This criteria shall be applied for:
- the recognition of expenses, incurred within cross-border activities of a Ukrainian company;
- for the beneficial owner test for the application of DTT rules;
- for the transfer pricing audits;
- for the application of CFC rules.
Substance is defined by draft law through the presence of sufficient assets, resources, personnel etc. at the non-resident company.
It is worth noting that excessive royalties, interest, payments for goods and services may be re-characterized into dividends and taxed accordingly.
B. Additional restrictions for the deduction of interest and thin capitalization rule, in particular lowering limitation for deductible interest from 50% to 30% of EBITDA;
C. Extending the definition of permanent establishment (PE). In particular, storage of goods, conduction negotiations, email correspondence from Ukraine may be considered as criteria relevant for defining whether PE exists in Ukraine.
D. Implementation of procedure for taxation of capital gains derived by non-resident companies from the sale of shares, that directly or indirectly derive most of their value from Ukrainian immovable property;
E. Implementation of Controlled Foreign Company rules;
F. Imposing obligation to prepare master file/local file and country-by-country reporting for transfer pricing rules. It is important to note that threshold for CbC reporting under the draft law is equivalent of EUR 50 million in many instances instead of EUR 750 million under OECD draft CbC legislation.
Ministry of Finance expect to submit the draft Law to the parliament in December. The draft law may become effective as of 1 January of 2019. We will report on further developments.
Roustam Vakhitov, Associated Patner Crowe LF Ukraine
Dmitriy Mikhailenko, Managing partner Crowe LF Ukraine