According to the press-release of the Ministry of Finance of Ukraine, Ukraine, starting from 1 January 2017, is to become a member of the Inclusive framework for BEPS implementation. The start of the official cooperation was formalised by a letter from the Minister of Finance of Ukraine to the OECD on the 22 November 2016 which confirmed the Ukraine would join the initiative.
What does this mean for business in the Ukraine?
The base erosion and profit shifting (BEPS) project is aimed at combatting tax planning strategies that exploit gaps and mismatches in effective tax rules with the intention of artificially shifting profits to low or non-tax jurisdictions, the result of which is little or no payment of corporate tax.
BEPS comprises 15 Actions to tackle tax avoidance, improve the coherence of international tax rules and ensure a more transparent tax environment.
By joining the inclusive framework, Ukraine confirmed its undertaking to implement the following four minimum standards:
- Countering Harmful Tax Practices (Action 5),
- Preventing the Granting of Treaty Benefits in Inappropriate Circumstances (Action 6),
- Transfer Pricing Documentation and Country-by-Country Reporting (Action 13), and
- Making Dispute Resolution Mechanisms More Effective (Action 14).
The BEPS project allows the participation of both OECD and non-OECD countries. For Ukraine, joining the BEPS initiative is a very important step towards worldwide cooperation for fair tax payment and is a clear sign that Ukraine is willing to adopt and implement European and worldwide best tax practices.
Also worth knowing
BEPS Action 15, Developing a Multilateral Instrument to Modify Bilateral Tax Treaties, is concerned with how to introduce new standards to counter treaty abuse in respect of more than 2000 international tax treaties and how to align them with the tax measures elaborated by the OECD and the BEPS project, as well as how to improve dispute resolution tools. Implementation of Action 15 will require changes to the model tax conventions, as well as to the bilateral tax treaties based on those model conventions.
On 24 November 2016, the negotiations on the text of such Multilateral Instrument were concluded. The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (the “Convention”) in particular will amend the existing Double Tax Treaties with provisions limiting applicability of treaty benefits, amend rules for dual residency and taxation of capital gains and the avoidance of treaty abuse and taxation of permanent establishments.
According to the OECD, a first high-level signing ceremony is expected to take place in early June 2017.
What should business in Ukraine do beforehand?
In light of the general anti-offshore mood in Ukraine, Ukraine’s joining of BEPS demonstrates the increased attention being paid to business by the Ukraine’s tax authorities.
Ukraine still needs to do its own homework in order to implement the rules and make them workable. However, business in Ukraine can already analyse it structures and understand what effect the Convention will have on them and, specifically, the prospective rules for taxation of dividends and permanent establishments.