Constructive dividends

The BEPS Law also did not spare dividends, which now include a number of other by their legal nature payments.

The relevant rules should come into force on January 1, 2021.

 

 

What are the main changes?

In fact, the BEPS Law introduced the concept of constructive dividends, although such definition is not mentioned. It means that a number of other payments, which are not dividends by their legal nature, are equated to them.

The list of such payments are as follows:

Dividends before the BEPS Law

After the BEPS Law

 

Monetary transaction due to the distribution of profits.

 

 

Monetary and non-monetary transaction due to the distribution of profits.

The difference between the transaction price and the price as if made on arm’s length principle in:

  • payments for securities and corporate rights to non-residents which are covered by the transfer pricing lists in operations which are controlled under Ukrainian transfer pricing rules
  • sale (purchase) of goods, works or services to (from) non-residents which are covered by the transfer pricing lists in operations which are controlled under Ukrainian transfer pricing rules

 

Monetary and non-monetary transaction which is carried out due to the reduction of authorized capital, purchase of corporate rights in own capital (“buy-back”), exit of a shareholder from the company or other similar transaction in an amount that leads to a decrease in undistributed profits of the legal entity.

 

The application of tax treaties is also possible to constructive dividends, provided that the requirements of such treaties are met.

 

What steps are recommended to take due to the changes?

  • Analyze the impact of these changes on transactions which are carried out by Ukrainian companies with non-residents.
  • Assess the identified risks, if any.
  • Develop ways to minimize identified risks and evaluate costs.
  • Make an economically feasible decision regarding future business model.

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