Taxation of non-residents’ income gained from sale of corporate rights of the Ukrainian company to another non-resident
The situations occur in practice when corporate rights of the Ukrainian enterprises owned by non-residents are alienated to another non-residents. At the same time settlements under such transactions are performed outside Ukraine. However, as the practice shows in Ukraine there is some uncertainty regarding the taxation of such transactions.
Recently in our practice the situation occurred when the tax authority had tried to apply additional tax liabilities on income gained by non-resident from the sale of corporate rights of the Ukrainian legal entity to another non-resident company. Such additional charges, for some reason, were assessed to the Ukrainian company-issuer, which corporate rights have been sold.
It is worth mentioning that such approach is groundless and was not included to the final version of the act of tax audit after the submission of objections to it, because taxation of such transactions is not currently foreseen by the Ukrainian legislation.
Why such transactions should not be an object of taxation under the provisions of the legislation of Ukraine?
According to subpara."e" of subpara. 160.1 of the Tax Code of Ukraine (hereinafter - the "ТC of Ukraine") incomes from Ukrainian sources include "income from operations on trading securities, derivatives or other corporate rights as determined in accordance with this section."
We would like to note that the phrase "income from operations on trading corporate rights" was not correctly selected by the legislator, as the TC of Ukraine establishes the procedure for determining the financial result of operations on sale of corporate rights, not trading with them (subpara. 2 - 4 of para.153.9 of Art. 153 of the TC of Ukraine). However, such contradiction is not crucial, as "trading" is a broader term than the "sale" and the first includes the last. <...>
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