The novelties for the taxpayers due to BEPS Law

So called BEPS Law* signed by the President of Ukraine on May 21, 2020, became effective on May 23, 2020. The BEPS Law introduces a number of novelties in Ukrainian tax legislation and significantly amends the current rules.

Main information for the taxpayers about this law and the provisions which are about to enter into force in the nearest future is outlined below.

TAXATION OF UKRAINIAN ENTITIES

1. Tax administration

 

	Extended opportunities for correspondence between the taxpayers and controlling authorities with the help of electronic account, namely regarding obtaining tax assessment notices.
	Court decision (issued by investigating judge) is excluded from the list of grounds for unscheduled tax audit.
	Extended list of the grounds for financial liability exemption and mitigation.
	Financial liability is conditional on guilt, except for other cases provided by the Tax code of Ukraine.

 

2. Corporate profit tax

 

	Increased cost criteria for recognition of the fixed assets.
	Increased income threshold for the application of tax adjustments.
	Reduced terms for the depreciation of fixed asset for the period from January 1, 2020 to December 31, 2030.
	New limitations for accrual of depreciation of fixed assets.
	Changed method of calculation of «thin capitalization».
	Thin capitalization rule is extended for interest on loans, credits and other debt obligations from unrelated non- Before the Law, this rule applied only to related non-residents.
	Financial result subject to corporate profit tax shall be increased for 30% of costs for goods, works, services sold to non-residents specified in the lists of states (territories) and legal forms approved by the Government of Ukraine.
	Upon reorganization, taxpayers can transfer limited amount of negative tax base to his assignee.
	The opportunity to deduct excise tax paid from the amount of corporate profit tax is abolished.

 

3. Value added tax

 

	Abolished VAT exemption for export of rape, cole-seed and soy for non-manufacturers.
	VAT can be credited on the basis of customs declarations.
	Extended terms for registration of consolidated tax invoices.
	Penalties for late/ non- registration of tax invoices issued for supply of goods / works / services subject to 0% VAT / VAT exempt.
	The rules of determination of minimum VAT base shall not apply to supply of electricity at market value.

 

4. Excise tax

 

	Increased minimum excise tax obligation rates and new excise tax rates regarding some tobacco products and liquid for electronic cigarettes.

 

5. Acreage rent

 

	Increased rates for black, colored and alloying metals, ironstone.

 

6. Transfer pricing

 

	Extended list of transactions subject to transfer pricing rules.
	The opportunity to use quotation prices for raw materials in order to check the price for such materials at arm’s length principle.
	New types of transfer pricing reports.
	Three-leveled transfer pricing documentation.
	Increased amount of information that shall be indicated in the transfer pricing documentation.
	Detailed order for proportional adjustment of tax obligations in case related non-resident performs adjustment of tax obligations on the basis of double taxation treaty.

TAXATION OF FOREIGN COMPANIES

1. Dividends

 

	Extended definition of dividends, including deemed dividends.

 

2. Permanent establishment of non-residents

 

	Extended criteria for recognition of permanent establishment of non-resident in Ukraine.
	The application of arm’s length principle to determine the taxable income of the permanent establishment as independent principle.
	Automatic registration of permanent establishment of non-resident as a result of tax audit.
	Fine for conducting activity through branch / permanent establishment without registration.

 

3. Taxation of sale of corporate rights that derive their value from immovable property.

 

	Rules for taxation of income from sale of non-resident companies that own real estate in Ukraine.

 

4. Reasonable economic ground (business purpose)

 

	Criteria for determination of business purpose in transactions with non-residents required to acknowledge expenses.

 

5. Taxation of non-resident entities in Ukraine

 

	Controlled foreign companies’ rules provide that undistributed profits of non-resident entities of Ukrainian beneficial owners (individuals and legal entities) are subject to taxation in Ukraine as part of their income.
	Place of effective management concept becomes a ground for registration of entity as corporate profit taxpayer in Ukraine.

 

6. Application of double taxation treaties

 

	Principle purpose test of business transaction with non-residents is introduced as condition to obtain benefits under double taxation treaty.
	The opportunity to apply the flow-through approach in choice of the double taxation treaty.
	New criteria for beneficial owner of income with respect to application of double taxation treaties.
	The Tax Code is supplemented by a mutual agreement procedure for the elimination of taxation that contradicts double taxation treaties.

 

7. Capital gain of individuals

 

	Residents are empowered to tax the income from foreign securities trade as capital gain.
	Established «regular price» for transactions with non-residents (related or incorporated in low-tax jurisdictions) regarding investment assets.
	It is prohibited to acknowledge expenses for purchase of securities from eminent that may be considered fictitious.

 

* The Law of Ukraine «On amendments to the Tax code of Ukraine regarding improvement of tax administration, elimination of technical and logical inconsistencies in tax legislation (hereinafter – «the Law»).