Ukrainian parliament ratifies protocol amending convention on avoiding double taxation with Switzerland


published on 20 November 2019 | Reading time approx. 3 minutes


On 18 September 2019, Ukrainian parliament ratified the protocol to the con­vention for the avoidance of double taxation with respect to taxes on income and capital. The protocol introduces many changes to the convention that will have significant impact on the taxpayers in Switzerland and in Ukraine.


The most important changes are summarized below:
  1. The convention is supplemented with the provisions introducing principal purpose test (Article 26a) according to the wording of Article 7 of the OECD multi­lateral convention to implement tax treaty related measures to prevent base erosion and profit shifting. 
  2. A new paragraph is added to Article 7 of the convention which prohibits adjustment of profit attributable to a permanent establishment during five years after the end of the year in which such profit was to be attributed, except for the cases of fraud or intentional breach of obligations. 
  3. The direct shareholding for the appli­cation of the reduced 5 per cent withholding tax rate on dividends is reduced from 20 per cent to 10 per cent. 
  4. The withholding tax rate on interest is decreased from 10 per cent to 5 per cent rate. At the same time, the exemption of interest payable on a bank loan or in connection with the sale on credit of equipment or merchandise is deleted from article 11 of the Convention.
  5. The withholding tax rate on royalties is decreased from 10 per cent to 5 per cent rate, but the exemption for royalties payable for the use of, or the right to use, any copyright of scientific work, any patent, trade mark, design or model, plan, secret formula or process, or for information (know-how) con­cerning industrial, commercial or scientific experience is deleted from article 12 of the Convention.
  6. Article 23 of the convention is supplemented with a new provision stating that for the purposes of elimi­nation of double taxation the exemption of gains from the alienation of shares or a contribution in a partner­ship which according to the convention may be taxed in Ukraine from taxation in Switzer­land is subject to submission of evidence of actual taxation of such gains in Ukraine. 
  7. The convention is supple­mented with arbitration clause. The wording of the arbitration clause is based on Articles 19-26 of part VI of the OECD multi­lateral convention to implement tax treaty related measures to prevent base erosion and profit shifting. 
  8. The protocol which was signed together with the convention is supplemented with the “most favoured nation” clause which states that any tax exemption or re­duced tax rates on dividends, interest and royalties con­tained in Ukraine’s tax treaty with a third party which is OECD member state, shall automatically apply when such kinds of income are paid from Ukraine to a resident of Switzerland, if the tax treaty between Ukraine and Switzerland does not contain such exemptions or provides higher tax rates.

The protocol will become effective on the date of the last written notification of the completion by Ukraine and Switzerland of the internal proce­dures that are necessary for the protocol to come into force. The protocol will apply from 1 January of the calendar year next following that in which the protocol enters into force. Con­sidering the current status of ratification of the protocol by Ukraine and Switzerland, the protocol may enter into force in 2019 already and may start to apply from 2020

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