Journal of Legal, Ethical and Regulatory Issues (Print ISSN: 1544-0036; Online ISSN: 1544-0044)


Legislative Definition of Permanent Establishment in Ukraine and its Features

Author(s): Pavlo O. Selezen, Oleg A. Shevchuk, Sergii I. Lekar

Despite the long history of the permanent establishment concept and its importance in the context of international taxation, there is no common approach to its main characteristics because of the nature of the concept that determines the necessity to conform the provisions of domestic tax legislation to the norms of the double taxation treaties covered by international law. Each state forms the legal basis of the permanent establishment concept on its own and Ukraine is not an exception. Considering the fact of the ratification of the Multilateral Convention to implement Tax Treaty Related Measures to Prevent BEPS (MLI) and the outdated definition of permanent establishment in the domestic legislation, there is the necessity to make changes that should bring into the conformity the national tax legislation with the international obligations in the context of regulation of permanent establishment. Nevertheless, the proposed draft of changes of the Tax Code of Ukraine has some features that should be avoided in order to ensure better regulation and accordance with widely recognized standards that are included in the OECD Model Tax Convention (OECD MTC). First, the words “permanent place” should be replaced with the words “fixed place” in the general rule on permanent establishment included in Art. 14(1)(193) of the Tax Code of Ukraine. Second, the concept of related (associated) persons should be replaced with the concept of closely related persons in the proposed draft of the Law on BEPS. Third, Art. 14(1)(193) of the Tax Code of Ukraine should be changed by the way of improvement of the provisions on permanent establishment to ensure proper implementation of Art. 10 of the MLI.