Government prepares new tax restrictions for companies with international operations
The Cabinet of Ministers of Ukraine approved a bill on October 14 that provides for the introduction of new mechanisms to counteract tax evasion. The changes will concern the transfer of assets abroad, transactions with unjustified tax benefits, and the use of differences between tax systems of different countries.
This was reported by the Ministry of Finance of Ukraine.
The bill was developed to bring Ukrainian tax legislation into compliance with EU Directive 2016/1164 (ATAD). Its main goal is to prevent withdrawal of profits from taxation and reduction of the tax base through international schemes.
Taxation of assets transferred abroad
One of the key changes will be the introduction of the Exit Tax mechanism.
It will apply in cases where a company transfers assets outside Ukraine, as a result of which the state loses the right to tax the increase in their value.
This may include transfer of assets to a permanent establishment abroad, change of the company's tax residence, or termination of activities of a non-resident's permanent establishment in Ukraine.
In such cases, the corporate income tax payer will increase the financial result before taxation by the difference between the market value of assets and their value for tax purposes.
At the same time, the mechanism will have exceptions. In particular, it will not apply to certain cases of temporary transfer of assets for up to 12 months, transactions between a company and its subsidiary, as well as situations where Ukraine retains the right of taxation.
Repeated taxation of the same amount of asset value increase will not be allowed.
Tax authority will be able to challenge artificial schemes
The second innovation will be a general rule to counteract tax abuse - General Anti-Abuse Rule (GAAR).
It will apply to transactions that formally comply with the law but have no justified commercial reasons and are aimed primarily at obtaining a tax benefit contrary to the purpose of the Tax Code.
In such cases, the tax consequences of transactions will be determined taking into account their actual economic substance.
Moreover, the burden of proving tax abuse will be placed on the controlling authority.
To apply the new rule, additional safeguards for business are envisaged. An audit regarding possible abuse can be initiated only upon the conclusion of a special commission.
Before the start of the audit, the company will receive a separate notification and will be able to provide explanations or adjust tax calculations. The taxpayer will have the right to involve representatives of the Ministry of Finance and its own experts during consideration of objections.
Restrictions on international tax schemes
The third area of changes concerns so-called hybrid mismatches - situations where the same transaction or financial instrument is treated differently for tax purposes in two countries.
Such differences may allow companies to deduct the same expenses twice or reduce taxable profit without a corresponding reflection of income.
The bill provides mechanisms to neutralize such schemes, including transactions involving companies with different tax statuses and cases of dual tax residence.
When the new rules will take effect
Application of the new rules is planned from January 1, 2028, but only if the bill is adopted by the Verkhovna Rada.
After adoption, the law will enter into force on the day following its official publication, but its provisions will start to apply from the specified date.
The Ministry of Finance emphasizes that the administration of the new mechanisms will not require a separate tax return. Information on asset transfers will be reflected in the current corporate income tax return.
Implementation of the changes will not require additional expenditures from the state budget.
The bill is part of fulfilling Ukraine's European integration obligations, the National Revenue Strategy until 2030, and agreements with the International Monetary Fund.
On the eve of this, on October 13, the Verkhovna Rada also supported in first reading bill No. 16036, which provides for introduction of European rules limiting borrowing costs. Together with the new government initiative, it forms a package of changes to counter tax evasion in accordance with EU legislation.
Based on materials from: Ministry of Finance of Ukraine, Verkhovna Rada of Ukraine.