Constructive dividends – declare them correctly

State Tax Service of Ukraine reports that, as of today, taxpayers have made transfer pricing adjustments in the amount of more than 8 billion UAH (reporting periods 2021–2022), which according to Sub-paragraph14.1.49 Paragraph14 14.1 Article 14 of the Tax Code of Ukraine (hereinafter – Code) are equated to dividends.

At the same time, according to addendum to line 23 of the Income tax declaration (hereinafter – Addendum to the Income tax declaration), payments of income equivalent to dividends (hereinafter – constructive dividends) in the amount of more than 6 billion UAH were declared, from which the repatriation tax was paid in the amount of more than 600 million UAH.

According to the conducted analysis, it was established that the biggest transfer pricing adjustments are made with companies registered in Switzerland (19%), United Arab Emirates (14%), Germany (9%), Cyprus (7%) and others.

Currently, transfer pricing adjustments are being processed for 133 business entities in the amount of 2 billion UAH, which were not reflected in the Addendum to the Income tax declaration, and the repatriation tax on which was not paid.

Please note the need to declare constructive dividends by submitting separate tax declaration for each non-resident.

Constructive dividends are taxed at the 15% rate, unless otherwise established by international agreement or according to formula specified in Sub-paragraph 141.4.2 Paragraph 141.4 Article 141 of the Code, and are reflected in Addendum to the Income tax declaration, which is submitted for reporting period in which the non-resident's income tax was paid to the budget, and in case of exemption from taxation for a period in which adjustment and/or payment of income took place.

In addition, liability in according to the Code is applied to the taxpayer who remitted tax on income of non-resident to the budget in full, but after September 30 of year following the reporting year.

It is allowed to apply international agreement of Ukraine in terms of exemption from taxation or to apply reduced tax rate only on the condition that non-resident provides document to a person (tax agent) confirming the tax resident’s status according to requirements of Paragraph 103.4 Article 103 of the Code.

Application mechanism of relevant international agreements is disclosed in detail in general tax consultation regarding taxation of non-resident incomes, which are equivalent to dividends, approved by Order of the Ministry of Finance of Ukraine № 480 as of 20.08.2021.

State Tax Service of Ukraine reminds that responsibility for completeness of withholding and timely transfer to the budget of income tax received by non-resident with a source of origin in Ukraine rests with taxpayers who make appropriate payments (Paragraph 137.3 of Article 137 of the Code).