Ukraine ratified the Multilateral Convention on the Implementation of Measures Concerning Tax Agreements in order to counteract the tax base erosion and to remove profits from taxation.
The correspondent Law No. 2692 – VIII was officially published on March 23 and entered into force on April 3, 2019.
The Convention was committed on November 24, 2016, in Paris and was signed on behalf of Ukraine on July 23, 2018, in London.
Ukraine ratified the Convention with certain reservations and declarations.
In particular, Ukraine wants that the Convention be extended on the agreements and conventions between the Cabinet of Ministers and the governments of other countries on the avoidance of double taxation defined by Law No. 2692-VIII (the total of 76 agreements and conventions).
The need to conclude and ratify the Multilateral Convention stems from the fact that on January 1, 2017, Ukraine joined the Extended Cooperation Program within the Organization for the Economic Cooperation and Development (OECD) and assumed the obligation to implement the minimum standard of the Action Plan to combat tax base dilution and profit generation due to taxation (BEPS).
Four steps, out of the fifteen proposed, are mandatory for Ukraine, namely:
(a) Step 5 “Improving measures to combat tax abuse”;
(b) Step 6 “Preventing the abuse of benefits provided for in bilateral agreements”;
(c) step 13 “Recommendations on transfer pricing documentation and disclosure in countries”;
(d) Step 14 “Improving the mutual agreement procedure by resolving disputes”.
The implementation of these steps by BEPS will help to combat the aggressive tax planning, to create a level playing field to tackle tax evasion, to improve the consistency of international tax rules, to provide a more transparent tax environment that will improve the investment climate, to boost economic growth and to stimulate international trade.
The provisions binding for all the States that are signatories to the Multilateral Convention, including those adopted by Ukraine, are the following:
(a) each taxation agreement is supplemented by a preamble, according to which the agreements should not be applied to the individuals who use the agreement for evading taxation (Article 6 of the Multilateral Convention).
(b) the limit of the possibility to apply the preferential provisions of agreements, if the main purpose is to obtain such benefits “Test the main goal” (Article 7 of the Multilateral Convention).
(c) establishing the taxpayer’s ability to independently initiate the mutual approval procedure (Article 16 of the Multilateral Convention).