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“The team was recently visible advising on a number of pharmaceutical cases. Sources agree that the team is “moving in the right direction” and are particularly impressed by its work in the pharmaceutical sector”.


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Andriy Sydorenko and Leonid Gilevych, lawyers at Ilyashev & Partners

Source: The Lawyer

At the end of 2013 Ukrainian Parliament introduced significant number of amendments into Ukrainian laws and international treaties. The said legislative novelties are aimed at aligning Ukrainian laws with European standards, contemporary realities and principles of business facilitation, as well as at improving attractiveness of Ukraine in the eyes of foreign investors.

The new Double Tax Treaty with Cyprus

On July 04, 2013 the Parliament ratified the new Double Tax Treaty which had been signed between Parliaments of Ukraine and Cyprus in November 2012. The new Treaty will be effective from  January 01, 2014 and will replace similar Double Tax Treaty signed in 1982 between the Soviet Union and Cyprus. The new Treaty implements provisions of Article 26 of Model Tax Convention on Income and on Capital of Organization for Economic Co-operation and Development (OECD) in relation to bilateral exchange of information for tax purposes and the concept of a “beneficial owner” and brings the rules on permanent establishments in line with the OECD Model Tax Convention. Furthermore, in contrast to the 1982 Tax Treaty, which exempted dividends, capital gains, interest and royalty payments from the 15 % Ukrainian withholding tax, the new Tax Treaty provides for taxation at source of dividends (5 % if the beneficial owner holds at least 20 % of the capital of the dividend-paying company or has invested into shares or other rights at least €100 000, and 15 % in other cases), interest (2 % withholding) and royalties (5 % if royalties are paid in respect of copyright, patents or trademarks and 10 % in other cases).

Implementation of the new Transfer Pricing Rules

Ukraine is continuing to implement rules of tax control over transfer pricing (through execution of agreements between associated persons) in accordance with OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. The list of the transfer pricing methods has not changed from the date of its revision on January 01, 2013 and includes: the comparable uncontrolled price method, the resale price method, the cost plus method, the profits distribution method and net profit method. According to the novelties introduced to the Tax Code of Ukraine on September 01, 2013, the transfer pricing rules should apply to certain controlled transactions. The controlled transactions include transactions with volume of operations exceeding UAH 50 mln (GBP 3.7 mln) conducted with associated parties (either non-residents or residents). However, tax control is not applied to operations carried out by associated parties – residents, unless they have declared a negative value of tax base for profit tax; use special tax regimes, pay corporate income tax or value added tax at the rate different than the base rate, and were registered as payers of corporate income tax or value added tax within the corresponding reporting year. For application of methods of establishment of prices at controlled operations the new version of the Code introduces calculation of market interquartile range of prices and profitability instead of the unified rule of a “safe harbor” (a principle according to which in case of positive or negative deviation of contract prices in the tax reporting of a taxpayer compared with usual prices for more than 20% such deviation cannot constitute the reason for establishment (calculation) of a tax liability, correction of the negative value or other indexes of tax reporting). A tax payer has the right to use any method which it reasonably considers to be the most appropriate. However, when it has the possibility to use the uncontrolled price method or any other method the uncontrolled price method must be used. Furthermore, novelties of the new Tax code related to the revised transfer pricing rules oblige taxpayers to file a report in relation to the controlled operations. Failure to submit such a report will result in a 5 % penalty imposed onto the total amount of the controlled transactions. The new transfer pricing rules have also introduced tax audits in relation to the exhaustiveness of calculations and tax disbursements in the course of execution of the controlled transactions.

Amendments into the rules related to employment of foreign citizens

On July 05, 2013 the new Regulations related to issue, extension and cancellation of work permits for exploitation of labor of foreign and stateless citizens came into force as outlined in the Resolution of the Cabinet of Ministers of Ukraine as of May 27, 2013. Pursuant to Ukrainian laws, each foreign national (except for those residing in Ukraine on a permanent basis) intending to work in Ukraine for Ukrainian employers must hold a work permit. The procedure of obtaining work permits (in force prior to 5 July, 2013) was quite complex. By upholding its special Resolution the Cabinet of Ministers tried to simplify the said procedure and has generally succeededed in doing this. However, certain amendments may be regarded as an additional burden. For example, foreign citizens now have to undergo a medical examination to prove they do not suffer from chronic alcoholism, substance abuse, drug addiction or infectious diseases. Other major amendments include: significant simplification of the work permit extension; reduction of the terms of consideration of the documents by the employment centre and payment of greater attention to the special cases of employment of foreign citizens. According to the estimates of the State Migration Service of Ukraine published in July 2013, the total number of work permits to be issued in 2013 shall constitute the amount of eight thousand.

Introduction of criminal liability for legal entities

To implement the EU-Ukraine Visa Liberalization Action Plan, the Ukrainian Parliament passed the Law in May 2013 introducing criminal liability for legal entities and added a relevant section to the Criminal Code of Ukraine and certain other acts. The amendments shall become effective from September 01, 2014. A legal entity may be held liable for the crimes committed by its authorised representative, including money laundering, use of proceeds from drug trafficking, bribery and acts of terrorism. Criminal liability for legal entities may be imposed in the form of fines, confiscation of property and liquidation.

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