Notification of CFCs (controlled foreign companies)
In what cases and within what timeframe do we submit?
According to subpara. 392.5.5 of para. 392.5 of Art. 392 of the Tax Code of Ukraine (TCU), an individual resident of Ukraine or a legal entity resident of Ukraine is obliged to notify the controlling authority of the acquisition (beginning of actual control) or alienation (termination of actual control) of a share in a foreign legal entity, property rights to a share in assets, income or profit of a formation without the status of a legal entity.
The said Notification shall be sent within 60 days from the date of acquisition and/or alienation of the share to the controlling authority at the main place of registration (usually the registered place of residence of an individual or the place of registration of a legal entity).
The requirements of this subparagraph do not apply if the controlled foreign company is a public company, the requirements for which are established by subpara. 392.4.2.2 subpara. 392.4.2 of para. 392.4 of Art. 392 of the TCU.
📍Please note that currently the TCU does not specify whether we are talking about calendar or business days, so to avoid a dispute with the tax authorities, we recommend using calendar days. This conflict should soon be resolved, given that the relevant draft law 8137 is already being prepared for the second reading and it refers to calendar days.
The form of the Notification and the Procedure for its submission to the controlling authority are approved by the Order of the Ministry of Finance of Ukraine dated 22.09.2021 No. 512.
📍Please note that the CFC Notification is required only if the acquisition or alienation of a share took place from 01.01.2022. If you owned a CFC before 01.01.2022 and did not make any significant changes in control and ownership after that date, you do not need to submit a CFC Notification. This conclusion is confirmed by the tax authorities in the tax consultation no. 2142/ІПК/99-00-04-03-03-06 dated 31.05.2021.
What are the penalties for failure to submit a CFC notification?
In accordance with para. 120.7 of Art. 120 of the TCU, for each case of failure notification about the CFC, there is a fine in the amount of 300 times the subsistence minimum for an able-bodied person established by law as of January 1 of the tax (reporting) year. As of 2023, the amount of this fine is UAH 805,200.00.
The deadline for submitting a CFC notification was suspended on 07.03.2022 by the Law of Ukraine “On Amendments to the Tax Code of Ukraine and Other Legislative Acts of Ukraine on Peculiarities of Taxation and Reporting during the Period of Martial Law” and was renewed on 25.11.2022 by the Law of Ukraine “On Amendments to the Tax Code of Ukraine and Some Other Laws of Ukraine on Privatization of State and Municipal Property Subject to Tax Lien and Ensuring Administration of Tax Debt Repayment”.
The provisions of paragraph 54 of subsection 10 of section XX of the TCU establish a moratorium on the application of fines for violation of requirements when determining and calculating the profit of a controlled foreign company for the results of 2022-2023 reporting (tax) years, but nothing is said about the FAILURE TO SUBMIT A CFC NOTIFICATION.
📍Thus, there is currently a large fine for failure to submit a CFC Notification, so if you have not yet submitted yours, you still have time to remedy the situation, because draft law 8137, although reducing the amount of the fine for failure to submit a CFC Notification, still provides for a fine for late submission of the notification for each day of delay in fulfilling the obligation.
