On May 25, 2017, the Board of the National Bank of Ukraine adopted the Resolution "On Amending Certain Legal Acts of the National Bank of Ukraine" No. 41 (hereinafter - Resolution No. 41), which provides the introduction of a number of mitigations of the monetary policy of the regulator. In particular, this also applies to extending the time limit for contracts for exports / imports of goods up to 180 days, and allowing foreign investors to return funds from the sale of corporate rights in foreign currency and other weakening of currency regulation. This is reported by the kmp. ua.

Along with the liberalization measures, Resolution No. 41 also introduced the following new requirement:

«"The Authorized Bank has the right to initiate a registration with the National Bank of a contract concluded by a non-bank resident borrower (including in the case provided for in clause 2 of clause 3 of chapter 2 of section I of this Regulation), only upon identification on the basis of documents and / or information (including from official or public sources) that enables the establishment of final beneficiary owners of a non-resident creditor who is a legal entity, including the absence of grounds for believing that he is using agents, nominee holders (nominees) or intermediaries in order to conceal their final beneficiary owner (s) [controller (s)] ".».

In other words, the NBU establishes a new mandatory condition that if a Ukrainian company (resident-borrower) wants to obtain a loan / loan from a foreign company (non-resident lender), then for this purpose it will have to provide information about the final (beneficiary) owner lender The bank, which will submit a loan agreement for registration with the NBU, will in any case be forced to provide such information to the regulator, otherwise the agreement will not be registered and the borrower will not receive the loan.

It should be noted that now this requirement has not yet come into force, which will force it to come into force on June 12, 2017.

In this newsletter we will focus only on the newly introduced, and more precisely, on its possible tax implications.

When paying to a non-resident lender income in the form of interest for using a loan, in general, the resident borrower must retain the tax on such non-resident income at a rate of 15% and pay it to the budget (pp. 141.4 pc of Ukraine).

However, if such income is paid to a resident of a state with which Ukraine has concluded a double taxation convention and provides for the exemption of such income from taxation in Ukraine or reduction of the tax rate, then in accordance with the provisions of Art. 103 PC of Ukraine resident borrower can independently apply such provisions of the convention and not hold income tax in Ukraine.

Currently, most double taxation conventions provide for provisions that allow or disallow interest taxes on all, or apply a reduced rate.

However, in accordance with clause 103.2 of the PC Ukraine, the mandatory conditions for the application of the provisions of the conventions are (1) the creditor's residence in the country with which the convention was concluded, and (2) such a creditor should be the beneficiary (actual) income recipient.

It is in connection with the second condition and there may be tax risks when registering a loan agreement concluded with a non-resident.

So, par. 2 p. 103.3 of the PC of Ukraine provides that

«"The beneficial (actual) recipient (owner) of the income can not be a legal entity or an individual, even if such person is entitled to income, but is an agent, nominee holder (nominal owner) or is only an intermediary for such income".».

That is, if the resident borrower applies the provisions of the convention when paying interest to his lender abroad, and later the tax authorities will establish that such recipient is not a beneficiary, the result will be the corresponding tax deductions and penalties provided for in p. 127.1 of Ukraine's PC in the amount of 25 to 75% depending on the number of violations detected in the last 1095 days.

According to the new requirement of the NBU, such information should be provided to the bank directly at the registration of the contract, and therefore, taking into account the exchange of information between the state authorities, tax authorities will be able to detect such violations more promptly, to make additional payments and to apply appropriate penalties.

At once we want to warn those who decide to indicate false information about the final recipient of interest when submitting an agreement to register with the bank.

Such actions constitute a criminal offense under Art. 366 of the Criminal Code of Ukraine. The sanction of the article provides: a fine of up to 4250 UAH or a restriction of liberty for a term up to 3 years with the deprivation of the right to occupy certain positions or engage in certain activities for a term up to 3 years; and if such actions caused grave consequences4 - imprisonment for a term of 2 to 5 years with the deprivation of the right to occupy certain positions or engage in certain activities for a term up to 3 years and a fine of 4250 to 12 750 UAH.

Thus, if a person deliberately indicates false information about the beneficiary's owner of a non-resident lender who is the recipient of interest on the use of a loan, in addition to the tax consequences, this will also create the risk of bringing it to criminal liability.

We draw your attention to the fact that the above comment is not a consultation and is proposed for information purposes. In the specific situations it is recommended that you receive a full professional consultation.