With the rapid development of business on the Internet, including in Ukraine, a real legal settlement of the issues of personal data protection by preventive means and compensation damage for their violation is necessary. This issue is particularly relevant for those companies that have access to personal data of EU citizens and where the number of employees is more than 250 people (small and medium-sized enterprises are not required to keep records of data in most cases stipulated by Art. 30.5 GDPR).
The main conditions for the collection, storage and distribution of personal data and the liability for violation of personal data are provided for by the Law of Ukraine “On the protection of personal data” of 01.06.2010, No. 2297-VI (Law No. 2297-VI). Also, the responsibility for violation of personal data is provided in Art. 182 of the Criminal Code of Ukraine, in Art. 188-39 of the Code of Administrative Offenses of Ukraine.
On April 26, 2017, the European Court of Human Rights ruled in plaintiff’s favor for the protection of his personal data, with a reimbursement of EUR 6,000 for non-pecuniary damage, referring, inter alia, to the Convention for the Protection of...
Increase in globalization and foreign trade in the last century led to aggressive tax planning. Though these planning measures are legitimate, they are designed for shifting profits to low tax jurisdictions. There is a number of measured to deal with this tax abuse. In particular, some jurisdictions apply controlled foreign corporation (CFC) rules.
Historically, the CFC concepts were created to help prevent tax evasion achieved by setting up offshore companies in tax havens, such as Bermuda and the Cayman Islands. Increasingly countries have developed CFC legislation to counter perceived overseas abuses enveloped in a low tax overseas entity.
The aim of CFC rules is to prevent or obstruct the creation of structures used by companies, especially domestic multinationals, for pure avoidance of domestic tax liability. CFC rules are designed to prevent profit shifting without penalizing foreign subsidiaries engaged in legitimate business practices.
A controlled foreign corporation is a corporate entity that is registered and conducts business in a different jurisdiction or country than the residency of the controlling owners. A company that qualifies as a CFC generally has its...
For many years, countries have recognized in international forums that co-operation is the key to obtain tax information from abroad. The OECD’s work is at the forefront of international efforts to promote exchange of information for tax purposes. The organization developed different mechanisms for the exchange of tax information, many of which have been implemented worldwide.
The OECD started its work on harmful tax practices with regard to tax havens, initially in May 1998 with its Report Harmful Tax Competition – An Emerging Global Issue. This Report called for a concerted international effort to eliminate harmful tax practices and to adopt a series of recommendations.
Following the Report, OECD Global Forum Working Group on Effective Exchange of Information developed Model Agreement on Exchange of Information in Tax Matters (known as the Model TIEA) to push for greater transparency. It was issued in April 2002. The aim is to establish a standard for what constitutes the effective exchange of information.
The Model TIEA is not a binding instrument but contains two models for bilateral agreements. A large number of bilateral agreements have been based on this...
Non-discrimination articles have been used in tax treaties over a number of years, they are designed to place non-discrimination requirements on the source country rather than on the residence state.
There may arise cases where a country provides favourable treatment to its nationals and discriminates against foreigners. To circumvent such cases tax treaties provide a clause which restricts contracting states from offering discriminatory treatment to foreign nationals as compared to its nationals.
The article on non-discrimination is the tool employed by tax treaties to express and achieve this very fundamental principle of taxation and to prevent unfair taxation as distinct from preventing double taxation.
As mentioned in General remarks to the Commentary to Article 24 of the OECD Model Tax Convention on Income and on Capital (2017) (the OECD MTC): This Article deals with the elimination of tax discrimination in certain precise circumstances.
Discrimination means unequal treatment in situations which are identical or similar. Article 24 of the OECD MTC deals with non-discrimination provisions; nationality non-discrimination, permanent establishment non-discrimination,...
OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2017 (OECD Transfer Pricing Guidelines), there are 3 traditional methods and 2 transactional methods to determine an arm length price.
Traditional transaction methods are:
Compared Uncontrolled Price method (CUP)
Resale Price method (RSP)
Cost Plus method (CP)
Transactional profit methods are:
Transactional Net Margin method (TNM)
Profit Split method (PS)
Compared Uncontrolled Price (CUP) method compares price changed for products and services in controlled transaction between related parties, and price that would have been charged if it were a transaction undertaken between independent non-related parties. CUP method can be internal and external. The first one compares prices between distributor an its related customer, and price between the same distributor and its non-related customer. External method determines price between distributor and its related customer, and between another distributor and its independent customer.
