
This material is based on a real case of our client, without mentioning the names of companies and government agencies.
CFC notification and response from the tax service
Recently, we were contacted by a client with a request to file a CFC notification. As part of this case, we prepared a CFC notification and sent it to one of the regional departments of the State Tax Service of Ukraine. In general, after submitting such notification, the STS should send receipt #2, saying that it has accepted it and everything is fine. The next step in the CFC process is to submit a report on the CFC’s activities.
But, everything would be so simple and transparent if not for that “but.”
What did the STS request after the notification of the CFC?
First of all, we would like to emphasize that in its letter, the STS does not refer to an exhaustive list of grounds set out in Ukrainian legislation that give it the authority to request information.
And it is this point that exempts us from the obligation to respond to the tax authority.
Below is an excerpt from the response we received from the State Tax Service:
“In addition, please inform the Main Office in a particular region of the information on the deadlines for the preparation of financial statements in the relevant foreign jurisdiction in which the foreign company(s) controlled by you is/are registered, and, if you decide to use the transitional provision established by paragraph 54 of subsection 10 of section XX “Transitional Provisions” of the Code, please inform us of your intention to submit the report(s) on controlled foreign companies for 2022 to the supervisory authority simultaneously with the submission of the annual declaration. The response should be sent by electronic means by sending it through the “Correspondence” section of the Taxpayer’s Electronic Office or in paper form to the following address.”
And now – an interesting point:
The tax office asks to notify of the intention to submit the CFC report(s) for 2022 simultaneously with the annual declaration of property and income for 2023. The twist is that Ukrainian law does not specify either the form or even the obligation to make such a notification.
It is unclear why the State Tax Service does this, since the tax authority itself, in its request, noted that penalties and/or fines do not apply to persons who submit a CFC report simultaneously with the submission of the annual declaration of property and income for 2023 (which is submitted in 2024). This is stated in paragraph 51 of subsection 10 of section XX “Transitional Provisions” of the Tax Code of Ukraine.
CFC report in 2023: do we submit it or not?
Currently, the answer is obvious – no, it is not necessary. After all, the Tax Code does not impose such an obligation on taxpayers. This conclusion applies to all CFC owners, both individuals and legal entities.
The Tax Code does not obligate taxpayers to notify the controlling authorities of the submission of the report on controlled foreign companies for 2022, simultaneously with the submission of the corporate income tax return for 2023. <…>”
This rule applies to both CFCs – legal entities and individuals.
Why this case is interesting for CFCs
- Firstly, the State Tax Service cannot introduce any additional innovations that are not provided for by the TCU, and CFC owners need to understand what their rights and obligations are to the tax authorities.
- Secondly, after sending a CFC notification and receiving a response similar to our client, you have the right to decide at your own discretion whether to notify the STS of your intention to submit a CFC report for 2022 in 2024. Currently, Ukrainian legislation does not provide for such an obligation.
- Thirdly, without having your own representative who specializes in taxation and who can notice such problems in time, you may find yourself in a very “interesting situation” when the STS complicates your life, and the number of documents and notifications to it from you may increase many times over.
CFC reporting during martial law
Currently, there are no possibilities to postpone and not submit the CFC report due to martial law. As we previously wrote in the material about the State Tax Service’s Response on CFC during martial law, the postponement concerned only the submission of the CFC notification.
If you need advice on submitting a CFC report or a CFC notification, please contact our team, which has been assisting CFC owners for over 5 years. Send a request through the form below or a message on Telegram/Viber, Whatsapp for consultations. Our working hours are 9:00-19:00 from Monday to Friday.