Drawing Up CFC Reporting

Reporting on CIC (Controlled Foreign Company) and Annual Declarations on Property Status and Income for tax residents of Ukraine.

Until May 1, 2023, citizens of Ukraine who are the Controllers of Foreign Companies (CFCs) must submit the first CFC Report (Article 39-2 of the Tax Code of Ukraine) simultaneously with the submission of the annual Declaration with the inclusion of the adjusted profit of the controlled foreign company specified in the Report.

Note:

The CFC report is submitted regardless of whether there is an excess of profitability (more than EUR 2 million) or whether the company is “dormant”.
Fines of UAH 220,000 have been established for non-submission of the CFC Report.
Submission of the CFC Report may have implications for transfer pricing reporting, as the ownership structure of the CFC is disclosed; thus, the company may be involved through related persons in Ukrainian counterparty companies.
In 2022, BEPS (combating unfair tax competition) standards were implemented in Ukraine:

Common Reporting Standard (CRS) “Standard for Automatic Exchange of Financial Account Information in Tax Matters” and “Controlled Foreign Companies”.

As a result, the tax authorities will automatically receive information about the CFCs of a tax resident of Ukraine and will have the opportunity to verify all income received and taxes paid from them based on the data specified in the annual Declaration on Property Status and Income.

The automatic exchange of information at the first stage will take place at the level of foreign financial institutions (banks, investment funds, etc.), in which the CFC has accounts, and by the tax authorities of Ukraine at the place of registration of the CFC controller.
Since there are currently no preferences related to tax amnesty and tax-free liquidation of CFCs, questions may arise for the beneficiaries regarding the legality of taking ownership of CFC assets belonging to it, especially if they are located in Ukraine.
Non-submission of the CFC Report and delayed payment of the fine for non-submission may have the consequences stipulated by the Criminal Procedural Code of Ukraine in terms of causing large amounts of damage to the state.

K.A.C. Group offers:

Urgent liquidation of CFCs – “dormant” companies that are not involved in business, since the fines for non-submission of the CFC Report apply to everyone.
Preparation of the financial report of the CFC in accordance with International Financial Reporting Standards (IFRS) in the country of its registration, which is attached to the CFC Report in Ukraine.
An audit opinion on the financial report by a licensed audit entity in the country of registration of the CFC.

Such an audit opinion may not be disputed by the body of the State Tax Inspectorate of Ukraine, as its jurisdiction does not extend beyond the borders of Ukraine.

Drafting of the Notification and CFC Report for submission to the State Tax Inspectorate.

Calculation of adjusted profit, or justification of why such a calculation is not necessary.

Drafting of Declarations on Property Status and Income, taking into account data from the CFC Report.
To confirm assets (property) and their sources of origin, K.A.C. Group offers the service of compiling the Report “On the Analysis of Income and Property” for individuals in accordance with international auditing standards and requirements of the Ukrainian and international legislation.

The report is prepared by auditors and specialists in the field of financial monitoring in accordance with the International Standard of Related Services ISRS 4400 “Engagements to Perform Agreed-upon Procedures Regarding Financial Information”, the 4th and 5th AML Directives of the EU, and 40 Recommendations of the FATF.

It is a valuable addition to the Declaration on Property Status and Income, especially if it is submitted for the first time.