respect to taxation of capital gains;
- 1 January 2021 - with respect to the CFC Rules, earning stripping restriction and "constructive dividends".
At the same time, with the law being signed on 21 May 2020, there are provisions that already call for the extension, like a tax-free liquidation for the CFC purposes, the CFC documentation requirements etc. We may, thus, reasonably expect some further legislative developments in this regard.
In addition, the President referred to the Cabinet of Ministers with a number of recommendations purposed to enhance the Anti-BEPS Law concerning, inter alia, the CFC Rules, protection of data reported by taxpayers and obtained from the foreign jurisdictions.
Last but not least, the President urged the Cabinet of Ministers to prepare and submit the Tax Amnesty Bill for the Parliament’s consideration within the next three months.
For a more detailed discussion on the Anti-BEPS Law, please follow this link.
We will be following up with targeted overviews of the key developments introduced by the Anti-BEPS Law.