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Amendment of the Convention for the Elimination of Double Taxation

On 15.06.2020 the Ministry of Finance of Ukraine signed the Protocol on Amendments to the Convention between the Government of Ukraine and the Government of the Republic of Austria for the Avoidance of Double Taxation and Prevention of Tax Evasion with Respect to Taxes on Income and Property.

The Protocol amends the Convention to bring its provisions in line with the Organization for Economic Cooperation and Development (OECD) Model Convention because, according to the Ministry of Finance, the current bilateral double taxation convention, concluded in 1997, currently does not meet international standards.

The Protocol provides, inter alia, for the increase of dividend taxation rates from 10 to 15 percent and interest rates from 2 to 5 percent. The rates of taxation of royalties paid have also been increased: for the use of any copyright for scientific work, patent, etc. – from 0% to 5%, and for the use of copyright for literary or artistic works from 5% to 10%.

In addition to the increase in rates, it is planned to introduce new provisions to the “Rights to receive benefits”, which limits the possibility of applying the preferential provisions of the Convention, if the main purpose is to receive such benefits, and “Information Exchange”, which enhances the ability of the competent authorities of the Treaty States to exchange tax information.

International agreements do not become immediately binding at the national level. They must first be incorporated into national legislation through a specific procedure.

Ukraine’s consent to be bound by an international agreement and its protocol may be given by signature, ratification, approval, acceptance, accession to the agreement or in any other way agreed upon by the parties.

Agreements on elimination of double taxation are the kind of an international agreement that requires going through the procedure of its ratification before becoming part of Ukrainian legislation. The ratification of international agreements of Ukraine is carried out through the adoption by the Verkhovna Rada of the law on the ratification of an agreement (protocol thereto), of which the text of an international agreement is an integral part.

On the basis of the law signed by the President of Ukraine and officially published, the Head of the Verkhovna Rada signs the instrument of ratification, which is certified by the signature of the Minister of Foreign Affairs of Ukraine, if the agreement stipulates the exchange of such instruments. The law shall enter into force on the date of receipt through diplomatic channels of the last written communication on completion by the parties of the domestic procedures necessary for the law to enter into force.

Ratification of the Protocol may take place this year, but there has been a precedent with Cyprus where the ratification procedure for the Protocol, which tightens up the requirements of the Convention, has been delayed for several years.

In view of the above, when paying foreign income to an Austrian resident, we recommend checking the status of the Convention and Protocol in order to avoid underpayment of tax in Ukraine.