The Union of Ukrainian Entrepreneurs (SUP) is urging the postponement of mandatory reporting for Controlled Foreign Companies (CFCs) during the period of martial law. The SUP has various concerns about implementing this reporting requirement in Ukraine:
- The reports could be exploited by unscrupulous law enforcement agencies to exert pressure on businesses. Given the increasing reports of unwarranted and unjust pressure from law enforcement and regulatory authorities in Ukraine, entrepreneurs have lost trust and have reason to believe that disclosing this information would lead to additional pressure.
- Requiring this reporting during a period of martial law could expose international business groups of Ukrainian entrepreneurs, potentially causing harm to their activities from the Russian Federation’s security agencies.
- The CFC rules in Ukraine are significantly less favorable than those in many alternative jurisdictions, which acts as a significant impediment for foreign entrepreneurs to acquire Ukrainian tax residency.
- Entrepreneurs would incur significant additional expenses in preparing the required reports, which is undesirable during wartime when these funds could be better allocated to providing military assistance to Ukraine.
The relevant recommendations of the Committee on Finance, Tax and Customs Policy of the Verkhovna Rada of Ukraine, which is engaged in the preparation of the draft Law of Ukraine dated October 19, 2022 No. 8137 “On Amendments to the Tax Code of Ukraine on Improving the Taxation of Controlled Foreign Companies” were presented by the SUP in a letter dated October 17 in 2023.
Previously, SUP successfully advocated for the postponement of the implementation of mandatory CFC reporting, and they hope that the government and the Ukrainian Parliament will consider the interests of entrepreneurs this time as well. The Ministry of Economic Development of Ukraine has already supported the position of the SUP and sees the need to delay the reporting on Controlled Foreign Companies.
