Based on the fiscal interpretation
of Ukraine’s tax code, the tax authorities attempt
to tax financing from the head company in the hands of the
representative office even if the latter should not constitute
a permanent establishment (PE) by virtue of applicable treaty
Existing court practice in Ukraine
shows a tendency of courts contesting the tax
authorities’ position by, among other things,
referring to principles of international taxation as envisaged
in Ukraine's double tax treaties.
Ruling No. K/9991/35822/11, issued by the
Supreme Administrative Court of Ukraine on March 14 2013,
illustrates the trend.
The tax authorities claimed that
funds received by a representative office of a Dutch company
from the head company, for maintenance of its activity in
Ukraine, was taxable income in the hands of the representative
Exploiting the general principle
that profits derived by a non-resident carrying on its
activities in Ukraine via a PE shall be taxed based on general
rules, the tax authorities assessed the representative office
with additional corporate profits tax liabilities.
The Supreme Administrative Court
of Ukraine, as well as two lower courts, rejected the tax
authorities' claims by referring to the rule on international
treaties predominance over domestic legislation, as well as to
the preparatory/auxiliary functions exemption provided by the
Ukraine-Netherlands double tax treaty.
The courts investigated and compared the registered activities
of the Dutch head company with the representative office's
activities in the territory of Ukraine, both registered and
While the head offices' activities were in production and
sales, those of the representative office were on the
marketing, advisory and regulatory side. By such analysis the
courts proved the auxiliary/preparatory nature of the
representative office's activities and consequently rejected
the claims on tax re-assessment.
Despite this positive trend, the tax authorities are likely to
continue to adhere to a purely fiscal and budget-driven
approach while ignoring treaty-based international taxation
Representative offices of foreign companies in Ukraine are
therefore advised to be prepared to defend their non-taxable
status in court. Proper documentary proof of scope of
activities is essential for building the case.
By principal Tax Disputes
correspondents for Ukraine:
Svitlana Musienko, DLA Piper
Ukraine, partner, Svitlana.email@example.com,
+ 38 044 4909564; and
Illya Sverdlov, DLA Piper
Ukraine, legal director, Illya.firstname.lastname@example.org,
+38 044 490 9575.