On 8 August 2019, Ukraine deposited its instrument of ratification of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). This means that the MLI will enter into force in Ukraine on 1 December 2019. However, its entry into effect depends on particular MLI provisions, as well as on the MLI’s entry into force for Ukraine’s counterparties under particular double taxation agreements (DTA).
The MLI was designed to modify DTAs in force and Ukraine has selected to apply it to its 76 DTAs. In particular, the MLI introduces a number of changes and some new concepts into the DTA system of Ukraine. Among them there are the principal purpose test, broadening the permanent establishment definition, anti-fragmentation rules, modified mutual assistance procedure rules as well as modified rules for the capital gains taxation.
The MLI will affect the future and existing cross-border structures involving Ukraine and may lead to tax leakage. As such, it is recommended that holding, financing and IP structures are reviewed to assess the MLI’s impact on tax burden.
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