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The Acting Minister of Finance of Ukraine signed the MLI Convention on 23 July in London

The MLI Convention was signed on 23 July in London

How can this affect the international business structuring, relevant operations and movement of Ukrainian capital abroad?

Oksana Olekhova

Partner, Tax & Legal

KPMG in Ukraine


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On 23 July Ukraine signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the MLI) and so became the 83rd state to sign the respective document. According to this document, Ukraine undertakes to implement the “minimum standard” for preventing treaty abuse under the OECD/G20 BEPS package. Nevertheless, the respective document still has to be ratified by the Ukrainian Parliament, and the business sector should be aware of the major amendments which it will face in future.

Minimum standard includes four of the 15 BEPS Actions, namely:

— Action 5 — Harmful tax practices;

— Action 6 — Treaty abuse;

— Action 13 — Transfer pricing documentation;

— Action 14 — Dispute resolution.

From the practical standpoint, the signing of MLI envisages that Ukraine takes the following steps:

— application of the “principle purpose test”.
The Ukrainian tax authorities will have the right to limit benefits granted to the taxpayer under the Double Tax Treaty (DTT) if the main purpose of the structuring/transaction is withholding tax minimization by using DTT and not a necessary measure within the framework of the taxpayer’s business activity.

— capital gains delivered by the taxpayer from alienation of shares or comparable interest may be taxed in that state if, at any time during the 365 days preceding the alienation, these shares or comparable interests derived more than 50% of their value directly or indirectly from immovable property located in that state.

Please note that respective amendments should apply only if the second contracting state of the DTT agreed to apply respective approach and duly notified the OECD. Other provisions of the MLI should not apply to the currently valid DTT signed by Ukraine.

Taking into account the fact that Ukraine abstained from reserving or notifying on the majority provisions of the MLI aimed at preventing base erosion and profit shifting ratification of the MLI by the Ukrainian Parliament will hardly significantly influence the current approach of Ukrainian business towards structuring its activities taking into account that information about the ultimate beneficial owners is, as a rule, not publicly available. In addition, the Ukrainian tax authorities previously also applied a principle purpose test by sending requests to the tax authorities of the other relevant contacting states. Therefore, it is likely that the MLI will not significantly influence structures that were developed with the involvement of tax consultants.


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