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Update - Ukraine Legislation for Implementation of BEPS and Other Measures Signed into Law

Ukraine President Volodymyr Zelensky has signed legislation into law for the implementation of several BEPS and other measures, which were approved by parliament in January 2020. The Law on Amendments to the Tax Code of Ukraine to improve tax administration and eliminate technical and logical inconsistencies (Law No. 466-IX) was published in the Official Gazette on 22 May 2020. With the final version signed into law and published, the effective dates of various measures are set, with some important changes compared to earlier versions.

Some of the key measures and their effective dates include the following:

  • New Country-by-Country (CbC) reporting and Master file requirements apply for financial years ending after 1 January 2021, although for CbC reports, the requirements will not apply earlier than the year in which Ukraine signs the multilateral agreement for the exchange of CbC reports;
  • New interest deduction restriction rules apply from 1 January 2021, which include that taxpayers exceeding a 3.5:1 debt-equity ratio are restricted to deducting up to 30% of tax EBITDA in relation to all debts with non-residents, whether related or not, with an exemption for banks and financial leasing institutions;
  • New controlled foreign companies (CFC) rules apply from 1 January 2021;
  • New rules for the taxation of the transfers of shares in Ukrainian companies deriving more than 50% of their value from immovable property situated in Ukraine at any time in the 365 days preceding the alienation apply from 1 July 2020;
  • New rules on permanent establishments in line with OECD standards apply from 23 May 2020;
  • New principal purpose test and beneficial ownership requirements for claiming treaty benefits and the codification of existing GAAR (business purpose test) practice regarding deductions apply from 23 May 2020;
  • New rules on handling mutual agreement procedure (MAP) request apply from 23 May 2020.

Further to the above, new rules are put in place with effect from 1 January 2021 to provide that if a transaction with a non-resident related party is not at arm's length, the resulting transfer pricing adjustment would be considered a dividend-equivalent payment subject to 15% withholding tax. Other payments to non-residents will be considered dividend-equivalent payments as well, including cash or non-cash pay-outs by Ukrainian companies to non-resident shareholders in the case of a charter capital decrease, shares buyouts, shareholder withdrawals from the company, and other similar transactions that effectively decrease the retained earnings of a Ukraine company.

Note - A prior report on the law's approval in parliament has been updated to reflect the final effective dates of the measures following the law's publication in the Official Gazette.

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