Regarding the first submission of the Country-by-Country Report of the international group of companiesChapter: News
I. Legal requirements for submission of the country-by-country reporting of the international group of companies
Sub-paragraph 39.4.10 Paragraph 39.4 Article 39 Section I of the Tax Code of Ukraine (hereinafter – Code) stipulates that the taxpayer who is a resident of Ukraine who belongs to the international group of companies, in cases specified in this Sub-paragraph, is obliged to submit the country-by-country report of the international group of companies to the central executive body that implements state tax policy in the electronic form in compliance with requirements of the Laws of Ukraine "On electronic documents and electronic document management" and "On electronic trust services".
Form of the Country-by-Country Report of the international group of companies and procedure for filling it in are approved by Order of the Ministry of Finance of Ukraine № 764 as of 14.12.2020, which was registered in the Ministry of Justice of Ukraine on 04.02.2021 under № 155/3577.
Provisions of Sub-paragraph 39.4.10 Paragraph 39.4 Article 39 Section I of the Code provide that the Country-by-Country Report of the international group of companies is submitted in case that the total consolidated income of the international group of companies, which includes the taxpayer, for financial year preceding the reporting year, calculated according to accounting standards applied by the parent company of the international group (or in the absence of information – according to the international accounting standards), exceeds equivalent of 750 million euros and in the presence of one of the following circumstances:
taxpayer is the parent company of the international group of companies;
parent company of the international group of companies authorizes the taxpayer – resident of Ukraine to submit the Country-by-Country Report to the controlling body;
legislative requirements of location of the parent company of the international group of companies, such international group of companies is not required to submit report, and at the same time, the parent company of such group does not authorize another member of the international group to submit report in another foreign jurisdiction where its submission is provided;
international agreement has been signed between Ukraine and relevant foreign jurisdiction where the parent company of the international group of companies or another member of this group is located, authorized by the parent company of such group to submit country-by-country report, providing for the possibility of exchanging tax information, but procedure for exchanging country-by-country reports has not entered into force or existing facts of systematic failure to comply with such procedure. Central executive body that implements state tax policy publishes list of such foreign jurisdictions on its official web portal not later than 60 calendar days before the deadline for submitting report on controlled operations for relevant reporting year.
Clause 13 of Sub-paragraph 39.4.11 Paragraph 39.4 Article 39 Section I of the Code stipulates that Country-by-Country Report of the international group of companies is compiled for the fiscal year established by the parent company of the international group of companies, which may not coincide with a calendar year and is submitted within twelve months after the end of such fiscal year (in the absence of information about financial year established by the parent company of the international group of companies – within twelve months after the end of a calendar year).
At the same time, Paragraph 53 Sub-section 10 Section XX "Transitional Provisions" of the Code establishes that norms of Paragraph 39.4 of Article 39 Section I of the Code, in particular, regarding submission by taxpayers of the Country-by-Country Report of the international group of companies are applied for the first time in relation to the fiscal year ending in 2021, but not earlier than year in which competent authorities concluded the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports.
II. Signing of the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports
Article 11 Section 1 Part II of the Vienna Convention on the Law of International Treaties (hereinafter – Convention) stipulates that consent of a state to be bound by a treaty may be expressed by signing the treaty, exchanging documents constituting treaty, ratifying treaty, accepting it, approving it, joining it or in any other way agreed upon.
Consent of the state to be bound by the treaty according to Article 12 Section 1Part II of the Vienna Convention is expressed by signing the treaty by a representative of the state, when:
a) treaty provides that the signature has such force;
b) in another way, treaty of states participating in negotiations is established that the signature should have such force; or
c) intention of the state to give signature such force arises from authority of its representative or was expressed during the negotiations.
It should be noted that the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports contains references to provisions of Convention on Mutual Administrative Assistance in Tax Matters.
Convention on Mutual Administrative Assistance in Tax Matters entered into force for Ukraine through its ratification by the Verkhovna Rada of Ukraine according to the Law of Ukraine № 677-VI as of 17.12.2008 (hereinafter– Law № 677) and Protocol on Changes and Amendments to Convention on Mutual Administrative Assistance in Tax Matters was ratified by the Law of Ukraine № 21-VII as of 11.01.2013.
Paragraph 2 of the Law № 677 stipulates that "authorized bodies of Ukraine"1 within the meaning of Sub-paragraph "d" of Paragraph 1 Article 3 of Convention on Mutual Administrative Assistance in Tax Matters for Ukraine is, in particular, central body of executive power that ensures formation and implementation of the state tax and customs policy.
