Regarding certain forms of CFC ownership within the meaning of Article 39-2 of the TCU

The State Tax Service of Ukraine reminds that from January 01, 2022, the rules on controlled foreign companies (hereinafter referred to as CFCs) came into force.

In addition to legal ownership, the criteria for which are set out in subpara. ³⁹².1.2 of the TCU, indirect and/or actual (de facto control) ownership is also calculated for the purposes of determining the ownership of a controlling person (individual or legal entity).

In accordance with subpara. ³⁹².1.3 of the TCU, a share in a CFC means corporate rights, rights in an entity without the status of a legal entity, the assets of which include a share in a legal entity, or any other similar rights and/or powers that give an individual or legal entity the right to

a) influence the respective share of votes in the supreme management body;

b) to receive a corresponding part of the profit;

c) blocking the decision to distribute a part of the profit;

d) to receive a corresponding part of the assets of a foreign legal entity in the event of its liquidation or termination.

If the amount of rights is different in accordance with the size of the share owned by an individual, the largest value of such share is accepted.

At the same time, the controlling person's possession of all rights in a CFC should be considered as the sum of the shares that

• owned by an individual or legal entity directly or indirectly through other persons, including through entities without legal entity status;
• owned by any related parties of such individual or legal entity directly or indirectly through other persons.

The amount of indirect ownership is calculated:

- in case of ownership through a single chain of persons holding shares in each other - by multiplying the shares;

- in the case of ownership through several chains of persons who own shares in each other - by summing up the shares in each such chain.

When a person actually owns a share of more than 50 percent (through one or more chains) in a legal entity in a chain, it is considered that the individual owns a share in such a legal entity in the amount of 100 percent.

In case a person exercises actual control over the next legal entity in the chain, it is considered that such person owns a 100 percent share in the next legal entity.

A person is deemed to own a share in another legal entity if such person is a founder of a trust, an owner of a share of property of a fund, institution, or other entity without the status of a legal entity, the assets of which include the said share, or a participant (general or limited partner) of a partnership, the assets of which include a share in a legal entity.

Actual control takes place in the presence of at least one of the circumstances specified in sub-clause ³⁹².1.6 of clause ³⁹².1 of Article ³⁹² of the Code. Such circumstances are, in particular, the provision of binding instructions by a person to the management bodies of a foreign legal entity, the possibility of performing or blocking transactions on bank accounts, etc.