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🏛️Why is it necessary to declare controlled foreign companies?

The peculiarities of the declaration of controlled foreign companies (CFCs), inspections and consequences for violators were discussed during the seminar "Taxation of foreign income: tax transparency", organized by the Confederation of Builders of Ukraine together with the Sokolovskyi and Partners law firm.

👤Oleksandr Chervak, CEO of CBU, as moderator emphasized the relevance and importance of the topic.

👤Kateryna Ryzhenkova, Director of the Department of Transfer Pricing of the State Tax Service of Ukraine (STSU), presented an analysis of the company's results from the declaration of CFC.

Thus, the total number of controllers increased by 6.4%, and the total number of CFCs by 17%. 7,385 reports are 33% of the total number of submitted reports, according to which the income of the CFC was exempted from taxation in the total amount of UAH 206,736 million. There are also 3,240 reports (15% of submitted reports) in which the release of CFC income is shown with a negative value.

Kateryna Ryzhenkova named the following among the main mistakes when filling out the CFC Report:

❌Incorrect indication of the type of control

❌Incorrect indication of the financial year

❌Incorrect display of the country code

❌Incorrect display of the code and name of the reporting currency, the weighted average official exchange rate of the National Bank of Ukraine

❌Arithmetic errors when calculating adjusted profit

❌Arithmetic errors when calculating the amount of profit

❌Non-display of transactions with non-residents

❌Non-display of transactions with non-resident related persons

❌Non-display of CFC operations

❌There is no information about the amount of CFC's profit received from the permanent representative office

🎓She reminded that the State Tax Service of Ukraine presented a number of explanations, instructions and video lessons on the correct submission of CFC reporting.

The Director of the Department of Transfer Pricing emphasized the importance of filing reports, despite the fact that during the period of martial law and six months after the month in which martial law is suspended or canceled, no penalties are applied to taxpayers for failure to file fines. She noted that many companies have shown a high level of responsibility by reporting despite everything.

It should be remembered that the statute of limitations is 7 years, and during this time, the STSU has the right to conduct inspections, request the necessary documents and information to ensure proper control, and initiate the collection of tax obligations in case of non-fulfillment.

Kateryna Ryzhenkova explained how the STSU works when detecting violators, and described several cases of practice in detecting CFC.

Kateryna Ryzhenkova shared that, perhaps, the moratorium will be lifted and the STSU inspections will be continued next year. She noted that the transformation of the legislation governing the CFC, changes in fines and the search for a compromise remain possible.

As the speaker noted, Ukrainian tax legislation will be harmonized with European legislation:

✔️a check-up will be conducted to see if the tax code complies with EU recommendations and guidelines

✔️change of transfer pricing criteria

✔️transfer pricing rules are adapted to the EU guidelines of 2022 (in particular, synergy rules, thin capitalization rules)

✔️we expect a large number of changes to the norms of the CFC

✔️review of rates by agreements

✔️introducing the definition of "intangible value"

👤Natalia Kurilenko, head of tax practice, auditor and lawyer of "Sokolovskyi and Partners", revealed in detail the issue of determining the status of "non-resident" for citizens and non-citizens of Ukraine: the norms of the Tax Code of Ukraine (TCU) and international agreements on the avoidance of double taxation.

📜Natalia Kurilenko explained that the dispute regarding the determination of residence by country of citizenship (Ukraine) or stay in the Tax Code of Ukraine and International Agreements/Conventions provide for the determination of residence status by the formula:

TCU:

🟡Place of permanent residence in Ukraine

🟡Closer personal or economic ties (center of vital interests) in Ukraine

🟡Stay in Ukraine for at least 183 days

🟡Being a citizen of Ukraine

🟡Independent determination of the main place of residence on the territory of Ukraine in accordance with the procedure established by this Code, or registration as a self-employed person.

International agreements/conventions:

🟢Permanent housing

🟢The closest personal and economic ties (center of vital interests)

🟢Where does he usually live

🟢Citizenship

🟢Resolution of the dispute by the competent authorities of the Contracting States by mutual agreement.

👉We suggest viewing the recording of the seminar at the link:

(Ukrainian language):

https://www.youtube.com/watch?v=LjKd7y50We0&feature=youtu.be 

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