NEW FINES FOR OWNERS OF CONTROLLED FOREIGN COMPANIES (CFCS)

08/02/2024

A new era of CFC rule implementation commenced on January 01, 2024 under the Laws of Ukraine No. 466-IX as of January 16, 2020 and No. 1117-IX as of December 17, 2020. Starting from 2024, failure to submit a report on the CFCs will be subject to a fine of 100 subsistence wages (equivalent to 303,000 UAH), any act of concealing information pertaining to controlled companies will be subject to stringent fine amounting to 3% of the CFC's annual income.

Furthrmore, fines will be imposed for cases of non-compliance with regards to reporting financial account informaton under the automatic exchange of financial account information (CRS). Remarkably, that the amercement will solely impact financial agents, includingbanks and insurance companies, who are required report their clients’ account information to the State Tax Service (STS).

Key legal sources:

Article 39³ of the Tax Code which defines the essential criteria for the financial agents to establish accountable accounts and mandates the the submission of reports on accountable accounts in compliance with the FATCA Agreement and the CRS Multilateral Agreement.

Article 118¹ of the Tax Code provides the following penalties for:

• failure to submit a report on accountable accounts within the established term - 100 amounts of the minimum wage established  on January 01 of the reporting year;
• late submission of the Report on the reportable accounts - 0.5  amounts of the minimum wage, for each calendar day of the delay, but no more than 100 amounts of the minimum wage;
• submission of a Report with incomplete or inaccurate data  - 0.5 amounts of the minimum wage;
• late provision or failure to provide notification of depositors - investors of joint investment institutes of the asset management company or provision of incomplete information in the notification, or failure of the asset management company to respond to its request - 30 amounts of the minimum wage;
• infridgement of the terms for storage of documents and information with regards to financial accounts - in the amount of one (1) minimum wage. The same violations that led to the non-inclusion of the reportable account in the report on accountable accounts or violation of the terms for storage (or absence) of CRS self-assessment documents of the person for whom the account is accountable - 50 amounts of the minimum wage;
• systematic intentional or other significant infraction of the requirements Article 39³ of the Tax Code by the financial agent - in the amount of 1 %. the amount of income (revenue) of the financial agent under the data of its separate financial statements for the calendar year preceding the year in which the fine was imposed;
• deliberate submission  of CRS self-assessment documents by the account holder  or regarding its controlling persons, containing inaccurate information, which resulted in a lack of  accountability for the account holder or its controlling persons, - 100 amounts of the minimum wage.

 

These fines act as a deterrent and discourage the use of CFCs to shift profits and avoid paying taxes in Ukraine. These penalties also serve as a way to enforce compliance with international tax standards and prevent abuse of the CFC structure. Ultimately, the imposition of fines on CFC owners in Ukraine aims to promote transparency, discourage tax avoidance practices, and enhance the country's fiscal stability.

NAZALI TAX & LEGAL

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