New in withholding tax: changes that came into force on 1 July

Since 1 July, 2024, the period established by the Tax Code of Ukraine for document retention, tax audits and determination of Ukrainian withholding tax liabilities has been extended.

On 1 July 2024, the Law of Ukraine dated 21 May 2024 No. 3721-IX «On Amendments to the Tax Code of Ukraine and the Law of Ukraine "On Electronic Communications" regarding the Rent for the Use of the Radio Frequency Spectrum (Radio Frequency Resource) of Ukraine» came into force.

Upon entry into force of the Law on 1 July, the limitation period for conducting control by tax authorities of taxpayers' compliance with the Tax Code of Ukraine and fulfilment of their payment obligations of withholding tax on income sourced from Ukraine (WHT) has been extended from three (3) to seven (7) years.

Henceforth, throughout the period equal to 2 555 days, i.e. 7 years:

• WHT taxpayers must retain documents, including primary documents, and information related to calculation and payment of WHT which may be required for tax control purposes;
• tax authorities are entitled to conduct tax audits and reassess independently, based on the results of these audits, the amounts of WHT tax liabilities to be paid.

As of now, it is unclear what consequences this amendment will have for WHT taxpayers and how it will be applied by tax authorities. However, there is a significant risk of retroactive application of this provision.

As a result, there may be intensification of efforts by tax authorities to conduct tax audits on taxpayers' transactions that were subject to WHT when paying income from Ukraine abroad (for instance, payment of dividends, interest, royalties, profits from disposal of investment assets, etc.) within the seven-year period prior to enactment of the abovementioned Law. These tax audits may focus on completeness and timeliness of fulfilment by taxpayers of their obligations regarding WHT withholding when making payments from Ukraine, as well as on reassessing WHT tax liabilities, including penalties, based on the results of these tax audits.

In view of the above, we recommend that taxpayers promptly audit, without delay, the availability of documents related to the abovementioned transactions and WHT payment for at least the past seven (7) years, as well as verify the completeness and timeliness of their fulfilment of their WHT withholding duties when making payments abroad, as well as ensure the correct reflection of these transactions and WHT withholding in their tax accounting.