Ukraine: the BEPS plan to be implemented in the Tax Code

It is planned to implement the BEPS (Base Erosion and Profit Shifting) Action Plan to counteract the erosion of the base and deduct the profit from taxation into tax legislation.
The corresponding draft law “On Amendments to the Tax Code of Ukraine in order to implement the Plan of Counteracting Erosion of the Tax Base and Profit from Taxation” was promulgated by the Ministry of Finance and the National Bank of Ukraine.
The project was developed by a working group with the participation and support of international experts on tax issues and was aimed at implementing eight steps in Ukraine:
– the disclosure by natural persons-residents of Ukraine of their participation in foreign companies that they control, and the tax rules for such companies;
– limiting the cost of financial transactions with related parties;
– prevention of abuse in connection with the application of treaties for the avoidance of double taxation;
– prevention of artificially avoiding recognition of the status of a permanent establishment;
– improved control over transfer pricing;
– country reporting rules for international groups of companies.
In particular, according to the project, income from a source of origin from Ukraine will be considered income from the alienation of shares, corporate rights, shares of foreign legal entities that meet the following conditions:
– the value of shares, corporate rights, shares of a foreign legal entity of 50 percent or more is formed at the expense of shares, corporate rights in the Ukrainian legal entity directly or indirectly owned by this foreign legal entity, and
– the cost of shares, corporate rights in the Ukrainian legal entity for 50 percent or more is formed by real estate, which is located in Ukraine and belongs to such Ukrainian legal entity or is used by it on the basis of a long-term lease agreement, financial leasing, etc.
A foreign company is recognized as a controlled foreign company if the individual is a resident of Ukraine:
– owns a share in a foreign legal entity to the amount of 50 percent or more, or
– owns a share of a foreign legal entity to the amount of 25 percent or more, provided that several individuals – residents of Ukraine own shares of a foreign company, the size of which in total is 50 percent or more; or
– separately or jointly with other residents of Ukraine, exercises actual control over a foreign legal entity.
To determine whether an individual owns a share in a foreign company, all rights belonging to an individual are considered to be the sum of shares if:
– to belong to such person directly or indirectly through other persons, including with a formation without the status of a legal entity;
– to belong to any related persons of such person directly or indirectly through other persons.
The adoption of this bill is expected to avoid recognizing Ukraine as a country that does not cooperate in tax matters, which will increase the opportunities for Ukrainian business to carry out full-fledged activities in foreign markets, avoiding prepossession from foreign contractors, banks and investors.