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How Ukrainian business will work in MLI terms
On December 1, 2019, the Multilateral Convention for the Implementation of the Measures Related to the Double Taxation Agreement to Prevent the Erosion of the Tax Base and Transfer of Profits (hereinafter referred to as MLI) has been implemented in Ukraine. The main purpose of which is to counteract the erosion of the tax base and the removal of profit from taxation, which entails significant changes to the existing double taxation agreements (hereinafter – the Agreement) signed by Ukraine.
Modification of a separate Agreement is possible provided that both parties to such Agreement have signed and ratified the MLI.
An important prerequisite for applying the MLI to a separate Agreement is the inclusion of this Agreement by both signatory countries in the list of countries covered by the MLI. Ukraine has extended MLI to all its Agreements, but not all countries have extended MLI to Agreements with Ukraine.
For example, the Agreement between Ukraine and Switzerland – both countries have signed MLI. Ukraine has included the Agreement with Switzerland, in the list of Agreements covered by MLI, and Switzerland does not. Therefore, this Agreement will not be amended. The situation is similar with a number of other countries (Netherlands, Austria, Norway).
MLI enables its signatories to choose the rules that the country will apply to their Agreements. Yes, Ukraine has chosen for itself not all the proposed rules, but only the following:
• control of the purpose of the tax treaty (Article 7 of the Convention);
• 365 days rule for profits from the sale of shares / corporate rights (Article 9 of the Convention);
• rule against tax evasion for Permanent Representations in third jurisdictions (Article 10 of the Convention);
• regulating the status of ‘permanent establishment’ (Articles 12, 13 of the Convention);
• improving the dispute settlement mechanism for the application of the Agreement (Article 16 of the Convention).
However, we note that the new rules will only apply to a specific Agreement, provided that another signatory country has also chosen these rules.
Therefore, until the other party to the Agreement on its part enters Ukraine into the list of countries covered by MLI with the same rules in force in Ukraine, then the Agreement will not be modified, therefore, the “old format” of the Agreement will be valid.