On June 7, 2017 the Luxembourg tax authorities issued a press release announcing that the Protocol (signed on September 30, 2016) to amend the Convention between the Government of the Grand Duchy of Luxembourg and the Government of Ukraine for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital, which was signed on September 6, 1997, will enter into force on January 1, 2018.

Below we will discuss a selection of provisions included in the Protocol of which we think they might interest our readers.

Permanent establishment

The Protocol arranges that Article 5, Paragraph 3 of the Convention (“Permanent establishment”) shall be replaced by the following:

“The term “permanent establishment” also encompasses:

a)      a building site, a construction, assembly or installation project or supervisory activities in connection therewith, but only if such site, project or activities last more than twelve months;

b)      The furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purposes, but only if activities of that nature continue (for the same or a connected project) within a Contracting State for a period or periods aggregating more than six months within any twelve-month period.”.

Dividends

The Protocol arranges that Article 10, Paragraph 2 of the Convention (“Dividends”) shall be replaced by the following:

“Hover, dividends paid by a company which is a resident of a Contracting State may also be taxed in that State according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed:

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 20 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.

This paragraph shall not effect the taxation of the company in respect of the profits out of which the dividends are paid.”.

The Protocol furthermore arranges that Article 10, Paragraph 3 of the Convention shall be deleted.

Interest

The Protocol arranges that Article 11, Paragraph 2 of the Convention (“Interest”) shall be replaced by the following:

“However, interest arising in a Contracting State may be also be taxed in that State according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed:

a)      5 per cent of the gross amount of the interest, in the case of interest arising in a Contracting State and paid on any loans of whatever kind granted by a bank or any other financial institution of the other State, including investment banks and saving banks;

b)      10 per cent of the gross amount of the interest in all other cases.”.

Royalties

The Protocol arranges that Article 12, Paragraph 2 of the Convention (“Royalties”) shall be replaced by the following:

“However, royalties arising in a Contracting State may also be taxed in that State according to the laws of that State, but if the beneficial owner of the royalties is a resident of the other Contracting State, the tax so charged shall not exceed:

a)      5 per cent of the gross amount of the payments referred to in sub-paragraph a) of paragraph 3 of this Article;

b)      10 per cent of the gross amount of the payments referred to in sub-paragraph b) of paragraph 3 of this Article.”.

Other

The Protocol furthermore a.o. arranges that Article 26 of the Convention (“Exchange of information”) shall be replaced by a new Article 26 (“Exchange of information”).

Click on the language of your choice to be forwarded to the version of the Protocol in that language as available on the website of the Luxembourg tax authorities. (French, English or Ukrainian)

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