On 12 July 2021, the State Tax Service (STS) has issued a guidance letter 2712/IPK/ 99-00-21-02-02-06 which clarifies tax treaty requirements under CFC rules.
The guidance letter clarifies that from 1 January 2022 CFC profits may be exempt from corporate income tax if the following prescribed conditions are met:
- there is a valid income tax treaty agreement on the avoidance of double taxation or on the exchange of tax information and
- any of the following conditions are met:
- The CFC actually pays income tax at an effective rate that is not less than the main corporate income tax rate in Ukraine or is less than such a rate by no more than 5 percentage points, or
- The share of passive income of a controlled foreign company is no more than 50% of the total CFC income from all sources.
STS clarified that the OECD Convention on Mutual Administrative Assistance in Tax Matters does not meet this obligation because the provision of the Tax Code that provides for the CFC profit exemption does not cover a direct reference to the Mutual Administrative Assistance in Tax Matters as a lawful agreement that be qualified for the exemption.
