The State Tax Service reminds of liability for failure to report on CFCs

The State Tax Service of Ukraine reminds that starting from January 1, 2022, the controllers of controlled foreign companies (hereinafter referred to as CFCs) are obliged to submit CFC Notifications and CFC Reports simultaneously with the submission of a corporate income tax return or a tax return on property and income and pay taxes accordingly.

According to Article ³⁹² of Section I of the TCU, if a resident of Ukraine (individual/legal entity) has registered a legal entity in a foreign state/territory, and in some cases an entity without the status of a legal entity (for example, trusts, foundations), such a legal entity (entity without the status of a legal entity) is a CFC.

For failure to comply with the rules on CFCs, the controlling person is subject to financial liability in the form of a fine, the amount of which is determined by paragraph 120.7 of the TCU.

Law of Ukraine No. 3706-IX dated 09.05.2024 "On Amendments to the Tax Code of Ukraine and Other Laws of Ukraine on Peculiarities of Export of Certain Types of Goods during the Period of Martial Law" (hereinafter - Law No. 3706-IX), subsection 10 of Section XX "Transitional Provisions" of the Code was supplemented by a new paragraph 72, according to which, temporarily, from January 1, 2022 and during the period of martial law in Ukraine, introduced by the Decree of the President of Ukraine "On the Introduction of Martial Law in Ukraine" dated February 24, 2022 No. 64/2022, as approved by the Law of Ukraine "On Approval of the Decree of the President of Ukraine "On the Introduction of Martial Law in Ukraine"" dated February 24, 2022 No. 2102-IX, and six months after the month in which martial law is terminated or canceled, in particular, taxpayers shall not be subject to penalties for violations provided for in paragraphs one to eight of clause 120.7 OF THE TCU.

However, the provision of paragraph 72 of subsection 10 of section XX "Transitional Provisions" of the TCU only postpones the application of liability for violations provided for in paragraphs one to eight of clause 120.7 of the TCU and provides for the possibility of applying penalties for such violations after six months after the month in which martial law was introduced by the Decree of the President of Ukraine "On the Introduction of Martial Law in Ukraine" dated February 24, 2022 No. 64/2022, approved by the Law of Ukraine "On Approval of the Decree of the President of Ukraine "On the Introduction of Martial Law in Ukraine" dated February 24, 2022 No. 64/2022.

In view of the above, the State Tax Service of Ukraine emphasizes the need for controlling persons to comply with the CFC rules regulated by Article ³⁹² of Section I of the TCU.

Currently, work is underway to identify CFC controllers who have not fulfilled the obligation to report on CFCs.