Tax and Legal Update
3 November 2011
This edition of the Tax and Legal Update issued by Deloitte Russia and CIS Desk covers the recent amendments to the Ukrainian Tax Code and recent developments in the Switzerland – Russia Double Tax Treaty.
Amendments to the Ukrainian Tax Code
The tax and legal landscape in Ukraine changed significantly on adoption of a new Tax Code applicable from 1 January 2011. This was an important event since the Tax Code brought together the Ukrainian tax legislation in its entirety for the first time since the country’s independence. Although there were a number of inconsistencies and unclear provisions in the Tax Code, some of these have been removed by the adopted amendments.
The amendments are provided by the Law No. 3609 –IV “On amending the Ukrainian Tax Code and some legislative acts (concerning the improvement of certain Tax Code rules and provisions)” and most articles in the Law take effect from 6 August 2011.
Among others, the Law introduces the concept of a ‘summary tax advice’ being a public disclosure of the tax authorities’ position based on a summary of individual tax consultations provided to taxpayers. A summary tax advice is approved by the highest tax authority and officially published. A summary tax advice does not have binding status, but a taxpayer who follows a summary tax advice cannot be fined by the tax authorities should the latter change their opinion (additional tax liabilities, however, may still be accrued). As a consequence of the law change, Ukrainian taxpayers will be able to base their decisions on the joint stance of the tax authorities on controversial tax legislation issues instead of the often conflicting unofficial clarifications issued by the tax authorities previously.
Another remarkable new rule is that when the Tax Code provisions refer to accounting regulations (standards), those taxpayers who use the International Financial Reporting Standards (“IFRS”) shall be able to apply the relevant IFRS. This should relieve these taxpayers of the necessity to apply two sets of standards (IFRS and local GAAP) as well as allowing them to base their tax accounting on internationally recognized accounting standards.
Other changes include substantial clarifications in respect of tax administration and payment procedures; clarification of tax treatment of some expenses / operations for corporate income tax purposes (including depreciation of intangible assets and REPO deals); increase of excise taxes; and changes to some provisions related to VAT, environmental and land tax.
Protocol to Switzerland – Russia Double Tax Treaty is signed by the governments
On 24 September 2011 Swiss and Russian governments signed the protocol to the existing Double Tax Treaty. The key amendments provided by the protocol include 0% withholding tax on interest payments, 0% withholding tax on dividends distribution to pension funds, introduction of a taxing power for a state where the property is located with respect to capital gains derived from the sale of shares in real estate companies, and newly introduced information exchange and anti-abuse provisions. The information exchange clause is drafted in line with the OECD standards which are adopted by Switzerland as a standard approach for the new treaties.
To come into force the protocol should be ratified by the parliaments of both states.
If you have any questions relating the above topics, please do not hesitate to contact us.