CFC News: Reporting on the Acquisition or Termination of Ownership of a Share in a CFC

Recently, a very interesting forum was held by the Association of Lawyers of Ukraine with the participation of representatives of the State Tax Service, which discussed the aspects of preparation for the first reporting period for controlled foreign companies (CFCs). We listened carefully and are ready to share its conclusions it with you.

It is necessary to remind that since January 1, 2022, a rule has been in effect according to which controllers shall submit a notice of acquisition or termination of ownership of a CFC within 60 days. The main question that worried us and many of our clients was whether there is an obligation to submit an appropriate notification in case of acquisition of a share in a CFC long before January 1, 2022. Currently, there are separate tax consultations in place, which state that the obligation arises if relevant changes have been made since January 1, 2022. We can summarize that at the forum, the representatives of the State Tax Inspection confirmed this approach of the tax authorities.

An important nuance is that, according to the innovations, financial institutions are also obliged to submit notifications in the event that they establish facts confirming the ownership of a CFC by an individual. Currently, the tax authorities are accumulating this information, and it is likely that in the future the State Tax Inspection will compare this data with declarations about the property status and income of individuals, which must be submitted with reports on a CFC in appropriate cases.

Representatives of the State Tax Inspection report that they have already identified natural persons who have not notified about the acquisition of a share in a CFC, and this information is obtained for the purpose of monitoring the completeness of the fulfillment of tax obligations. However, it is important to note here that during the period of martial law, fines for the failure to notify of the acquisition or termination of a share in a CFC do not apply.

The published statistics raise interest as well. According to them, as of now, 1,063 notifications have been received about the facts of acquisition or termination of a share in a CFC. A total of 618 natural persons reported on their participation in a CFC.

At the same time, CFCs were most often registered in the following jurisdictions:

– British Virgin Islands;

– Cyprus;

– United Kingdom;

– Estonia.