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Amending Protocol to Tax Treaty between Austria and Ukraine has Entered into Force — Orbitax Tax News & Alerts

The amending protocol to the 1997 tax treaty between Austria and Ukraine entered into force on 25 June 2021. The protocol, signed 15 June 2020, is the first to amend the treaty and includes the following changes:

  • The preamble is replaced, including new language regarding treaty abuse developed as part of the BEPS project;
  • Article 2 (Taxes Covered) is amended with respect to the Ukraine taxes covered, which includes the replacement of "the income tax on citizens" with "the personal income tax";
  • Article 4 (Resident) is amended, paragraph 1 replaced to read "For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management, place of registration or any other criterion of a similar nature, and also includes that State and any political subdivision or local authority thereof. This term, however, does not include any person who is liable to tax in that State in respect only of income from sources in that State or capital situated therein";
  • Article 10 (Dividends) is amended to provide for a 5% withholding tax rate if the beneficial owner is a company directly or indirectly holding at least 10% of the paying company's capital; otherwise, 15%;
  • Article 11 (Interest) is amended to provide for a 5% withholding tax rate, and to include new provisions regarding an exemption on interest beneficially owned by a Contracting State, paid by a Contracting State, or paid on a loan, debt-claim, or credit that is owed to, or made, provided, guaranteed, or insured by a Contracting State;
  • Article 12 (Royalties) is amended to provide for:
    • a 10% withholding tax rate on royalties paid for the use of, or the right to use, any copyright of literary or artistic work including cinematograph films, and films or tapes for radio or television broadcasting; and
    • a 5% withholding tax rate on royalties paid for the use of, or the right to use, any copyright of scientific work, any patent, trademark, design or model, plan, secret formula, or process, or for information concerning industrial, commercial, or scientific experience;
  • A new Article 23A (Entitlement to Benefits) is added, which provides that a benefit under the treaty shall not be granted in respect of an item of income or capital if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty; and
  • Article 26 (Exchange of Information) is replaced in line with OECD standards on information exchange.

The protocol generally applies from 1 January 2022. However, the changes made by Article 6 of the protocol regarding withholding tax on royalties will enter into force one year after the protocol enters into force and will apply from 1 January of the year following Article 6's entry into force (i.e., the changes for royalties will apply from 1 January 2023).