On May 23, 2020 the Law of Ukraine № 466-IX "On Amendments to the Tax Code of Ukraine to Improve Tax Administration, Eliminate Technical and Logical Inconsistencies in Tax Legislation" came into force (except for some changes that come into force on July 1, 2020 and from January 1, 2021).
The law introduces international tax control standards for all participants in international trade and the implementation of the norms stipulated by the Plan to Combat the Practice of Diluting the Taxable Base and Removing Profits from Taxation (BEPS Action Plan), reforming the institution of financial responsibility and improving the administration of taxes and fees.
The law gained the greatest resonance through the implementation of the steps of the BEPS (Base Erosion and Profit Shifting) action plan, which envisages combating tax evasion and increasing tax transparency around the world. In other words, the state must take appropriate measures to ensure the taxation of profits in the country where the taxpayer operates. Such actions will reduce the movement of capital to jurisdictions with low levels of taxation, which, in turn, will increase the budget revenues of a particular state.
First of all, it applies to cross-border transactions of Ukrainian taxpayers (for the purchase of goods, works or services, transfer of royalties, interest on loans, etc.) and retained earnings accumulated in offshores, and therefore will affect large and medium-sized businesses with a foreign element. The bill will have a significant impact on most international groups and Ukrainian companies conducting international business, as well as directly on individuals - tax residents of Ukraine, who are the owners or controllers of such business.
Major changes made to implement the steps of the BEPS Action Plan:
1. Transfer pricing:
- control over transfer pricing is improved with the implementation of provisions 8-10, 13 steps of the BEPS Action Plan.
2. International procedures:
- application of the mutual agreement procedure (Step 14), which provides for a mechanism for submitting an application for consideration of the case under the mutual agreement procedure, requirements for such an application, the procedure for actions of the supervisory body, etc .;
- taxation of payments equated to dividends when conducting transactions with non-residents.
3. Controlled foreign companies:
- definition of controlled foreign companies and their taxation (Step 3), which provides for the introduction of the concept of taxation of profits of controlled foreign companies at the level of the controlling person - natural or legal person who is the controlling person of such company and the obligation to submit a report on controlled foreign companies to the controlling body;
- limitation of expenses on financial transactions with related parties (Step 4);
4. International taxation:
- prevention of abuse in connection with the application of double taxation treaties (Step 6);
- prevention of avoidance of the status of a permanent establishment and taxation of permanent establishments (Step 7).
- the term of the reasonable economic reason (business purpose) extends, as a result of which its application concerning operations both with residents, and nonresidents is possible.
In addition to these changes, the law also provides:
- Changes related to corporate income tax;
- Changes in VAT payment and accounting procedures;
- Changes in personal income tax;
- Changes in excise tax;
- Other general changes: elimination of technical and logical errors, streamlining of functions and definition of controlling bodies in connection with the reorganization of the SFS and improving the functioning of the electronic cabinet.
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NAZALI TAX & LEGAL |