The CFC Report does not contain a list of transactions of CFCs with non-resident related parties: is there any liability?

Does the liability apply to a financial entity - a controlled person in accordance with clause 120.7 of the TCU, in case of failure to indicate in the CFC Report for 2022, 2023 the list of CFC transactions with non-resident related parties?

Subparagraph ³⁹².5.2 of the TCU provides that controlling persons are obliged to submit a report on controlled foreign companies (hereinafter referred to as the Report) to the controlling authority simultaneously with the submission of a declaration of property status and income (hereinafter referred to as the Declaration) 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 Report must be accompanied by duly certified copies of the financial statements of the controlled foreign company confirming the amount of profit of the controlled foreign company for the reporting (tax) year.

Subparagraph ³⁹².3.2. of the Tax Code provides that the calculation of the adjusted profit of a controlled foreign company shall take into account the peculiarities determined, in particular, by sub-clause ³⁹².3.2.4.

In accordance with the seventh paragraph of subpara. ³⁹².3.2.4 of the TCU, the Report shall reflect the list of transactions with non-residents - related parties, non-residents registered in the states (territories) included in the list of states (territories) approved by the CMU in accordance with subpara.39.2.1.2 of the TCU, as well as with non-residents whose organizational and legal form is included in the list approved by the CMU in accordance with subpara.

At the same time, para. 54 of Subsection 10 of Section XX "Transitional Provisions" of the TCU establishes the following peculiarities of application of the provisions on taxation of profits of a controlled foreign company during the transition period, in particular, subpara. ³⁹².3.2.1 - ³⁹².3.2.4 of the TCU shall apply to reporting periods starting from January 1, 2023.

Paragraph ³⁹².5 of the TCU sets out the requirements for the preparation and submission of the Report. In particular, sub-clause "g" of clause ³⁹².5.3 of the TCU provides that the Report shall contain a list of transactions of a controlled foreign company with non-residents - related parties, non-residents registered in the states (territories) included in the list of states (territories) approved by the CMU in accordance with clause39.2.1.2 of the TCU, as well as with non-residents whose organizational and legal form is included in the list approved by the CMU in accordance with sub-clause "d" of clause 39.2.1.1 of the TCU.

At the same time, clause 120.7 of the TCU provides that failure of the controlling person to provide information in the Report on the existing controlled foreign companies and/or failure to provide information specified in sub-clauses "d" - "h" of clause ³⁹².5.3 of the Tax Code of Ukraine regarding the existing controlled foreign companies shall result in imposition of a fine in the amount of 3% of the amount of income of controlled foreign companies or 25% of the adjusted profit of the controlled foreign company for the relevant year, not reflected in the Report, whichever is higher, but not more than 1000 of the subsistence minimum for an able-bodied person established by law as of January 1 of the tax (reporting) year, for each fact of failure to reflect the controlled foreign company and/or for all unreported amounts.

Thus, the controlling person is subject to liability under clause 120.7 of the Tax Code if it fails to indicate the list of transactions with non-resident related parties in the Report only for the reporting year 2023.