Regarding some ownership forms of controlled foreign companies within the meaning of Article 39-2 of the Tax Code of Ukraine

Press service of the State Tax Service of Ukraine, published 29 February 2024 at 14:02 Chapter: News

State Tax Service reminds that rules regarding controlled foreign companies came into effect from January 1, 2022.

Except for legal ownership, criteria of which are defined in Sub-paragraph 39².1.2 Paragraph 39².1 Article 39² of the Tax Code of Ukraine (hereinafter – Code), for purposes of determining ownership of the controlling entity (individual or legal entity), indirect and/or actual (actual control) ownership is also calculated.

Sub-paragraph 39².1.3 Paragraph 39².1 Article 39² of the Code stipulates that a share in controlled foreign company means corporate rights, rights in a formation without the legal entity’s status, assets of which include a share in legal entity or any other similar rights and/or powers that give individual or legal entity a right to:

a) influence on the corresponding share of votes in the highest management body;

b) receive the corresponding part of profit;

c) blocking decision on the distribution of profit part;

d) receive the corresponding part of assets of a foreign legal entity in case of its liquidation or termination.

If, according to the size of share due to individual, volumes of rights are different, the biggest value of such share is accepted.

At the same time, under possession of the controlling entity of all rights in the controlled foreign company, sums of shares should be considered, which:

belong to individual or legal entity directly or indirectly through other entities, including through formations without the legal entity’s status;

belong to any related entities of such individual or legal entity directly or indirectly through other entities.

Size of the share of indirect ownership is calculated:

- in case of ownership through one chain of entities who own shares in each other – y multiplying shares;

- in case of ownership through several chains of entities who own shares in each other – by summing up shares in each such chain.  

When entity actually owns more than 50 percent (through one or more chains) of legal entity in the chain, entity is considered to have 100 percent interest in that legal entity.

In case that entity exercises actual control over next legal entity in the chain, it is considered that such entity owns share in the next legal entity in the amount of 100 percent.

Entity is considered to own a share in another legal entity, if such entity is the founder of a trust, owner of share of property of a fund, institution, other entity without the legal entity’s status, whose assets include the specified share, or a participant (partner with full or limited liability) of partnership whose assets include a share in the legal entity.

Actual control takes place in the presence of at least one of the circumstances defined in Sub-paragraph 39².1.6 Paragraph 39².1 Article 39² of the Code. Such circumstances include, in particular, provision by the entity of binding instructions to the management bodies of the foreign legal entity, possibility of carrying out or blocking transactions on bank accounts, etc.