Other Types of Controlled Transactions Subject to Art. 39 of the TCU<\/div>\n<\/div>\n<\/div>\n
Controlled transactions also include business transactions conducted between a non-resident and its permanent establishment in Ukraine, which are omitted from the diagram because reaching the value threshold of UAH 150 million in annual income from all activities is not mandatory<\/strong> with respect to such transactions.<\/span><\/p>\nBusiness transactions between a non-resident and its permanent establishment in Ukraine are recognized as controlled if their volume, determined under accounting rules, exceeds UAH 10 million<\/strong> (net of indirect taxes) for the relevant tax (reporting) year.<\/span><\/p>\nPractical Steps<\/h2>\n\n
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Your Transaction Is Recognized as Controlled (Art. 39 of the TCU)<\/div>\n<\/div>\n<\/div>\n
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Step 1. Prepare the Report on Controlled Transactions<\/span><\/h3>\n\n- ✔<\/span>Prepare a list of all controlled transactions<\/span><\/li>\n
- ✔<\/span>Complete the Report on Controlled Transactions<\/span><\/li>\n
- ✔<\/span>Submit the Report on Controlled Transactions electronically (by October 1 of the year following the reporting year)<\/span><\/li>\n
- ✔<\/span>If the taxpayer is a member of a multinational enterprise (MNE) group and carried out controlled transactions during the reporting year \u2014 submit the corresponding Notification on Participation in an MNE Group<\/span><\/li>\n<\/ul>\n<\/div>\n
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Step 2. Prepare Transfer Pricing Documentation<\/span><\/h3>\n\n- ✔<\/span>Conduct a functional analysis of the parties<\/span><\/li>\n
- ✔<\/span>Select and justify the transfer pricing method<\/span><\/li>\n
- ✔<\/span>Collect comparable data\/prices\/transactions<\/span><\/li>\n
- ✔<\/span>Calculate the arm’s length price\/profitability range<\/span><\/li>\n
- ✔<\/span>Compile the TP documentation (must be finalized by the filing date of the Report)<\/span><\/li>\n
- ✔<\/span>Verify compliance with the arm’s length principle (if necessary \u2013 make an adjustment to the financial result in the corporate income tax return)<\/span><\/li>\n<\/ul>\n<\/div>\n
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Step 3. Assess Risks and Liability<\/span><\/h3>\n\n- ✔<\/span>Failure by a taxpayer to submit the Report on Controlled Transactions \u2013 fine of 300 subsistence minimum amounts (for 2025 \u2013 UAH 908,400)<\/span><\/li>\n
- ✔<\/span>Failure to submit documentation upon request of the STS \u2013 fine of 3% of the controlled transaction amount, but not more than 200 subsistence minimum amounts (for 2025 \u2013 up to UAH 605,600)<\/span><\/li>\n
- ✔<\/span>Failure by a taxpayer to submit a notification on participation in an MNE group \u2013 fine of 100 subsistence minimum amounts (for 2025 \u2013 UAH 302,800)<\/span><\/li>\n
- ✔<\/span>Non-compliance with the arm’s length principle \u2013 additional assessment of corporate income tax, constructive dividends<\/span><\/li>\n<\/ul>\n<\/div>\n<\/div>\n
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If your foreign economic transaction falls under sub-clause 140.5.4 and\/or 140.5.5-1 of clause 140.5 of Art. 140 of the TCU (export \/ import of products), you must:<\/strong><\/span><\/p>\n<\/div>\n1) EITHER increase the financial result before tax by 30% of the cost of purchased\/sold goods, including non-current assets (except for right-of-use assets under lease agreements), works, and services (except for transactions specified in clause 140.2 and sub-clause 140.5.6 of clause 140.5 of Art. 140, and transactions recognized as controlled in accordance with Art. 39 of the Tax Code of Ukraine);<\/span><\/p>\n2) OR substantiate the amount of such expenses\/income at prices determined under the arm’s length principle in accordance with the procedure established by Art. 39 of the Tax Code of Ukraine, but without submitting a report on controlled transactions (Prepare TP Documentation).<\/span><\/p>\n\n
If your foreign economic transaction falls under sub-clause 140.5.6 of clause 140.5 of Art. 140 of the TCU (royalties paid to any non-resident), you must:<\/span><\/p>\n<\/div>\n1) EITHER increase the financial result before tax by the amount of royalty expenses (except for transactions recognized as controlled in accordance with Article 39 of the Tax Code of Ukraine) in favor of a non-resident (including a non-resident registered in the states (territories) specified in sub-clause 39.2.1.2 of sub-clause 39.2.1 of clause 39.2 of Art. 39 of the Tax Code of Ukraine) exceeding the amount of royalty income increased by 4% of net revenue from sales of products (goods, works, services) according to financial statements for the year preceding the reporting year;<\/span><\/p>\n2) OR substantiate the amount of such expenses at prices determined under the arm’s length principle in accordance with the procedure established by Art. 39 of the Tax Code of Ukraine, but without submitting a report on controlled transactions.<\/span><\/p>\n\n
