Court Practice on CFCs in Ukraine: First Precedents and Legal Conclusions

Since the introduction of Controlled Foreign Company (CFC) rules in Ukraine, the state has significantly strengthened control over international structures owned by Ukrainian residents. The first years of implementation were largely transitional: businesses were adapting to new obligations, tax authorities were developing enforcement approaches, and court practice was only beginning to emerge.

As of 2024–2025, the first court decisions involving CFC disputes have already appeared. These cases are shaping practical interpretations of the law and demonstrating how Ukrainian courts assess the positions of both taxpayers and tax authorities.

What Types of CFC Disputes Are Already Being Considered?

Appeals Against Penalties for Failure to Report CFCs

One of the most common categories of disputes concerns penalties imposed for:

• failure to notify about a CFC;
• late filing of CFC reports;
• failure to disclose information regarding a controlled foreign entity.

In such cases, courts analyze:

• the existence of actual control;
• compliance with reporting deadlines;
• the taxpayer’s good faith;
• legality of the actions of the tax authorities.

Disputes Regarding the Status of the Controlling Person

In many cases, the key issue is whether the taxpayer actually exercised control over the foreign company.

Courts examine:

• corporate structure;
• registration documents;
• banking authority;
• ability to influence company operations;
• evidence of actual management.

Disputes Concerning Tax Exemptions and Reliefs

Another category of disputes involves entitlement to:

• exemption from CFC taxation;
• application of international tax treaties;
• exclusions from CFC rules.

Courts assess:

• the existence of genuine business activity;
• effective foreign tax rates;
• evidence of economic substance and business purpose.

Key Conclusions from Early Court Decisions

Formal Criteria Alone Are Not Enough

Courts are gradually establishing the position that tax authorities must prove not only formal signs of control, but also actual influence over the foreign company’s activities.

Courts Strictly Enforce Reporting Deadlines

Even minor violations of reporting deadlines often result in courts upholding penalties imposed by tax authorities.

Therefore, compliance with filing deadlines remains critically important.

Evidence Is the Key Factor in Successful Defense

Where taxpayers provide:

• financial statements;
• corporate records;
• banking documents;
• agreements;
• evidence of genuine business operations,

courts more frequently rule in favor of the business.

Substance of Business Activity Matters

Courts pay particular attention to the existence of:

• employees;
• office premises;
• assets;
• actual transactions;
• economic purpose of the structure.

Companies lacking economic substance attract increased scrutiny from tax authorities.

Practical Recommendations for Businesses

Build Your Evidence Base in Advance

Businesses should retain:

• corporate documentation;
• financial reports;
• correspondence;
• banking records;
• management resolutions and approvals.

Do Not Ignore CFC Notifications

Even if a company:

• generated no profit;
• is temporarily inactive;
• has minimal activity,

notification obligations may still apply.

Keep Proof of Filing

Always preserve:

• electronic filing confirmations;
• delivery receipts;
• correspondence with tax authorities;
• evidence of submitted reports.

Carefully Assess Eligibility for Tax Relief

Any exemption from taxation should be:

• legally justified;
• properly documented;
• correctly reflected in reporting.

When Should You Involve Legal Counsel?

Professional legal support is especially important where:

• the business structure is complex;
• multiple foreign entities are involved;
• the tax authority initiates an audit;
• official requests from the tax service are received;
• there is a risk of penalties or criminal proceedings.

What Should Businesses Expect Going Forward?

The number of court disputes involving CFCs is expected to increase significantly in the coming years. This will lead to a more stable judicial practice and clearer interpretation of controversial legal provisions.

At the same time, tax authorities will increasingly rely on:

• CRS;
• international exchange of financial information;
• foreign banking and registry data.

Conclusion

Court practice concerning CFCs in Ukraine is still developing, but one thing is already clear: a purely formal approach to reporting and international structures is becoming increasingly risky.

Timely preparation of documents, transparency of ownership structures, and professional legal support significantly improve a business’s ability to protect its interests successfully.

The Ukrainian Bar and Real Estate Association provides comprehensive legal support regarding CFC matters, including:

• analysis of international structures;
• preparation of CFC reports;
• support during tax audits;
• representation in court disputes;
• international tax consulting.