Ukraine clarifies the effective date of the new treaty with Cyprus

Ukraine/October 2013

The Convention between the Government of Ukraine and the Government of Cyprus for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (the “DTT”) was eventually signed in Nicosia on 8 November 2012.

On 22 March 2013, the Cypriot Parliament ratified the DTT the Ukrainian Parliament in its turn ratified it on 4 July 2013. The DTT was subsequently entered into force on 7 August 2013 and will take effect from 1 January 2014. The new DTT essentially replaces the existing Treaty signed between Cyprus and the USSR since 1982.

Nevertheless, Article 26, paragraph 2 of the new DTT has generated extensive confusion on when the USSR – Cyprus Treaty would lose effect. The English Text of the Treaty stated that the USSR – Cyprus treaty should end on the date the Treaty would take effect but not on the date it would take force.

However, the Ukrainian Text of the new Treaty provided that the USSR – Cyprus Treaty would terminate once the new Treaty enters into force. That initiated the risk that the Ukrainian Tax authorities, might on the basis of the Ukrainian Text, contend that the USSR – Cyprus Treaty would be eliminated when the new Treaty has been ratified. That would crucially mean that until the end of the year there would be no protection for dividend distributions, interest and royalties payments between Ukraine and Cyprus.

As a result, on 10 October 2013 the Ukrainian Ministry of Foreign Affairs issued Letter No. N 72/14-612/1-3330 introducing an amended Ukrainian version of Article 26, para. 2 of the new DTT regarding its effective date.

The amended version specifies and clarifies that the USSR – Cyprus Treaty of 1982 is considered to be terminated on the date where the new tax treaty becomes effective, that is to say the 1 January 2014.

By virtue of this clarification, as from the aforementioned date a new era between Cyprus and Ukraine will commence since the new Treaty will significantly safeguard the dominant position of Cyprus into Ukraine’s foreign investments.

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