On 28 February 2019, the Ukrainian parliament ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), which was originally signed on 23 July 2018.
The Principal Purpose Test (PPT) provided in the MLI effectively addresses tax-planning strategies that allow for the artificial shifting of profits to low or no-tax jurisdictions. By ratifying the MLI, Ukraine is working to implement Base Erosion and Profit Shifting (BEPS) Actions through modification of double tax treaties with provisions on treaty abuse (Action 6 of BEPS Action Plan), avoidance of permanent establishment (Action 7) and improving dispute resolution (Action 14).
Upcoming changes to the taxation of international transactions may trigger tax disputes involving Ukraine-based subsidiaries of multinational corporations, which should now take proactive steps to substantiate the commercial rationale behind their corporate models and transactions. With this in mind, multinational corporations should monitor how the MLI will affect applicable tax treaties and re-examine corporate and international structures in an effort to comply with the updated rules.
For further information on effect of the MLI on the operation of your cross-border business and operations, please contact one of our local CMS experts.
Original Law-Now article on the MLI