If your foreign economic transaction falls under sub-clause 140.5.7 of clause 140.5 of Art. 140 of the TCU (royalties in favor of specified counterparties), you must:<\/span><\/p>\n<\/div>\nIncrease the financial result before tax by the amount of royalty expenses in full<\/strong> if royalties are accrued in favor of counterparties specified in sub-clauses 2\u20136 of sub-clause 140.5.7 of clause 140.5 of Art. 140 of the TCU, in particular in favor of:<\/span><\/p>\n\n- a non-resident who is not the beneficial (actual) recipient (owner) of the royalty, except where the beneficial owner (actual owner) granted the right to receive the royalty to other persons;<\/span><\/li>\n
- a non-resident with respect to intellectual property objects rights to which first arose with a resident of Ukraine;<\/span><\/li>\n
- a non-resident who is not subject to taxation regarding royalties in the state of which they are a resident;<\/span><\/li>\n
- a person who pays tax as part of other taxes, except for individuals taxed under the procedure established by Section IV of the Tax Code of Ukraine (who are on the simplified taxation system);<\/span><\/li>\n
- a legal entity that, in accordance with the Tax Code of Ukraine, is exempt from paying this tax or pays this tax at a rate other than that established in clause 136.1 of Art. 136 of the Tax Code of Ukraine.<\/span><\/li>\n<\/ul>\n<\/div>\n
Constructive Dividends: How to Avoid Tax Risks<\/h2>\n\n
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Constructive Dividends<\/div>\n<\/div>\n<\/div>\n<\/div>\n
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Constructive dividends<\/strong> (in the area of international taxation and TP) arise if the terms of controlled transactions do not comply with the arm’s length principle.<\/p>\n<\/div>\n<\/div>\n\n
According to sub-clause 14.1.49 of clause 14.1 of Art. 14, the following are treated as dividends for tax purposes:<\/span><\/p>\n\n- the amount of overstatement of the taxpayer’s expenses beyond the amount determined in compliance with the arm’s length principle;<\/span><\/li>\n
- the amount of understatement of the taxpayer’s income below the amount determined in compliance with the arm’s length principle.<\/span><\/li>\n<\/ul>\n
If the terms of controlled transactions do not comply with the arm’s length principle, the resident is required to additionally withhold non-resident income tax<\/strong> of 15%<\/strong> from the amount that does not comply with the specified principle (unless otherwise provided by an international treaty).<\/span><\/p>\n\n
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Important:<\/strong><\/span><\/p>\nConstructive dividends may not arise provided there is a thorough analysis of international double taxation treaties (Conventions), in particular Article 10 of the relevant Convention. The provisions of this article may apply to income whose taxation corresponds to the term “dividends” defined in the relevant provisions of the international treaty (Convention).<\/span><\/p>\n<\/div>\n<\/div>\n<\/div>\n\n
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CbC Reporting in Ukraine<\/div>\n<\/div>\n<\/div>\n<\/div>\n
CbC reporting<\/strong> (Country-by-Country reporting) in Ukraine became mandatory on July 4, 2024, and is aimed at increasing the tax transparency of multinational enterprise groups. It enables tax authorities to obtain detailed information on the allocation of the group’s economic activity across different jurisdictions. The report is submitted annually by the parent company in its country of registration, after which the relevant information is exchanged with tax authorities of other states where group companies are present.<\/span><\/p>\nThe report is submitted by December 31 of the year following the reporting year. Accordingly, the report for 2025 must be submitted by December 31, 2026<\/u>.<\/span><\/p>\nThe primary obligation to submit a CbC report falls on the parent company of an international group, which is responsible for consolidating the financial and operational metrics of all constituent entities if the total consolidated group revenue exceeds \u20ac750 million<\/u>.<\/span><\/p>\n\n
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CFC Reports<\/div>\n<\/div>\n<\/div>\n<\/div>\n
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We remind taxpayers of the need for timely submission of reports on controlled foreign companies (CFC) in accordance with the requirements of the TCU.<\/span><\/p>\nThe Tax Code of Ukraine provides for the following penalties (clause 120.7 of Art. 120 of the TCU):<\/span><\/p>\n
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