Ukraine to Implement EU Anti-Tax Avoidance Rules: What Will Change for Taxpayers

The Ministry of Finance of Ukraine has submitted for public discussion a draft law aimed at fundamentally changing the rules of the game in the field of corporate taxation.

The document has been developed to implement the provisions of the EU Anti-Tax Avoidance Directives (ATAD) — Council Directive (EU) 2016/1164 (ATAD I) and Council Directive (EU) 2017/952 (ATAD II) — which is a mandatory requirement for Ukraine on its path toward membership in the European Union.

Purpose of the Draft Law

The global economy allows multinational companies to exploit differences between the tax systems of various countries in order to minimize their tax liabilities. This practice, known as Base Erosion and Profit Shifting (BEPS), leads to significant losses for state budgets.

The proposed changes aim to protect Ukraine’s tax base, ensure fair and transparent rules for businesses, and fulfill Ukraine’s international obligations.

Key Proposed Changes

The draft law proposes introducing four main mechanisms provided for by the ATAD directives into the Tax Code of Ukraine.

1. Interest Limitation Rule

Essence:

The amount of interest expenses on debt obligations that a company may deduct to reduce corporate income tax will be limited.

How it works:

Taxpayers will be able to deduct net financial expenses (the excess of financial expenses over financial income) up to 30% of EBITDA (earnings before interest, taxes, depreciation and amortization).

Additional provision:

Any excess amount will not be lost; it may be carried forward to subsequent reporting periods, but will decrease by 5% annually.

2. Taxation of Capital Gains upon Exit of Assets (“Exit Tax”)

Essence:

A tax on unrealized capital gains will be introduced if a company transfers its assets, business activity, or tax residence from Ukraine to another country.

How it works:

Such a transaction will be treated as a sale of assets at market value. The positive difference between the market value and the residual/original value of the assets will be subject to corporate income tax.

3. General Anti-Avoidance Rule (GAAR)

Essence:

Tax authorities will be granted the right to disregard artificial transactions whose main purpose is to obtain a tax benefit contrary to the law.

How it works:

The concepts of “tax abuse” and “artificial arrangements” will be introduced. If a transaction is formally legal but lacks a reasonable economic rationale (business purpose) and is aimed solely at reducing taxes, the tax consequences will be determined based on its economic substance rather than its legal form.

Additional reading on this topic:

The “business purpose doctrine”: the algorithm of actions for tax authorities.

4. Rules on Hybrid Mismatches

Essence:

Neutralization of situations where, due to differences in the tax legislation of different countries, the same payment allows a taxpayer to obtain a tax benefit twice (for example, double deduction of expenses) or is not taxed in either country (deduction without inclusion in income).

How it works:

It is proposed to supplement the Tax Code of Ukraine with a new Article 39-4 establishing rules to eliminate such mismatches. For example, if Ukraine is the payer’s country, it will deny the deduction of expenses; if Ukraine is the recipient’s country, it will include such income in the tax base.

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What Does This Mean for Businesses?

For compliant companies, the adoption of the draft law will increase legal certainty and harmonize the rules with European standards, creating a more level playing field for competition.

At the same time, businesses using aggressive tax planning instruments will need to reconsider their business models.

If adopted, the law is expected to enter into force on 1 January 2028, giving businesses and government authorities sufficient time to adapt.

Comments and proposals regarding the draft law are being accepted by the Ministry of Finance of Ukraine in written and electronic form.