Ukrainian Tax Legislation and the EU acquis Novelties in the Context of BEPS Action Plan Implementation

Abstract

The article comprises comparative law analysis findings of the tax legislation of Ukraine novelties relating to controlled foreign companies coming into effect on January 1, 2021 in the context of provisions of the Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market which is effective as of January 1, 2019. The special consideration is given to the types and levels of control necessary and sufficient for qualifying foreign companies as controlled by residents, respectively, Ukraine or EU Member States required by the Tax Code of Ukraine and above-mentioned EU legislative act. In particular, it’s discovered that Ukrainian lawmakers introduced not just legal and economic control but also factual to be provided by residents-related persons. Alongside with that, the peculiarities of concentrated ownership concept, implemented within Ukrainian tax legislation modernized, are examined in depth. It’s highlighted key differences from two models described within OECD Final Report on Action 3 BEPS Project the most commonly used in the world resulting from accepting and integrating just separate elements of each of them. It’s researched both common aspects and differences between Ukrainian and EU’ approaches with regard to passive income which shall be attributed to controlled foreign companies’ controlling parties proportionally to their shares as well as substantive analysis allowing CFC rules non-application. Attention is focused on de-minimis requirements reasonableness and fairness stipulating non-inclusion of CFC’s certain share of income to the taxable income of the residents of Ukraine under the condition that the total revenues of all of the controlled foreign companies from all sources of one controlling party, either legal or physical person, are within limits of 2 million Euro per year. Comparative analysis provided affords ground for conclusion that legislative model relating to controlled foreign companies implemented by Ukraine is stricter significantly then EU’s one. It determines the risks of tax avoidance new tactics and strategies implementation by domestic taxpayers. Keywords: tax avoidance, controlled foreign company, tax burden, passive income, substantial activity, BEPS.