CFC. Court Decision. Inspections Coming Soon

Since 2022, CFC (Controlled Foreign Company) rules have become an integral part of the Ukrainian tax system. In 2025, proper reporting, upcoming audits, and court decisions have gained special relevance due to the gradual end of the transition period and the planned introduction of full-scale enforcement by the tax authorities. Ukrainian businesses are already gaining their first experience in defending their interests in court, while the tax authorities are preparing for large-scale audits affecting hundreds of CFC controllers.

CFC rules and their transformation
A CFC is any legal entity registered outside Ukraine that is controlled by a Ukrainian resident (individual or legal entity). Introduction of CFC rules is not a legislative whim, but a requirement of international tax standards and part of a global effort to counter aggressive tax planning.
Since early 2024, the ownership threshold triggering a reporting requirement has dropped to 10% (previously 25%), so more entrepreneurs and business groups are becoming CFC controllers.

Control criteria and controller obligations
A CFC controller is a person who:

• owns more than 50% in a foreign company;
• or owns 10% or more (jointly with other residents);
• or exercises actual control beyond formal signs (e.g., right to approve key decisions, influence asset management or profit distribution).
  Even if there is no obligation to calculate CFC tax, the controller must still annually notify about CFC ownership and submit a report with full data on structure, assets, profits, transactions with related parties, tax status, and grounds for exemption from taxation.

Deadlines, procedures, and documents
In 2025 it is crucial not to miss key deadlines:

• Individuals file the report with the tax declaration by May 1, 2025;
• Legal entities file by March 1 with the corporate income tax return.
  Notification about acquisition or change of share in a CFC must be submitted within 60 days of the event.

The documents package includes:

• information about all CFCs, ownership and control schemes;
• income/profit figures;
• related party transactions;
• justification for CFC tax exemption (if applicable);
• CFC financial statements and additional documents upon tax authority request.

CFC audits: What changes in 2025?
The moratorium on scheduled audits does not apply to CFC reporting. The tax authorities may conduct desk audits of submitted reports and request primary documents for information confirmation. With the transition period ending, businesses should expect:

• more factual audits of corporate structures;
• checks of real control and profit distribution schemes;
• transfer pricing analysis and transactions with related non-residents.
  Particular attention is given to high-risk jurisdictions, trusts, funds, and multi-level holdings. Document requests can be made directly to CFC controllers or via automatic tax information exchange.

Court practice: first cases and trends
Court rulings on CFCs remain scarce since reporting only began in 2024. Key litigation issues include:

• disputes over establishing actual control;
• qualification of transactions as controlled;
• validity of exemption claims;
• protection of controllers’ rights in case of additional tax assessments.
  Courts focus on proof of control (ownership structure, contract signing, account management), proper documentation for CFC exemption, and accuracy of reporting.

Fines and tax risks
In 2025, high penalties apply for violations of CFC obligations:

• Late report submission — one subsistence minimum per day of delay (up to ~UAH 151,400);
• Knowingly false information — 3% of CFC’s income or 25% of adjusted profit (up to 1,000 subsistence minimums, over UAH 3 million);
• Failure to notify about acquiring, changing, or losing control — 300 subsistence minimums per incident (over UAH 900,000).
  These fines do not apply during martial law and for 6 months afterward, if the reporting is filed voluntarily during this period.

CFC tax exemption: grounds
Not all controllers pay CFC tax. The law provides several grounds for full/partial exemption:

• A double tax treaty or automatic information exchange exists between Ukraine and the CFC’s country;
• The CFC actually pays profit tax at a rate of at least 13% in its country;
• The share of passive income is no more than 50% of total CFC income.
  In this case, no adjusted profit is calculated, but the controller must still file the report with a proper note.

Lifehacks for preparation and legal defense

• Timely structure ownership rights and check all CFC interests, even indirect;
• Promptly notify the tax authorities of any changes (within 60 days);
• Collect and keep all ownership and financial records for CFCs, prepare official accounts and proof of tax paid abroad;
• Respond quickly to tax authority requests, avoid incomplete or false info in reports;
• For risky cases, prepare a legal defense position in advance, consult finance and legal professionals.

Outlook: How will the approach of tax authorities and courts change?
2025–2026 will see a sharp rise in CFC audits and litigation. The Ukrainian tax authorities emulate European practices, especially:

• Ownership structure audit details;
• Checking justification of exemption claims — proving real tax payment/existence of information exchange agreements;
• Expanding automatic info exchange with foreign tax offices.
  Courts will aim to develop consistent practice for defining control and tax assessments. This increases business need for proper compliance, corporate audits, and timely advice.

Conclusion
2025 will be a year of active CFC enforcement in Ukraine. Businesses must prepare for increased scrutiny: verified structures, timely reporting, immaculate documentation, and professional preparation for interaction with tax authorities and courts. The first wave of audits and rulings will set the standards for international business in the new Ukrainian tax landscape.

Author — Maksym Bahniuk, Head of Tax and Customs Law Practice at the Law Association “Legal Company WINNER“.