The delegation of the Ministry of Finance and State Fiscal Service of Ukraine participated in the Ukrainian-Austrian negotiations on the review of the bilateral Convention on the Avoidance of Double Taxation and Prevention of Evasion of Income and Property Taxes. The Convention was signed by Ukraine and Vienna in 1997 and is now not compatible with valid international standards. The parties agreed to sign a Protocol paving the way to the increase of tax rates for dividends, interest rates and royalty.
The Ministry of Finance is actively working to close loops in the regulations which make tax evasion possible. This work includes the adjustment of the current international agreements on the avoidance of double taxation to the international standards.
Following the negotiations initiated by the Ukrainian side, the parties agreed to adjust the above Agreement to the OECD Model Tax Convention on Income and Capital. According to the signed Protocol, the tax rates for dividends, interest rates and royalty shall be increased. Also, the Protocol contains special supplementary regulations on the expanded bilateral exchange of tax data and assistance in tax collection according to the OECD standards.
Key facts on the Protocol to the Convention on the Avoidance of Double Taxation:
- the tax rate for dividends is increased from 10% to 15%;
- the tax rate for interest rate is increased from 2% to 5%;
- the royalty rate for patents, trademarks, industrial design, plans, models, product formulas or processes is increased from 0% to 5%;
- the royalty rate for the copyright of literary works, artworks including cinema is increased from 5% to 10%.
Key facts on the OECD model conventions:
- OECD Model Tax Convention on Income and Capital is a standard agreement on the avoidance of double taxation for the residents of one or both signing countries. All member-states of the OECD are recommended this Model Convention;
- though Ukraine is not a OECD member, the Cabinet of Ministers of Ukraine in February 2013 adopted the action plan set to deepen cooperation between Ukraine and the OECD in the period from 2013 till 2016. The Memorandum of Understanding between the Government of Ukraine and the OECD on deeper cooperation was signed on July 2, 2014;
- due to the review of all international agreements on the avoidance of double taxation, a single approach was elaborated for their examination as well as for the elaboration of draft agreements to adjust them to the OECD Model Covention.