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Amending Protocol to Tax Treaty between the Netherlands and Ukraine Entering into Force — Orbitax Tax News & Alerts

The amending protocol to the 1995 income and capital tax treaty between the Netherlands and Ukraine will enter into force on 31 August 2021. The protocol, signed 12 March 2018, is the first to amend the treaty and includes the following changes:

  • The title and preamble are replaced in line with OECD BEPS standards;
  • Article 2 (Taxes Covered) is updated, including that the treaty covers:
    • Netherlands income tax, wages tax, company tax including the Government share in the net profits of the exploitation of natural resources levied pursuant to the Mining Act, and dividend tax; and
    • Ukraine individual income tax and tax on income of enterprises;
  • Article 3 (General Definitions) is updated in regard to the definition of the terms "the Netherlands", "Ukraine", and "pension fund";
  • Paragraph 1 of Article 4 (Resident) is replaced with three new paragraphs concerning the definition of a "resident of a Contracting State";
  • Paragraph 3 of Article 5 (Permanent Establishment) is replaced, providing that a building site or construction or installation project constitutes a permanent establishment only if it lasts more than twelve months;
  • Paragraphs 2, 3, and 4 of Article 10 (Dividends) are replaced, providing for a 5% withholding tax rate if the beneficial owner is a company directly holding at least 20% of the paying company's capital, otherwise 15%, as well as an exemption for dividends paid by a company that is a resident of a Contracting State to the other State if the beneficial owner is:
    • a company whose investment in the capital of the company paying the dividends is guaranteed or insured by the other State, the central bank of the other State or any agency or instrumentality (including a financial institution) owned or controlled by that State; or
    • a pension fund of the other State;
  • Article 11 (Interest) is replaced, providing for a withholding tax rate of 5%, as well as the following exemptions:
    • interest arising in a Contracting State and paid in respect of a bond, debenture or other similar obligation of that State, the central bank of that State, a political subdivision or local authority thereof shall be exempt from tax in that State;
    • interest arising in a Contracting State and paid in respect of a bond, debenture or other similar obligation to the other Contracting State, the central bank of the other Contracting State, a political subdivision or local authority thereof, or a pension fund of the other Contracting State shall be exempt from tax in the first-mentioned State; and
    • interest arising in a Contracting State and paid in respect of loans guaranteed or insured by the other Contracting State, the central bank of the other Contracting State or any agency or instrumentality (including a financial institution) owned or controlled by that State, shall be exempt from tax in the first-mentioned State;
  • Article 12 (Royalties) is replaced, providing 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 film 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;
  • Article 24 (Elimination of Double Taxation) is amended, which includes clarifying amendments and adjustments to references to other provisions of the treaty, as well as a new paragraph providing that, subject to certain conditions, the Netherlands will allow a reduction from Netherlands tax for the tax paid in Ukraine on items of income that, according to Article 7 (Business Profits) and the relevant provisions of Articles 10 (Dividends), 11 (Interest), 12 (Royalties), 13 (Capital Gains), and 22 (Other Income), may be taxed in Ukraine due to being connected to a permanent establishment;
  • A new Article 24a (Entitlement to Benefits) is added, providing that a benefit under the treaty shall not be granted in respect of an item of income or property 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;
  • Article 27 (Mutual Agreement Procedure) is amended, including updated provisions regarding arbitration;
  • Article 28 (Exchange of Information) is replaced in line with international standards;
  • Article 29 (Assistance in the Collection of Taxes) is replaced with updated provisions; and
  • Several provisions of the final protocol to the treaty are amended, including the addition of the provision that the benefits of the Articles 10 (Dividends), 11 (Interest), 12 (Royalties), 13 (Capital Gains), and 22 (Other Income) will not apply to a Dutch tax-exempt Investment Institution (vrijgestelde beleggingsinstelling).

The protocol also amends Article 15 (Dependent Personal Services), replaces Articles 18 (Pensions, Annuities and Social Security Payments) and 21 (Students), and removes Articles 30 (Limitation of Articles 28 and 29) and 32 (Extension to the Netherlands Antilles or Aruba).

The protocol applies from 1 January 2022.