UK: Salans News Taxation - September, 2009

Last Updated: 8 October 2009
Article by Oleg Batyuk, Igor Davydenko and Sergiy Melnyk


  1. Convention on Mutual Administrative Assistance in Tax Matters Enters Into Force
  2. UK Introduces a Participation Exemption
  3. Legal Entities Acting as Tax Agents
  4. The Ukrainian Parliament Prolongs the Moratorium on Taxation of Deposit Interest
  5. Payment of Import Duties upon Disposal of Corporate Rights by Foreign Investor
  6. Ukrainian President Terminates Certain Acts of the Cabinet of Ministers of Ukraine ("CMU") regarding Certain Issues of Tax Administration
  7. State Customs Service Introduces a Simplified Procedure for Customs Clearance
  8. Termination of 13% Additional Import Duty

1. Convention on Mutual Administrative Assistance in Tax Matters Enters Into Force

On 1 July 2009 the Convention on Mutual Administrative Assistance in Tax Matters entered into force (the "Convention").

The Convention legislates for the provision of assistance in tax matters by the contracting states as follows: (1) exchange of information, including simultaneous tax audits and participation in tax audits abroad; (2) assistance in collecting taxes; and (3) service of documents.

Currently, the following states are parties to the Convention: Azerbaijan, Belgium, Denmark, Italy, Iceland, the Netherlands, Norway, Poland, the USA, Finland, France, Sweden and Canada. The member states of the Council of Europe and the member states of the Organization for Economic Cooperation and Development (OECD) may also sign up to the Convention, should they see fit.

2. UK Introduces a Participation Exemption

On 1 July 2009 UK introduced a participation exemption for dividends received by UK companies from overseas subsidiaries.

As a result of such exemption UK companies may lose their right to apply the lowered 5% rate on dividends paid by their Ukrainian subsidiaries under the UK-Ukrainian Double Tax Treaty, as the treaty provides for application of the 5% rate only if the dividends are taxable in the UK. In this case, dividends paid by Ukrainian subsidiaries to UK companies will be taxable at a 15% rate in Ukraine.

3. Legal Entities Acting as Tax Agents

On 9 July 2009 the State Tax Administration of Ukraine ("STAU") issued letter №14312/7/17-0717 regarding personal income tax. In this letter STAU supports its previous position, stating that a legal entity must act as tax agent when purchasing investment assets (e.g. securities) or immovable property from individuals, or presenting gifts to individuals.

In our view, such position appears questionable vis-ŕ-vis the Ukrainian law "On Personal Income Tax".

4. The Ukrainian Parliament Prolongs the Moratorium on Taxation of Deposit Interest

On 24 July 2009 the Ukrainian parliament passed the law "On Amending Certain Legislative Acts of Ukraine about Specific Measures for the Financial Recovery of Banks", which, in particular, provides for the introduction of the taxation of deposit interest for individuals from 1 January 2013 (instead of 1 January 2010).

5. Payment of Import Duties upon Disposal of Corporate Rights by Foreign Investor

On 28 July 2009 the State Customs Service of Ukraine passed Order № 701 "On Amending the General Tax Clarification on the Application of Article 18 of the Ukrainian law 'On the Foreign Investment Regime'". By way of reminder, Article 18 of the law "On the Foreign Investment Regime" provides for an import duty exemption for assets imported into Ukraine as a contribution to the charter capital of a Ukrainian company by a foreign investor. In this context the State Customs Service explains that no import duty arises upon disposal of corporate rights from one foreign investor to another.

Previously, the State Customs Service stated that import duty must be paid upon any disposal of corporate rights by a foreign investor within a three year period of the time the rights appear on the balance sheet of the company.

6. Ukrainian President Terminates Certain Acts of the Cabinet of Ministers of Ukraine ("CMU") regarding Certain Issues of Tax Administration

The Ukrainian president has terminated the following acts of the CMU and initiated an inquiry in the Constitutional Court as to their lawfulness:

  • Order No. 757 dated 1 July 2009 "Certain Issues on the Administration of Taxes and Duties (Obligatory Payments)" (in particular, regarding declaring VAT credit in a period when VAT liabilities arise);
  • Order No. 838-р dated 17 July 2009 "On Regulation of Certain Issues of VAT Administration" (in particular, regarding submission of a VAT declaration which takes in account VAT invoices issued within a period other than the reporting period and regarding corrections of VAT declarations); and
  • Resolution No. 895 dated 26 August 2009 "On Regulation of Certain Issues of Corporate Profit Tax Administration" (regarding deductibility of loses received from the recalculation of debt in a foreign currency).

In our view, there is a high probability that the above acts will be declared unconstitutional.

7. State Customs Service Introduces a Simplified Procedure for Customs Clearance

On 10 August 2009 the State Customs Service passed Order No. 736 "On Approval of the Order for Determination of Resident Enterprises which May Apply a Simplified Procedure of Customs Control and Clearance to their Goods and Vehicles". The order introduces a system of confidence to resident enterprises: (1) high level of confidence ("the white list"); (2) sufficient level of confidence ("the green list"); and (3) incompatible level of confidence (i.e., a level of confidence is absent). The simplified procedures for customs control and clearance may be applied to the first two categories.

8. Termination of 13% Additional Import Duty

On 6 September 2009 the 13% additional import duty on certain categories of goods introduced by the law "On Amending Certain Legislative Acts with a view to Improving the Ukrainian Payment Balance in Connection with the World Financial Crisis" terminated.

A temporary additional import duty has been introduced for a 6 month period from the date when the law became effective (7 March 2009). Previously, the 13% additional import duty applied to cars and refrigerators under the CMU resolution dated 18 March 2009. As of today, the additional import duty has not been prolonged.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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