Taxation during the Period of Martial Law, The Draft law on Changes to the CFC Legislation

The Draft Law on the Peculiarities of Taxation during the Period of Martial Law Passed the First Reading

On 29.05.2023, the Verkhovna Rada of Ukraine supported in the first reading draft law No. 8401, which provides for changes to the Tax Code of Ukraine regarding the peculiarities of taxation during the period of martial law.

The draft law provides that certain legal norms shall be in effect until the termination or cancellation of the state of war / emergency state on the territory of Ukraine, but no later than 01.07.2023, in particular:

  • the possibility for individual entrepreneurs and legal entities to be taxpayers of the uniform tax of the III group with the application of the 2% uniform tax rate;
  • the possibility for individual entrepreneurs – single tax payers of I and II group not to pay the single tax;
  • stopping of documentary checks;
  • stopping the passage of certain terms, determined by tax legislation and other legislation, the control of compliance with which is entrusted to supervisory bodies;
  • non-application of fines for violation of tax legislation.

The Draft law on Changes to the CFC Legislation Passed the First Reading

On 02.05.2023, the Verkhovna Rada of Ukraine supported in the first reading draft law No. 8137, which is aimed at improving the procedures for the administration of taxation of controlled foreign companies (CFCs) by making appropriate changes to the Tax Code of Ukraine.

Thus, the draft law:

  • provides an opportunity for taxpayers to submit a CFC report and calculate their net income for the reporting period together with the corresponding tax report for the year following the reporting year: i.e., much more time is given to prepare CFC financial report – almost 18 months for individual entrepreneurs and 16 months for legal entities;
  • clarifies the criteria for identification a company as CFC, and also specifies that charitable and public organizations are not considered CFCs, therefore, membership in it does not lead to recognition of the taxpayer as a controlled person;
  • optimizes tax audit procedures regarding CFCs: determines in which cases and with respect to which taxpayer information requests regarding CFCs can be sent, as well as the grounds for conducting unscheduled documentary audits of compliance with tax legislation of such companies;
  • significantly reduces the fine for untimely submission of notification on the acquisition of a share in a foreign legal entity (beginning of actual control over a foreign legal entity) and/or alienation of a share in a foreign legal entity (termination of actual control over it) – the maximum amount of the fine will be UAH 67,100.00 (now it is UAH 805,200.00); also reduces the fine for failure to submit such a notification – from UAH 805,200.00 to UAH 134,200.00;
  • simplifies the procedure for calculating the net income of CFCs and cancels the need to submit appropriate transfer pricing documentation for such companies.

For detailed legal advisory on the issue on administration of CFCs, please contact:

Dr. Dmytro Syrota
the managing partner of the SDM Partners Law Firm
d.syrota@sdm.partners
+38 (050) 330 1644

Mykola Melnyk
the partner of the SDM Partners Law Firm
m.melnyk@sdm.partners
+38 (050) 411 9920