Ukraine Completes Ratification Procedures for the Ukraine-Luxembourg Tax Convention
On 3 April 2017, the President of Ukraine signed the Law on the Ratification of the Ukraine-Luxembourg Double Tax Convention and the Protocol Thereto
The Convention between the Government of Ukraine and the Government of the Grand Duchy of Luxembourg for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital (the Convention) was signed on 6 September 1997. It was voted down by the Ukrainian parliament back in 1998 as the Convention envisaged a full exemption for dividends and a comparably low rate on interest.
The governments of Ukraine and Luxembourg had been negotiating amendments to the Convention back in 2007, which resulted in signing of the Protocol to Amend the Convention (the Protocol) on 30 September 2016.
On 14 March 2017, the Parliament of Ukraine passed the Law On Ratification of the Convention and the Protocol Thereto, which was signed by the president on 3 April 2017.
The Convention and the Protocol will enter into force once Ukraine and Luxembourg have notified each other about the completion of domestic procedures required for their implementation.
If the Convention enters into force in 2017, it will have effect as of 1 January 2018, namely: (i) in respect of taxes withheld at source, to income derived on or after 1 January 2018; (ii) in respect of other taxes on income and capital, to taxes chargeable for any taxable year beginning on or after 1 January 2018.
The Convention establishes the following rates:
The Convention preserves the right of the source state to tax gains derived from the alienation of shares deriving their value from immovable property situated in the source state, even if the alienator of such shares is not a resident of the source state.
Exchange of information under the Convention has been generally aligned with the international standard of transparency and exchange of information on request. In particular, neither Ukraine nor Luxembourg can decline to supply information "solely because the information is held by a bank.”
Furthermore, Ukraine has recently become a member of the Inclusive Framework on the OECD/G20 Base Erosion and Profit Shifting (BEPS), thus committing to implement four minimum standards of the BEPS Package. One of these standards relates to the prevention of treaty abuse and, in particular, proposes to introduce a limitation-on-benefits rule into tax treaties, which is expected to combat treaty-shopping practices.
While the limitation-on-benefits clause has not been included in the Ukraine-Luxembourg Convention, this standard may still be implemented as soon as June 2017 when Ukraine is expected to sign the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting.