
CFC reporting: errors and notifications from the State Tax Service
This material applies to foreign company owners who submitted CFC reporting in May 2024, regardless of whether it was abbreviated or complete, and entrepreneurs who have submitted CFC notifications but have not submitted CFC reports.
For many, the successful completion of the spring CFC Reporting 2024 campaign was a joy, but some entrepreneurs decided to ‘wait’ with their reports in the hope of canceling fines due to martial law. However, the Tax Service still has responsibilities and actively requests explanations. Our clients have also started receiving ‘happy letters ‘, notifications of successful submission and acceptance of their CFC reports.
Among the most common requests:
- Absence of CFC Notification
- Failure to submit CFC reports
- Submission of a shortened CFC report for 2022
The State Tax Service even published the top 10 mistakes when preparing CFC reports. How do we respond to such requests? What are the possible fines? The potential fines and penalties for these errors can be significant, underlining the urgency and seriousness of correcting these mistakes. How do we correct mistakes? Read more in our article.
TOP-10 mistakes in CFC reporting from the State Tax Service
- Incorrect indication of the type of control: Controlling persons often incorrectly indicate the kind of control, which affects the correctness of reporting.
- Incorrect indication of the financial year: Mistakes are often made when indicating the start and end dates of the financial year, which can lead to inaccuracies in reports.
- Incorrect country code: Using incorrect country codes can cause confusion and additional requests from the STS.
- Incorrect display of currency code and name: Reports often need to correct the wrong indication of the reporting currency and the NBU weighted average exchange rate.
- Arithmetic errors in the adjusted profit calculation: The incorrect calculation of the CFC’s adjusted profit may affect the taxable profit, and calculating the amount of profit may lead to incorrect accrual of tax liabilities.
- Failure to reflect transactions with non-residents: A common mistake is an incomplete or incorrect indication of transactions with non-residents registered in the countries included in the CMU list.
- Failure to report transactions with non-resident-related parties: All transactions with non-resident-related parties are only sometimes reported, which may result in additional requests from the STS.
- Failure to reflect CFC transactions: Errors in reflecting transactions of CFCs whose legal form is included in the CMU list may lead to incorrect reporting. This could result in imposing penalties or additional tax liabilities, making it crucial to report all CFC transactions accurately.
- More information is needed on the amount of CFC’s profit from a permanent establishment: Incorrect or incomplete reporting of profits received from permanent establishments in Ukraine is a common problem.
For those hesitant to submit reports to CFCs in case of OK cancellation, we recommend reading the article “Why it is worth submitting reports to CFCs even if fines are canceled.” The article explains that, despite the temporary postponement of fines, the reporting obligation remains, and failure to submit timely reports may lead to unpleasant consequences in the future. The tax authorities continue to monitor compliance with the law, and violations may result in penalties.
Pay attention to the correct definition of the form of company control!
In most cases, the form of company control is formal legal control, which is based on ownership percentages and voting rights. However, in the case of a complex organizational structure or indirect ownership of the company, there may be signs of actual power, which is the ability to influence the company’s decisions and operations. This distinction is especially important for holding companies with a complex ownership structure.
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Client cases of CFC reporting
- The Client registered a company in the EU in February 2023.
Request: No CFC notifications and reports were submitted. The Client asked for help because he noticed that the penalties had been postponed until the end of martial law but not canceled.
Solution: Since there is no penalty for late notification, the CFC notification must be submitted to the tax authorities as soon as possible. The second step is to prepare and submit a full CFC report for 2023 and a Declaration of Property Status with the CFC Annex.
- The Client registered the company in November 2023. He submitted the CFC report on time.
Request: The tax office requested information about the failure to submit the CFC report for 2023.
Solution: A letter justifying the submission of the CFC report to the tax office in 2025 was submitted.
- The Client owns a public company, and no reports were submitted.
Request: The tax office requested information about the failure to submit CFC reports for 2022-2023.
Solution: We explained the consequences and possible penalties and prepared and submitted the reports.
- The Client is a beneficiary with different ownership stakes in 5 companies (existing since 2020).
Request: A letter from the tax office about the incorrect definition of the form of control and a request to explain why the abbreviated reports for 2022 were submitted.
Solution: Analyze the companies’ structures, determine the appropriate form of control, submit corrected CFC reports, explain the consequences and possible penalties, and prepare and submit full reports for 2022.
If you need help preparing and submitting CFC reports, have questions, or need advice on CFCs, our experts are always ready to help. We understand that navigating CFC reporting can be complex, but we’re here to provide your support and guidance. We will help you avoid fines and misunderstandings with the State Tax Service. Please leave a request through the form below Viber, Telegram, WhatsApp.