Beneficial owner of income for applying benefits under DTTs: the Ukrainian approach

The definition of BO

In accordance with the provisions of the Tax Code of Ukraine (“Tax Code”), the BO is a person (legal or individual) who is entitled to receive such income and is its beneficiary, i.e., has the right to actually dispose of this income.

However, a legal entity or individual is not a BO, even if it is entitled to receive it, but acts as an agent, nominee (nominal owner) or performs only intermediary functions. This may be indicated if such a subject:

• does not have sufficient authority or right to use and dispose of the income; and/or
• transfers the income received (or the majority of it) to another party without performing significant functions, using significant assets and bearing significant risks in such a transaction; and/or
• lacks the necessary resources (qualified personnel, fixed assets owned or used, sufficient equity capital, etc.) to actually perform the functions, use the assets and manage the risks associated with the income formally assigned to it.

Additionally, the interpretation of the concept of BO is contained in the Commentaries of the OECD on the Article 11 “Interest” of the Model Tax Convention on Income and on Capital.

The Commentaries state, inter alia, that “a conduit company cannot normally be regarded as the beneficial owner if, though the formal owner, it has, as a practical matter, very narrow powers which render it, in relation to the income concerned, a mere fiduciary or administrator acting on account of the interested parties”.

Approaches of Ukrainian courts to qualifying the BO

Judicial practice in Ukraine has been actively developing regarding the clarification of the BO status and the criteria for a non-resident to be recognized as a BO. In their decisions, the courts, inter alia, pay attention to the following aspects:

• obligations to third parties: If an income recipient is under a pre-existing obligation to pass the income on to a third party, it cannot qualify as the BO. The BO should be the entity that ultimately receives and controls the income without being subject to such obligations (the judgement of the Supreme Court dated March 18, 2025, in case No. 500/1744/24);
• delay of funds on “technical accounts”: The duration of funds being held by a “transit” company is not decisive in proving or disproving the BO status. Even if the transfer to the real recipient occurs years later, the company may still be regarded as a “transit company”. What matters is the actual flow of funds and the identity of their final recipient (the judgement of the Supreme Court dated April 17, 2025, in case No. 160/18691/23);
• decision-making right: In order to confirm the status of the BO, it is essential that the recipient of income has the genuine right to decide how the income will be used. This means the recipient must have real right to make decision to retain the funds, reinvest them, distribute them, or otherwise manage them at its own discretion (the judgement of the Supreme Court dated May 29, 2025, in case No. 480/9226/23);
• influence of related parties: The existence of a connection between companies – income payer and income recipient, common beneficiaries, related companies or structuring of assets between them is not recognized under the Tax Code as a valid ground for challenging the status of BO. Even if entities are linked by common owners but comply with the requirements set by law when conducting transactions, then the recipient of income will be recognised as the BO (the judgement of the Supreme Court dated June 24, 2025, in case No. 120/10439/24).

It is necessary to consider these aspects when applying for tax benefits, as in the case of a court dispute, the court will also take into account the case law.

The application of the “look through approach”

In accordance with the provisions of the Tax Code, if a non-resident – a direct recipient of income originating from Ukraine – is not the BO of such income, the DTT provisions with the country of residence of the actual BO can be applied.

This approach, known in the doctrine as the “look through approach”, allows to “skip” the intermediary straight to the actual BO. 

To confirm the status of BO in this case, the following documents must be provided to the tax agent paying income:

• from the income recipient – a statement in free form confirming that such a subject does not have the status of the BO, as well as confirming that the other non-resident has such status;
• from the actual BO – a statement in free form confirming that such a subject has the status of the BO and documents confirming this status (including, but not limited to, licences, contracts, official letters from competent authorities), as well as a document confirming the tax residency.

In summary, to take advantage of this approach, the correct determination of the BO within the chain of intermediaries, is also the key point.

The issue of determining the status of the BO is one of the main factors in the possibility of applying the tax benefits provided by DTTs. Failure to clearly understand and comply with the special criteria may result in significant tax risks for taxpayers.

Ukrainian judicial cases demonstrate that courts analyse the essence of transactions and the real role of the non-resident owner of income in depth. Formal compliance usually is not sufficient if there is no real economic function and control over the income.

Taxpayers are advised to be particularly careful when structuring cross-border transactions with passive income. It is important to document the economic substance of such transactions and be prepared to prove the status of the BO.