Resale Price (RSP) method is based on difference between price at which products were bought and then sold to third party. The resale...
The main connecting factors which are commonly used by States to establish jurisdiction to tax the profits of multinational enterprises are “residence” and “source”, which are linked to concepts of “nationality” and “territoriality” used in public international law.
Notions of residence and source are recognized by both OECD and UN and are reflected in their tax treaty models.
Under residence approach, a state imposes its taxing rights of legal entity or individual based on its relation to the person who derives income.
Under source principle, a state assess legal entity or individual to tax based on its relation to assets that generate income.
All the states use source principle to levy taxes on income generated within state’s territory. Some states invoke residence/nationality principle and thus tax their citizens and residential companies on their worldwide income (the USA, Russia, Finland, etc.). Some states adopted only territorial principle (Hong Kong SAR, Singapore, Malaysia, Panama, Costa Rica, etc.). However, and most of states utilize both principles.
State practice in determining place of residence comprises two main tests: place of...
Double Taxation Agreements (DTAs) are predominantly bilateral in nature. They are concluded on international level under international public law and thus on international level guarantee that they will become a part of domestic law of contracting states after their ratification.
There are two ways how contracting states incorporate DTAs into their domestic legislation: Direct effect incorporation does not require any additional legal procedures, and DTA automatically becomes a part of domestic legislation right after its ratification (the USA, France, Switzerland, Luxemburg). In some jurisdictions a legislative act is required (Austria).
Indirect effect incorporation needs special legislation for incorporation of DTA into its domestic law system (the UK, India).
DTAs override domestic legislation, they prevail over internal laws and regulations. There are three main models of DTAs:
The US Model Treaty (updated in 2016) is used by the USA in negotiations with other states, with inclusion of citizenship and focus on limitation of benefits.
The UN Model Treaty (updated in 2017) is used by developing countries, allocates more taxing rights for source countries.
At the end of July 2018, a draft law on the registration of foreign companies was published in the UK (hereinafter - the Law). The purpose of this Law is to maintain a register of foreign companies since 2021 that own real estate in the UK.
This Law is a “continuation” of the legislation on “persons with significant control”, which was introduced for UK companies in 2016.
New requirements for foreign companies are aimed at combating the use of property located in the UK, for the purpose of laundering money obtained by criminal means. It is planned that the requirement for foreign companies to enter data on their final beneficiaries into a special register will allow to control the use of property for illegal purposes.
It should be noted that the obligation to register will be entrusted not only to companies, but also to partnerships, governments and any other types of legal entities that are legally competent under their domestic law. So, companies can have privileges under certain circumstances, in particular, regarding how “transparent” they are already (here it concerns the companies which shares are quoted on stock exchanges).
In the event that it is...
In September 2017, a significant event for financial institutions around the world took place - the first automatic exchange of information for tax purposes in accordance with the CRS (Common Reporting Standard). The source of information exchange were banks, as well as other financial institutions (pension funds, investment and insurance companies, etc.). The second large group of countries is also joining the process of automatic information exchange in 2018.
CRS provides for an annual automatic exchange of tax information between Member States of the Multilateral Cooperation Convention between the competent authorities on automatic information exchange under the CRS (MCAA Convention).
The exchange of information on accounts of legal entities and natural persons will be made automatically, annually and on the principle of residency (in contrast to the FATCA law, which uses the principle of citizenship).
The essence of the exchange is that banks collect information on financial activities on corporate accounts of the companies, individual accounts of natural persons, private funds and trusts, and then transfer it to the tax authorities of their country, which send this...
The tax authorities of our country (and not only ours) have been trying not for the first year to prove that it is not necessary to work with offshore companies. But business representatives continue to use them for their offshore investments. In this material, let’s talk about the reasons for this “love” and the current trends in the use of offshore companies.
Is it legitimate to use offshore structures?
Legislation of Ukraine does not prohibit the use of offshore companies. Of course, we are not talking about the situations where taxes are not paid at all (aggressive tax planning). The settlements with partners from offshore companies will undoubtedly cause questions from the tax service. But, we repeat, there is no ban on this kind of transaction.
Schemes of work with the use of offshore structures
Let’s pay attention to offshore schemes, which have proved to be the most widespread.
Let's start with trading schemes.
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The practical benefit of using this kind of schemes is in a variety of options for optimizing income tax, VAT and customs-related payments in the Ukrainian company. Also, on...