09.12.2022

 

On 3 November 2022 the State Tax Service of Ukraine (the Tax Service) has joined the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports (the Multilateral Agreement CbC / Agreement).

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The purpose of the Multilateral Agreement CbC is to establish the rules and procedures necessary for competent authorities of the states – participants of the Agreement for annual automatic exchanging of country-by-country reports of international groups of companies (the Country-by-Country Report / Report). Implementation of such automatic exchange is one of Ukrainian obligations regarding implementation of Step 13 of the BEPS Action Plan – introduction of additional reporting on the transfer pricing for international groups of companies. Currently, more than 90 countries have joined the Multilateral Agreement CbC, while the first automatic exchange of the Country-by-Country Reports under the Agreement took place in June 2018. With joining of the Tax Service to the Multilateral Agreement CbC on 3 November 2022, Ukraine became another signatory state of the Agreement.

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Let us remind that the provision regarding duty of taxpayers – Ukrainian residents being the participants of international groups of companies (the Group of Companies / Group) – to submit the Country-by-Country Reports to the Tax Service was introduced to the Tax Code of Ukraine (the TCU) as a result of adoption in January 2020 of the Law of Ukraine No. 466-IX «On amendments to the Tax Code of Ukraine regarding improving of taxes administration and removal of technical and logical discrepancies in tax legislation».

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The Country-by-Country Report is an integral part of the three-level transfer pricing reporting (which also includes, in addition to the Country-by-Country Report, transfer pricing documentation (Local file) and global transfer pricing documentation (Master file)). The Report is to be submitted to the Tax Service electronically. The form and manner of filling in the Report have been approved by the Decree of the Ministry of Finance of Ukraine dated 14 December 2020 No. 764.

 

The Country-by-Country Report shall be submitted, if the aggregate consolidated income of the Group of Companies, where a taxpayer participates, exceeds the equivalent of EUR 750 million for the financial year preceding the reporting year. Simultaneously, one of the four circumstances stipulated by the TCU must be present:
 

• the taxpayer is the parent company of the Group,

• the parent company of the Group authorized a taxpayer – Ukrainian resident to submit the Country-by-Country Report to the Tax Service,

• in accordance with the requirements of the legislation of the location of the parent company of the Group, the submission of the Report is not required from the Group of Companies, and at the same time the parent company of the Group does not authorize another participant of the Group to submit the Report in another foreign jurisdiction where its submission is mandatory,

• Ukraine and the corresponding foreign jurisdiction of location of the parent company of the Group of Companies or another participant of the Group, authorized by the parent company to submit the Report, have entered into an international agreement that provides for the possibility of exchanging tax information, but the procedure for exchanging Reports has not entered into force or facts of systematic non-compliance with this procedure have been present.

 

The Country-by-Country Report shall contain information for each jurisdiction where participants of the Group of Companies are registered or where the Group of Companies operates, in particular, but not exclusively:
 

• the names of the states (territories) in accordance with which legislation the participants of the Group of Companies have been incorporated, and the states (territories) where they are the residents,

• the total amount of income for the financial year for which the Country-by-Country Report has been prepared, including a breakdown of the amount of income in accordance with agreements concluded by participants of the Group of Companies with related and unrelated entities,

• the amount of profit (loss) before taxation for the financial year for which the Report has been prepared,

• the amount of paid corporate income tax or its equivalent in the financial year for which the Report has been prepared,

• the amount of accrued corporate income tax or its equivalent for the financial year for which the Report has been prepared,

• the amount of authorized capital as of the end of the financial year for which the Report has been prepared,

• the amount of non-distributed profit as of the end of the financial year for which the Report has been prepared,

• the number of employees for the financial year for which the Report has been prepared,

• the book value of tangible assets as of the end of the financial year for which the Report has been prepared,

• the main activities carried out by participants of the Group of Companies.

 

The Country-by-Country Report shall be prepared for the financial year determined by the parent company of the Group of Companies (may not coincide with the calendar year), and shall be submitted:
 

• within 12 months after the end of such financial year, or

• within 12 months after the end of the calendar year – if there is no information about the financial year determined by the parent company.
   

Herewith, the provisions of the Transitional Provisions of the TCU stipulate that the first Country-by-Country Reports shall be submitted for the financial year that ended in 2021, but not earlier than in the year when the competent authorities concluded the Multilateral Agreement CbC.
 

Thus, taking into account the recent joining of the Tax Service to the Agreement and the literal interpretation of the provisions of Clause 53 of Subsection 10 of Chapter XX of the TCU, it can be assumed that taxpayers – Ukrainian residents who are the participants of the Groups of Companies, subject to meeting the above-mentioned criteria determining the emergence of the duty to submit the Country-by-Country Reports, can face a risk of arising of the duty to submit in 2023 for the years 2021-2022 the first Country-by-Country Reports.
 

In this regard, it is worth waiting for a clearer clarification from the Tax Service or the Ministry of Finance of Ukraine regarding the deadlines for the first submission of the Country-by-Country Reports for the 2021-2022 financial years, given the joining of the Tax Service in November 2022 to the Multilateral Agreement CbC.

 

With regard to specifically the annual automatic exchange of Country-by-Country Reports between the competent authorities of the countries participating in the Multilateral Agreement CbC, such exchange, based on the provisions of the Agreement, shall take place no later than:

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• within 18 months after the end of the relevant financial year of the Group of Companies – in case of the first automatic exchange of Country-by-Country Reports (for example, if the financial year of the Group, in respect of which the first automatic exchange of Country-by-Country Reports shall take place, ends on 31 December 2021, then such first automatic exchange of the Reports shall be conducted no later than 30 June 2023), and

• within 15 months after the end of the relevant financial year of the Group of Companies – for further automatic exchanges of Country-by-Country Reports.
   

Herewith, in order for the Tax Service to be able to exchange Country-by-Country Reports with the competent authorities of other countries participating in the Multilateral Agreement CbC, Ukraine after joining the Agreement shall also:
 

• take all necessary measures to ensure the technical capacity to exchange Reports with the competent authorities of other countries,

• take all necessary precautions to ensure that the information obtained as a result of the automatic exchange of the Reports under the Agreement remains confidential and is used exclusively for the purposes provided for in the TCU and the Multilateral Agreement CbC, and

• send to the Organisation for Economic Co-operation and Development Secretariat notifications which mandatory sending has been provided by the Multilateral Agreement CbC.
   

This also includes the list of countries with which Ukraine wishes to automatically exchange Country-by-Country Reports. The automatic exchange of the Reports with the competent authorities of such countries will take place only if the respective countries also include Ukraine in their own similar lists of countries with which they would like to automatically exchange Country-by-Country Reports.