Based on requirements of Article 6 of Convention on Mutual Administrative Assistance in Tax Matters regarding categories of cases and in accordance with procedures that the parties (participating jurisdictions) of Convention determine by mutual agreement, two or more participants automatically exchange information that, among other things, may be relevant for establishing amount and tax collection.
Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports is aimed at implementing requirements of the international tax legislation, in particular, in terms of identifying transfer pricing risks by tax authorities. Joining the automatic exchange of the Country-by-Country Reports countries is a key stage in the implementation of Step 13 of the BEPS (Base Erosion and Profit Shifting) Action Plan in Ukraine. Conclusion of the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports, among other things, allows Ukraine to ensure implementation of Sub-paragraphs 39.4.12 and 39.4.13 Paragraph 39.4 Article 39 section I of the Code, according to which:
- Country-by-Country Report of the international group of companies submitted by the taxpayer is object of the automatic exchange of tax and financial information;
- information in the Country-by-Country Report of the international group of companies, which is received by the central executive body that implements state tax policy, from the taxpayer and/or within the framework of international agreements on the automatic exchange of tax and financial information, is used for assessing of the transfer pricing risks during the monitoring of controlled operations and not may be independent basis for adjusting amount of the taxpayer's taxable income.
Article 2 of the Law of Ukraine "On international treaties of Ukraine" stipulates that conclusion of the international treaty of Ukraine – these are actions related to preparation of text of the international treaty, its acceptance, establishing its authenticity, signing international treaty and giving consent to its binding for Ukraine. Signing is either a stage of concluding international treaty, or a form of Ukraine's consent to be bound by the international treaty in cases provided for by the international treaty or other agreement of parties.
Section 8 of the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports stipulates that conclusion of this Treaty is carried out precisely signing.2
Therefore, the State Tax Service, as a Competent body, has acquired authority to conclude the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports. Acting Head of the State Tax Service signed relevant statement on November 3, 2022, according to which the Competent body of Ukraine (State Tax Service) is considered to have signed the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports and agrees to comply with its requirements.
Relevant information message on joining is posted on the web portal of the State Tax Service at the link https://tax.gov.ua/en/mass-media/news/629350.html
As of January 24, 2023, Ukraine is already included in the list of signatory jurisdictions of the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports – https://www.oecd.org/tax/beps/CbC-MCAA-Signatories.pdf
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1 Based on the English text of Convention on Mutual Administrative Assistance, terms "authorized authorities" and "competent authorities" are identical in meaning.
2 Текст Text of the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports is available on the OECD website at the link https://www.oecd.org/tax/automatic-exchange/about-automatic-exchange/CbC-mcaa.pdf
III. Entry into force of the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports
Date of appeal of the State Tax Service on signing of the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports is not the date of its entry into force.
Paragraph 1 Article 24 Section 3 of Part II of the Vienna Convention on the Law of International Treaties as of 23.05. 19693 stipulates that the international treaty enters into force in manner and on the date provided for in the treaty itself or in the agreement between states that participated in the negotiations. In the absence of such provision or treaty, the treaty shall enter into force as soon as the consent of all states that participated in the negotiations is expressed for the treaty to be binding on them. If the state's consent to be bound by the treaty is expressed on a certain date after the treaty enters into force, then the treaty enters into force for that state on that date, unless the treaty provides otherwise.
Article 14 of the Law of Ukraine "On international treaties of Ukraine" stipulates that the international treaties enter into force for Ukraine after it has given its consent to the binding nature of the international treaty according to this Law in manner and within terms stipulated by the treaty, or in another way agreed upon by the parties.
In turn, Paragraph 2 Section 8 of the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports stipulates that this Treaty will enter into force for Ukraine, in particular, on the last of the following dates:
or on the date when the second Competent Authority sends a notification to the OECD Secretariat of the Coordination Body of the Treaty, which will contain information provided for in Paragraph 1 Section 8 of the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports (this is list of jurisdictions for which Ukraine intends to implement this Treaty and, accordingly, with which it wishes to carry out automatic exchange of the Country-by-Country Report of the international group of companies),
or on the date of entry into force of Convention on Mutual Administrative Assistance in Tax Matters (for Ukraine, this Convention has already entered into force on 01.07.2009, and as of 22.03.2023 the number of 147 jurisdictions have signed it4).
That is, in order for the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports to enter into force both for Ukraine and for each jurisdiction with which Ukraine wishes to automatically exchange information, both competent authorities (State Tax Service and competent authority of each such jurisdiction) must declare their intention to automatically exchange one with one by submitting a notification to the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports referred to above.
