In which case information about non-resident who is a beneficiary (actual) recipient (owner) of income is indicated in the header of annex “income tax” to the corporate income tax declaration?

Information and Reference Department, published 09 June 2022 at 10:36 Chapter: News

Paragraph 103.2 Article 103 of the Tax Code of Ukraine № 2755-VI as of 02.12.2010 with changes and amendments (hereinafter – TCU) stipulates that a person (tax agent) has a right to independently apply tax exemption or reduced tax rate provided by the relevant international agreement of Ukraine at the time of payment of income to non-resident, if such non-resident is a beneficiary (actual) recipient (owner) of income (if the relevant condition is stipulated by international agreement) and is a resident of the country with which the international agreement of Ukraine is concluded. In case of receiving a syndicated financial loan, a person (tax agent) applies tax rate provided by the relevant international agreement of Ukraine on the date of payment of interest or other income received from sources in Ukraine to members of the creditors' union depending on the jurisdiction of each participant of the syndicated loan and in proportion to his / her share in the loan agreement, provided that it is the beneficiary (actual) recipient (owner) of income, regardless of whether payment is made through agent or directly.

Application of international agreement of Ukraine in terms of tax exemption or application of reduced tax rate is allowed only if the non-resident person (tax agent) provides a document confirming the tax resident’s status according to requirements of Paragraph 103.4 Article 103 of the TCU.

Tax benefits in the form of tax exemption or application of reduced tax rate provided by international agreement are not provided in respect of the relevant type of income or profit, if the main or primary purpose of relevant business operation of non-resident with a resident of Ukraine was direct or indirect benefits provided by international agreement in the form of tax exemption or application of reduced tax rate. This norm is not applicable, if it is established that obtaining such benefits corresponds to the object and objectives of the international agreement of Ukraine. If the international agreement, approved by the Verkhovna Rada of Ukraine, establishes rules other than those provided for in this Paragraph, the relevant rules of the international agreement are applicable.

If recipient of income is a non-resident who is not the beneficial (actual) recipient (owner) of income, it is allowed to apply the international agreement of Ukraine with a country whose resident is the relevant beneficial (actual) recipient (owner) of such income, in terms of tax exemption or application of reduced tax rate, provided that the person (tax agent) is provided with the following documents:

a) from the recipient of income – applications in any form that he / she does not have status of beneficiary (actual) recipient (owner) of income, as well as the presence of such non-resident’s status, who provided documents specified in Sub-paragraph "b" of Paragraph 103.2 Article 103 of the TCU.

b) from the beneficiary (actual) recipient (owner) of income – applications in any form that such non-resident has status of beneficial (actual) recipient (owner) of income and documents confirming such status (including but not limited to licenses, contracts, official letters of the competent authorities), as well as document confirming the tax resident’s status according to requirements of Paragraph 103.4 Article 103 of the TCU.

Paragraph 103.3 Article 103 of the TCU stipulates that the beneficial (actual) recipient (owner) of income for purposes of applying reduced tax rate according to the rules of the international agreement of Ukraine to dividends, interest, royalties, remuneration, etc. of a non-resident received from sources in Ukraine (if relevant condition is stipulated by the international agreement), is considered a person who has a right to receive such income and is the beneficiary of it (has a right to actually dispose such income).

In this case, the beneficial (actual) recipient (owner) of income is not a legal or natural person, even if such person is entitled to receive income but is an agent, nominal holder (nominal owner) or performs only intermediary functions in relation to such income, as evidenced, in particular, by the following signs:

specified person does not have sufficient authority or, in a case confirmed by facts and circumstances, has no right to use and dispose such income, and / or the specified person transfers received income or most of it to another person regardless of the method of such transfer and the specified person does not perform significant functions, does not use significant assets and does not bear significant risks in transaction of such transfer, and / or the person does not have appropriate resources (qualified personnel, fixed assets in possession or use, sufficient equity, etc.) necessary for the actual performance of functions, use of assets and risk management associated with obtaining appropriate type of income, which are only formally entrusted (used, accepted) to the specified person in connection with transaction on such transfer.

