Double Tax Treaty with Austria: what changes and when
On June 25, 2021 the Protocol to Amend the Convention between the Government of Ukraine and the Government of the Republic of Austria for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital (hereinafter – the Protocol) as of June 15, 2020 entered into force for Ukraine1.
The main changes concern the tax- rates on dividends, interest and royalties. Please see a table below summarizing such changes:
|Type of income||Former tax rate||New tax rate||The new tax rate applies as of or after|
|If the beneficial owner of the dividends is a company that holds directly at least 10 percent of the capital of the company paying the dividends||5 %||5 %|
|other cases||10 %||15 %2||01.01.20223|
(i) in connection with the sale on credit of any industrial, commercial, or scientific equipment,
(ii) in connection with the sale or rendering on credit of any merchandise or service by one enterprise to another enterprise, or
(iii) on any loan of whatever kind granted by a bank or any other financial institution
|2 %||5 %4||01.01.20223|
|other cases||5 %|
|for the use of, or the right to use, any copyright of literary or artistic work including cinematograph films, and films or tapes for radio or television broadcasting||5 %||10 %5||01.01.20236|
|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 concerning industrial, commercial or scientific experience.||0 %||5 %7||01.01.20236|
The provisions of Article 11 of the Convention8 relating to the exemption from taxation of interest in the country of origin have also experienced transformation. Thus, para. 7 and para. 8 of Article 11 “Interest” were in fact combined and set out in a slightly expanded version of the new para. 7 of Article 11 of the Convention as follows:
“7. Notwithstanding the provisions of paragraph 2, interest referred to in paragraph 1 shall be taxable only in the Contracting State of which the recipient is a resident if the beneficial owner of the interest is a resident of that State, and:
a) is that State, a political subdivision or local authority thereof or the central bank;
b) if the interest is paid by the State in which the interest arises, or by a political subdivision or local authority thereof;
c) if the interest is paid in respect of a loan, debt-claim or credit that is owed to, or made, provided, guaranteed or insured by, that State or a political subdivision, local authority or export financing agency thereof”.
That is, in contrast to the previous version of Article 11 of the Convention, exempt from taxation in the country of origin is interest,
(i) paid by the Contracting State itself, political subdivision or local authority thereof, as well as
(ii) interest on loan, debt-claim or credit that is owed to, or made, provided, guaranteed or insured by an export financing agency.
For the sake of completeness, we note that in this case we are not talking about any financing export agency, but an agency of a Contracting State, what is confirmed by the English text of the Protocol9 (which prevails according to Article 9 of the Protocol):
«(с) if the interest paid in respect of a loan, debt claim or credit that is owed to, or made, provided, guaranteed or insured by, that State or a political subdivision, local authority or export financing agency thereof».
In addition to the abovementioned changes, the Protocol also added a new Article 23A “Entitlement to benefits” to the Convention. With such new provisions parties exclude the possibility of application of the Convention in cases where it can be reasonably concluded that the benefit, provided for in the Convention, was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly into that benefit.
That is, the new amendments make the application of the Convention impossible if business entities abuse their benefits and create structures and/or structure their transactions in such a way as to take advantage of reduced tax rates or exemption from taxation in general.
Besides, the Protocol sets out Article 26 “Exchange of information” of the Convention in a new edition, and also supplements the Protocol of October 16, 1997 being an integral part of the Convention.
Such amendments to the Convention and to the Protocol of October 16, 1997 define in detail the powers of the competent authorities of the States to collect information, as well as possible ways of collecting and limiting it (in particular, regarding the requirement to justify the tax purpose for which the information is requested).
The above commentary presents the general statement for information purposes only and as such may not be practically used in specific cases without professional advice.
1Ratified on December 16, 2020 by the Law of Ukraine “On Ratification of the Protocol to Amend the Convention between the Government of Ukraine and the Government of the Republic of Austria for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital.
2Para. 2 of Article 10 of the Convention.
3In accordance with the provisions of Article 9 of the Protocol, the tax rates amended by the Protocol shall be applicable either on or after the first of January of the year next following the entry into force of this Protocol, i.e from January 01, 2022.
4Para. 2 of Article 11 of the Convention.
5Para. 2 of Article 12 of the Convention.
6The amendments shall enter into force one year after the entry into force of the Protocol and shall be effective for fiscal years beginning on or after the first day of January of the year next following the entry into force these amendments, i.e from 01 January 2023.
7Para. 3 of Article 12 of the Convention.
8Convention between the Government of Ukraine and the Government of the Republic of Austria for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capitalas of 16 October, 1997 (hereinafter – the Convention).
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