It should be noted that notification, which contains information on the list of jurisdictions for which Ukraine intends to implement this Treaty and, accordingly, with which it wishes to carry out automatic exchange of the Country-by-Country Report of the international group of companies (provided by Paragraph 1 Section 8 of the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports), only one of five that the State Tax Service, as the Competent Authority, must provide to the OECD Secretariat of the Coordinating Body. Other notifications that are required to be submitted at the time of signature of the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports or as soon as possible thereafter inform the OECD Secretariat of the Coordinating Body of:
presence in Ukraine of necessary laws and requirements according to which taxpayers must submit the Country-by-Country Report of the international group of companies;
Comment: these requirements are currently defined by Sub-paragraphs 39.4.10 – 39.4.15 Paragraph 39.4 Article 39 of the Code;
need to include Ukraine in the list of jurisdictions with which "non-reciprocal exchange" is carried out;
Comment: this type of exchange assumes that the jurisdiction only transmits the Country-by-Country Report of the international group of companies provided by taxpayers, but does not receive information within the framework of the automatic exchange procedures. Instead, Ukraine plans to carry out a bilateral exchange, which will be duly announced;
one or more methods of electronic data transmission, including encryption;
Comment: Ukraine plans to use information exchange systems and protocols developed by the OECD;
existence of a legal framework and infrastructure to ensure necessary standards of confidentiality and data protection according to Article 22 of Convention on Mutual Administrative Assistance in Tax Matters and Paragraph 1 Section 5 of the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports, as well as appropriate use of information in the cross-country reports.
Comment: mandatory condition for Ukraine to join the international automatic exchange of information is to pass the State Tax Service’s assessment of the Global Forum on the maturity of information security management system. Final stage of assessment involves visit of the Global Forum experts to the audited country in order to analyze the tax authorities' compliance with data privacy and security requirements in practice. To date, consultations with the Global Forum experts are ongoing regarding format of passing of the specified assessment by the State Tax Service.
As of March 2023, this notification has not yet been submitted by Ukraine (see explanation below), so the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports for Ukraine has not yet entered into force.
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3 Accession of the Ukrainian SSR to the Vienna Convention on the Law of International Treaties took place according to Decree of the Presidium of Ukrainian SSR № 2077-XI as of 14.04.1986, with reservations (Ukraine is a legal successor according to Article 7 of the Law of Ukraine "On legal succession of Ukraine").
4 https://www.oecd.org/ctp/exchange-of-tax-information/Status_of_convention.pdf
IV. Can signing of the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports for Ukraine be considered its conclusion for purposes of Paragraph 53 Sub-section 10 Section XX "Transitional provisions" of the Code
Submission of notifications provided for in Section 8 of the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports is an integral part of process of concluding the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports (introduction of automatic exchange of the Country-by-Country Report of the international group of companies with Ukraine is impossible until the Ukrainian side confirms compliance with mandatory conditions with these notifications and will not state with which jurisdictions it wishes to exchange relevant reports). Therefore, signing by the State Tax Service of declaration of consent to the implementation of this treaty is only one of stages of concluding this international agreement. All the above-mentioned notifications will be sent by the State Tax Service to the OECD Secretariat of the Coordinating Body at the same time immediately after completion of the above-mentioned assessment of the Global Forum on compliance of tax authorities with requirements for confidentiality and data security. Only after they are received by the OECD Secretariat of the Coordinating Body, there will be a reason to believe that Ukraine has agreed on all essential terms of the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports and process of conclusion has been completed. Until then, process of concluding the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports should be considered ongoing.
Therefore, for purposes of Paragraph 53 Sub-section 10 Section XX "Transitional provisions" of the Code, the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports is not yet considered concluded. Therefore, taxpayers have not yet had grounds to submit the Country-by-Country Report of the international group of companies.
V. First submission of reporting – expected changes
Currently, the Verkhovna Rada of Ukraine on March 27, 2023 sent the Law of Ukraine "On amendments to the Tax Code of Ukraine regarding the implementation of the international standard for automatic exchange of information on financial accounts" to the President of Ukraine for signature, which, among other things, provides for changes to Paragraph 53 of Sub-section 10 Section XX "Transitional provisions" of the Code regarding the first reporting period for submission of the Country-by-Country Report of the international group of companies.
In particular, it is assumed that only taxpayers who are parent companies of the international group of companies in Ukraine will need to submit this report for the first time for financial year ending in a period from January 1 to December 31, 2022.
For other cases specified in Sub-paragraph 39.4.10 Paragraph 39.4 Article 39 Section I of the Code, the draft law provides for submission of the Country-by-Country Report of the international group of companies for the fiscal year beginning in a period from January 1 to December 31 of year in which the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports entered into force at least with one foreign jurisdiction – party of the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports, which is Ukraine's partner for the automatic exchange of information.