Irish – Ukrainian DTA entered into force

In the overview of tax treaties as published on the website of the Irish Revenue, the Irish Revenue has published a statement announcing that the Convention between the Government of Ireland and the Government of Ukraine for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains (Hereafter: the DTA) entered into force on August 17, 2015.

Based on Article 27 of the DTA (“ENTRY INTO FORCE”) the fact that the DTA entered into force on August 17, 2015 means that the DTA shall have effect:

a) in respect of taxes withheld at source, for amounts paid or credited on or after January 1, 2016;

b) in respect of other taxes:

(i) in the case of Ireland, for any financial year as respects corporation tax and for any year of assessment as respects income tax, universal social charge on income and capital gains tax beginning on or after January 1, 2016;

(ii) in the case of Ukraine, for taxable periods beginning on or after January 1, 2016.

Other regulations included in the DTA of which we think they might interest our readers include a.o.:

Taxes covered

Based on Article 2, Paragraph 3 of the DTA (“TAXES COVERED”) the existing taxes to which the DTA shall apply are:

a) in the case of Ireland:

(i) the income tax;

(ii) the universal social charge on income;

(iii) the corporation tax; and

(iv) the capital gains tax;

b) in the case of Ukraine:

(i) the tax on profits of enterprises; and

(ii) the income tax on individuals;

Paragraph 4 of Article 2 of the DTA subsequently arranges that the DTA shall apply also to any identical or substantially similar taxes which are imposed after the date of signature of this Convention in addition to, or in place of, the existing taxes.

Permanent establishment

Paragraph 3 of Article 5 of the DTA (“PERMANENT ESTABLISHMENT”) arranges that a building site or construction or installation project constitutes a permanent establishment only if it lasts more than twelve months.

Paragraph 4 of Article 5 subsequently arranges that a person carrying out activities offshore in a Contracting State in connection with the exploration or exploitation of the sea bed and the sub-soil and their natural resources situated in that Contracting State shall be deemed to be carrying on a business through a permanent establishment in that Contracting State.

Paragraph 6 of Article 5 reads as follows:

“Notwithstanding the provisions of paragraphs 1 and 2 of this Article, where a person – other than an agent of an independent status to whom paragraph 7 applies – is acting in a Contracting State on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent establishment in the first-mentioned Contracting State in respect of the activities which that person undertakes for the enterprise, if such a person:

(a) has and habitually exercises in that State an authority to conclude contracts in the name of the enterprise, unless such activities are limited to those mentioned in paragraph 5 of this Article which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph; or

(b) has no such authority, but habitually maintains in the first-mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise and conducts sales-related activities in respect of them, such as advertising or promotional activities.”

Associated enterprises

Paragraph 2 of Article 9 of the DTA (“ASSOCIATED ENTERPRISES”) contains a so-called appropriate adjustment clause.

Dividends

Paragraph 2 of Article 10 of the DTA (“DIVIDENDS”) maximizes the dividend withholding tax that a Source State is allowed to withhold over dividend distributions to:

a) 5 per cent of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 25 per cent of the capital of the company paying the dividends;

b) 15 per cent of the gross amount of the dividends in all other cases.

Interest

Paragraph 2 of Article 11 of the DTA (“INTEREST”) maximizes the withholding tax that a Source State is allowed to withhold over interest payments to 10 per cent of the gross amount of the interest.

Paragraph 2 of Article 11 subsequently arranges that notwithstanding the provisions of paragraph 2 of this Article, any such interest as is mentioned in paragraph 1 of this Article shall be taxable at 5 per cent of the gross amount of the interest in the case of interest arising in a Contracting State and paid:

i) in connection with the sale on credit of industrial, commercial or scientific equipment;

ii) on any loan granted by a bank.

Royalties

Paragraph 3 of Article 12 of the DTA (“ROYALTIES”) maximizes the withholding tax that a Source State is allowed to withhold over royalty payments to 10 per cent of the gross amount of the royalties.

Paragraph 4 of Article 12 subsequently arranges that notwithstanding the provisions of paragraph 3 of this Article, in the case of payment of royalties in respect of any copyright of scientific work, any patent, trade mark, secret formula, process or information concerning industrial, commercial or scientific experience the tax charged shall not exceed 5 per cent of the gross amount of the royalties.

Capital Gains

We found many of the paragraphs from Article 13 of the DTA (“CAPITAL GAINS”) interesting. That is why below we include the full text of Article 13.

1. Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 of this Convention and situated in the other Contracting State may be taxed in that other State.

2. Gains derived by a resident of a Contracting State from the alienation of:

a) shares, other than shares quoted on a recognised stock exchange, deriving their value or the greater part of their value directly or indirectly from immovable property situated in the other Contracting State, or

b) an interest in a partnership or in a trust, or any other body the assets of which consist principally of immovable property situated in the other Contracting State, or of shares referred to in sub-paragraph a) above, may be taxed in that other State.

3. Gains derived by a resident of a Contracting State from the alienation of stock, participation, or other rights in the capital of a company which is a resident of the other Contracting State may be taxed in that other Contracting State if the recipient of the gains, during the twelve month period preceding such alienation, held a participation, directly or indirectly, of at least 25 per cent of the capital of that company. The provisions of this paragraph shall not apply where such a gain has been derived as a consequence of a reorganisation, merger or division of companies or similar transaction.

4. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such fixed base, may be taxed in that other State.

5. Gains from the alienation of ships or aircraft operated in international traffic by an enterprise of a Contracting State or movable property pertaining to the operation of such ships or aircraft, shall be taxable only in that Contracting State.

6. Gains from the alienation of any property other than that referred to in the preceding paragraphs of this Article shall be taxable only in the Contracting State of which the alienator is a resident.

7. The provisions of paragraph 6 of this Article shall not affect the right of a Contracting State to levy, according to its law, a tax on gains from the alienation of any property derived by an individual who is a resident of the other Contracting State and has been a resident of the first-mentioned State at any time during five years immediately preceding the alienation of the property if the property was held by the individual before he became a resident of that other State.

Other

The DTA furthermore includes an article arranging for a Mutual Agreement Procedure (Article 24 of DTA) and an article on the Exchange of Information (Article 25 of the DTA).

Click here to be forwarded to the Convention between the Government of Ireland and the Government of Ukraine for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains as available on the website of the Irish Revenue, which will open in a new window.

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