The State Tax Inspectorate, in a letter dated 29 October 2009, explained how to calculate the tax payable on interest in respect of a syndicated loan from foreign creditors to a Ukrainian bank, acting as a borrower.
The Letter stated that the tax on the interest payable by the Ukrainian bank in respect of the loan should be calculated in accordance with the international treaties on the avoidance of double taxation applicable in all the countries in which the participants of the syndicated loan are resident. The Ukrainian borrower should also submit the accrued interest tax reports to the State Tax Inspectorate for each foreign participant in that loan. This means that different withholding tax rates are likely to apply for syndicate members in different jurisdictions.
The State Tax Inspectorate's Letter aims to put an end to the current practice of only taking into account the treaty regulations of the countries in which the arranger of the syndicated loan is a resident, whilst ignoring the treaty regulations of the countries in which the syndicate participants are resident.
In order to comply with this new requirement, each borrower would have to monitor on a regular basis changes in syndicate members and/or the amount of their participation in the loan. Moreover, as straightforward tax gross-up clauses may be problematic under Ukrainian law, the parties would have to design new, sophisticated mechanisms to ensure that each syndicate member continues to receive the same net level of interest.
Law: Letter of the State Tax Inspectorate of Ukraine No. 23790/7/15-0517 "On the Certain Issues of Taxation" dated 29 October 2009.
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The original publication date for this article was 22/12/2009.