If non-resident – direct recipient of income with a source of origin from Ukraine is not the beneficial (actual) recipient (owner) of such income, provisions of the international agreement of Ukraine with country of which the respective beneficiary (actual) recipient (owner) of such income is a resident, are applicable during payment of such income. In the case provided for in this clause, an obligation to prove that non-resident is the beneficial (actual) recipient (owner) of such income rests with such non-resident or with non-resident, who applies to the supervisory authority for refunding of the withheld tax.

For purposes of Paragraph 103.3 Article 103 of the TCU in cases when residents – subjects of cinematography of Ukraine pay royalties to non-residents under sublicense agreements for the use or granting the right to use audiovisual works (including films), as well as objects of copyright and / or related rights used in production (creation) of audiovisual works (including films), such non-residents are considered beneficial (actual) recipients (owners) of such royalties.

Paragraph 103.4 Article 103 of the TCU stipulates that the basis for exemption (reduction) from income taxation from the source of their origin from Ukraine is the non-resident’s submission, taking into account features provided for in Paragraphs 103.5 and 103.6 Article 103 of the TCU, to the person (tax agent) who pays income of certificate (or its notarized copy) that confirms that the non-resident is a resident of the country with which the international agreement of Ukraine is concluded (hereinafter – certificate) and other documents, if required by the international agreement of Ukraine.

Certificate is issued by the competent (authorized) body of the respective country, determined by the international agreement of Ukraine, in the form approved by legislation of the respective country that must be properly legalized and translated according to Ukrainian legislation (Paragraph 103.5 Article 103 of the TCU).

When legal entities – residents of Ukraine carry out operations with foreign banks related to payment of interest, confirmation of the fact that such foreign bank is a resident of a country with which Ukraine has international agreement is not required, if this is confirmed by an extract from the international catalog "International Bank Identifier Code" (published by S.W.I.F.T., Belgium International Organization for Standardization, Switzerland) (Paragraph 103.7 Article 103 of the TCU).

Paragraph 103.9 Article 103 of the TCU determines that a person who pays income to non-resident is obliged, in case of making payments to non-residents in the reporting period (quarter) of income with the source of their origin from Ukraine, to submit to the supervisory authority at his / her location (residence) a report on income paid, withheld and transferred to the budget taxes on income of non-residents in the time and form established by the central executive body that ensures formation and implementation of public financial policy.

Corporate income tax declaration form was approved by Order of the Ministry of Finance of Ukraine № 897 as of 20.10.2015 with changes and amendments (hereinafter – Declaration), according to which the Calculation (report) of tax liabilities of non-residents, who received income from their source of origin from Ukraine, is reflected in Table 1 of Annex “Income tax” to line 23 of Annex “Income tax” to the Declaration (abb. Annex PN).

Annex PN is filled in separately for each non-resident to whom income is paid.

In particular, Columns 5 and 6 of Annex PN must indicate tax rate according to the international agreement and, accordingly, amount of withheld tax during payment of income (profit) to non-resident accrued for the reporting (tax) period.

In this case, form of Annex PN provides for provision of information about non-resident who is the beneficiary (actual) recipient (owner) of income with a source of origin from Ukraine, in the case of application, according to Article 103 of the TCU, provisions of the international agreement of Ukraine with a country, resident of which is the relevant beneficiary (actual) recipient (owner) of such income (Note 4 to Annex PN).

As follows, if relevant rules of the international agreement of Ukraine regarding exemption from taxation or application of reduced tax rate are applied during payment of income to non-resident with a source of origin from Ukraine, whether or not such non-resident is the beneficiary (actual) recipient (owner) of such income, in the fields of header of Annex PN information on the full name of the non-resident is indicated, namely who is the beneficiary (actual) recipient (owner) of income, name of the country of residence of the non-resident who is the beneficiary (actual) recipient (owner) of income, his / her location, code in the country of residence, code of the country of residence, marks on the absence of legal entity’s status on the basis of contract (agreement), non-resident’s registration data and mark on the existence of offshore status.

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