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In brief

On 16 December 2020, Verkhovna Rada (Parliament) of Ukraine ratified the Protocol amending the 1997 Tax Treaty between Ukraine and Austria (“Protocol“).

Key takeaways

Depending on how quickly Ukraine and Austria exchange diplomatic notes, the changes should affect your business in 2022. Thus, we recommend reassessing your current corporate structures and business models in advance to comply with the new rules.

Among other things, you may wish to consider:

  • assessing the possible impact of the principal purpose test on your current business model
  • re-examining the withholding tax rates applicable to payments covered by the Ukraine-Austria Tax Treaty (“Tax Treaty“)

At the same time, please note that the increase of withholding tax rates should not economically affect the taxpayers who can fully credit them against corporate or personal taxes paid in their country of residence.

In more detail

The Protocol suggests the following amendments to the Tax Treaty:


  • The Protocol increases the general withholding tax rate for dividends from 10% to 15%. The reduced 5% withholding tax for non-portfolio dividends (10% shareholding threshold) remains unchanged.


  • The Protocol replaces the reduced 2% withholding tax rate for specified interest payments with a general rate of 5%.


  • The Protocol increases the maximum withholding tax rate applicable to copyright royalties from 5% to 10% and allows a new 5% withholding tax on other royalties.

Principal Purpose Test

  • Following the OECD BEPS Action 6, the Protocol introduces the principal purpose test by adding Article 23A of the Tax Treaty. This test will allow refusing treaty benefits if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining those benefits was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefits.

The Protocol will also amend the Preamble to the Tax Treaty to specify a purpose of avoiding opportunities for non-taxation or reduced taxation through tax evasion or avoidance.

Exchange of Information

  • The Protocol will elaborate on the provisions of the Tax Treaty on the exchange of information, prescribing the information to be included in a request for information by a competent authority.

It is notable that the Protocol does not introduce any changes to Article 5 (Permanent Establishment) and Article 25 (Mutual Agreement Procedure), which are recommended by the OECD in its BEPS Action Plan. The Tax Treaty is also not a Covered Tax Agreement under the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI).

After Ukraine and Austria exchange the relevant notifications, it will take an additional thirty days for the Protocol to enter into force. However, the provisions of the Protocol will enter into effect only regarding taxes levied in the next calendar year following its entry into force. It should take an additional year for the provisions relating to royalties to enter into effect.

Click here to access the Ukrainian version. Україна: Ратифікація Протоколу до Конвенції про уникнення подвійного оподаткування з Австрією


Roman Koren is an Associate in Baker McKenzie's Kyiv office.