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News > Knowledge Seminar for SFSU on Taxation of PE

Knowledge Seminar for SFSU on Taxation of PE

13 November, 2014

In her presentation Svitlana discussed the topic of taxation of permanent establishments, making a specific focus on international practice and its applicability to Ukraine.

When comparing definition of Agency PE in the Tax Code of Ukraine with that of OECD Model Tax Convention/DTTs signed by Ukraine, Svitlana noted that under the Ukrainian Tax Code PE exists when there is an Attorney in Ukraine authorized to act on behalf of a non-resident. As it comes to OECD Model Tax Convention and some DTTs concluded by Ukraine, an Attorney, in order to qualify as a PE, needs not only to have the authority but also to habitually exercise such authorities. When commenting this issue from a practical point of view, tax officers noted that existence of a PoA is a sufficient ground for them to treat an Attorney as an Agency PE.

Participants further exchanged their views on whether OECD/UN Model Tax Conventions can serve as a legal source for definition of PE in Ukraine.

Meeting attendees also discussed the methods of determination of a PE's tax base under the Tax Code of Ukraine and compared them with relevant methods in other jurisdictions, e.g. The Netherlands, Germany, Japan. Tax officers confirmed that "formula" method is almost never used in Ukraine, while "assumed 30% profit margin" method is the most popular for Ukrainian PEs.

On a separate note, state officials and IFA Ukaine representatives paid attention to the major problems Tax Service is facing with when trying to practically reveal Service PE of a non-resident company and to assess tax liabilities to such a non-resident.

According to tax officers, there is no effective mechanism for application of those tax norms that are treating PE's business activities performed prior to tax registration as a tax evasion. They also pointed out the necessity to introduce amendments to the procedure provided by Article 64 of the Tax Code of Ukraine, so that it starts working properly.

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