Fill out the CFC Report and the CFC Annex to the income tax return

Does the controlling person have to submit and fill in the CFC Report and the CFC Annex to line 06.1 of the CFC to the corporate income tax return if the CFC's profit is exempt from taxation under Article ³⁹² of the TCU?

Paragraph ³⁹².5 of the TCU sets out the requirements for the preparation and submission of the Report on Controlled Foreign Companies (hereinafter referred to as CFCs).

According to subpara. ³⁹².5.2 of the TCU, controlling persons are obliged to submit the CFC Report to the controlling authority simultaneously with the submission, in particular, of the annual corporate income tax return for the relevant calendar year by means of electronic communication in electronic form in compliance with the requirements of the laws of Ukraine dated 22.05.2003 No. 851-IV "On Electronic Documents and Electronic Document Management" and No. 2155-VIII "On Electronic Identification and Electronic Trust Services" dated 05.10.2017.

The CFC Report must be accompanied by duly certified copies of the CFC's financial statements confirming the amount of the CFC's profit for the reporting (tax) year. If the deadlines for the preparation of financial statements in the relevant foreign jurisdiction expire later than the deadlines for filing the annual corporate income tax return, such copies of the CFC's financial statements shall be submitted together with the annual corporate income tax return for the next reporting (tax) period.

The conditions for exemption of CFC's profit from taxation are regulated by paragraph ³⁹².4 of the TCU.

Thus, subpara. ³⁹².4.2 of the TCU stipulates that the adjusted profit of a CFC shall not be included in the total taxable income and shall not be subject to corporate income tax of the controlling person if the conditions specified in subpara. ³⁹².4.1 of the TCU are met.

In accordance with the first - third paragraphs of subpara. ³⁹².4.2 of the TCU, regardless of the fulfillment of the conditions provided for in subpara. ³⁹².4.1 of the TCU, the adjusted profit of a CFC is not subject to inclusion in the total taxable income, is not subject to corporate income tax of the controlling person if any of the following conditions are met

the total aggregate income of all CFCs of the same controlling person from all sources according to the financial statements does not exceed the equivalent of EUR 2 million at the end of the reporting period (sub-clause ³⁹².4.2.1 of the Tax Code);

the CFC is a public company whose shares are traded on a recognized stock exchange. The list of exchanges and requirements for recognizing shares (stakes) of public companies as traded on the said stock exchange are established by the CMU (sub-clause ³⁹².4.2.2 of the TCU).

If the profit of a CFC is exempt from taxation in accordance with the provisions of clause ³⁹².4 of the TCU, the controlling person is exempt from the obligation to calculate the adjusted profit of the CFC in accordance with the provisions of clause ³⁹².3.2 of the TCU (clause ³⁹².4.3 of the TCU).

Thus, the exemption from taxation of CFC's profit is possible if the requirements set forth in subpara. ³⁹².4 of the TCU are met.

At the same time, in case of exemption from taxation, it is mandatory to submit a CFC Report (full) reflecting the terms of such exemption and the CFC Annex to line 06.1 CFC of the Corporate Income Tax Return, which must be filled in with information about the non-resident and financial indicators in lines 01 - 06, in which zero is put.

The form of the Corporate Income Tax Return was approved by Order of the Ministry of Finance No. 897 dated October 20, 2015.

Order of the Ministry of Finance No. 254 dated 25.08.2022 approved the form of the CFC Report, the abbreviated form of the CFC Report and the Procedure for Completing the CFC Report, the abbreviated form of the CFC Report and Submission to the Supervisory Authority (hereinafter - Procedure No. 254).

The calculation of the adjusted profit of a CFC is carried out separately for each CFC.

The CFC Report and Procedure No. 254 clearly define the names of the columns and the procedure for filling them out. Therefore, the columns of the CFC Report that contain indicators for declaration must be filled in. Columns 1 - 2, 4 - 9, 11 - 17, 21 - 26 and 35 of the CFC Report are mandatory.

Columns 25.1-25.3, 26 of the CFC Report contain a numeric field and are filled in in UAH without cents. In this case, the values in the columns can be both positive and negative or equal to zero.

The conditions on the basis of which the taxable profit of a CFC is exempt from taxation are reflected by the taxpayer-controlling person in column 28 of the CFC Report, in which case zero is entered in columns 25.1 - 25.3 and 26 of the CFC Report and, accordingly, no annexes to the K, CP and TP Report are submitted.

At the same time, Art. ³⁹² of the TCU does not establish separate rules or exemptions for a taxpayer - a controlling person regarding the failure to reflect in the CFC Report the information specified, in particular, in sub-clauses f), g), h), i) ³⁹².5.3 of the TCU, and therefore such information must be reflected in the relevant columns of the CFC Report (columns 29 - 34 of the CFC Report).