List of the organizational legal forms of non-residents, the transactions with which may be recognized as controlled, has been approved

On Tuesday, 04 July 2017, the Cabinet of Ministers of Ukraine (“CMU”) approved the list of organizational legal forms of non-residents, the transactions with which may be recognized as controlled, has been approved (the “List”).  

Please consider that according to Article 39.2.1.1, paragraph “г” of the Tax Code of Ukraine as effective from 01 January 2017, the transactions performed with non-residents who are not corporate income tax payers and/or are not tax residents of the countries of their incorporation, may be recognized as controlled. The list of organizational legal forms of such non-residents by countries is to be approved by the CMU. It is just now that the CMU has approved such list containing 92 legal forms of non-resident entities in 26 countries.

The majority of organizational legal forms included in the List exist in tax jurisdictions of high reputation (such as Germany, France, the Netherlands, Japan). It is important to note that none of these countries is included in the low tax jurisdictions list.

According to the Transitional provisions of TCU, transactions with non-resident entities of organizational legal forms included in the List will be treated as controlled immediately after the effective date of the List. Consequently, the number of taxpayers’ transactions that will be recognized as controlled will increase in current reporting year.

If a non-resident of the organizational legal form included in the List pays corporate income tax in the reporting year, business transactions with such non-resident will be treated as non-controlled (if there are no other criteria for defining the transactions as controlled). The Tax Code of Ukraine does not require the taxpayer to obtain a document that confirms payment of corporate income tax by its non-resident counterparty.

However, the tax authorities are of the opinion that such document, if obtained from the counterparty, will give grounds for treating the transactions with such counterparty as non-controlled. According to the Letter of the State Fiscal Service of Ukraine No.6857/6/99-99-15-02-02-15 dated 03 April 2017, this may be a document issued by a tax authority in a form approved by the laws of the relevant country, duly legalized and translated in accordance with Ukrainian legislation.

We believe it is advisable to check organizational legal forms of your non-resident counterparties against the List right away in order to find out whether the number of your company’s controlled transactions will increase once the List comes into force.