Tax Practice


He was born in 1987 in Kyiv. He graduated from the Department of Law of the National Aviation University in 2009. He has been studying at the University of London (Great Britain) on the postgraduate Financial Law. Securities program since 2014. He has been working at GOLAW Law Firm since 2009. He obtained his license to practice law in 2016.

Specialization: corporate law and M&A, commercial law, international structuring and tax planning, the practices of the real estate and private capital management. In 2013, he was recommended by Legal 500 in the corporate law and M&A. He is a member of the Ukrainian Bar Association, the International Bar Association (IBA), and the International Fiscal Association (IFA).


Starting from scratch

"Introduction of "zero" declaration is a compulsory condition for successful implementation of taxation rules for controlled foreign companies in Ukraine"
— Maxim Lebedev, attorney, managing lawyer at GOLAW, says

—  What prompted the actualization of international tax planning issues in the context of taxation of controlled foreign companies?

—  Business continues to look for ways to optimize taxation, which is a natural process. An entire set of tools for legal tax avoidance has been developed with the international relations development. International tax planning mechanisms allowed the manipulation of the dividend payout moment, more precisely — not to carry out such payments and to accumulate profits in "tax havens": the absence of an actual payment enabled the avoidance of taxation in the residence country of the controller, and a "comfortable" taxation environment in the country of generating profits also allowed this there.

The taxation rules of controlled foreign companies (CFC), or CFC rules, providing for the taxation of profit, earned by foreign companies, belonging to or controlled by the residents of a certain country, have been developed to fight such schemes of aggressive tax planning. These rules have always been relevant, but in recent years the fiscal authorities have acquired more and more tools to control the fulfillment of requirements on disclosure of controlled companies. Now it has become a trend due to the gradual introduction of the BEPS plan, which is the initiative of the Organization for Economic Cooperation and Development (OECD) and G20 on unification of the best world practices on counteracting the tax base blur and the withdrawal of profit from taxation. The third clause of BEPS plan has directly provided the introduction of  taxation rules for controlled foreign companies.

— Are the taxation rules for controlled foreign companies the same in different countries?

—  States treat the determination of the criteria for controlled foreign companies’ taxation differently, but it is based on uniform principles. The common lies in the model of global income taxation: in the jurisdiction of the parent (controlling) company location or at the place of residence of individual (controller). The distinctions are in details: in the control criteria, tax base, tax rates, in the reporting and declaring mechanisms and so forth.

Additional criterion can be the list of jurisdictions to which the CFC rules are either applied to or not. As a rule, "black" or "white" lists are formed. The countries and territories whose tax treatments are considered to be low-tax are included in the "black" list, to the countries of which the CFC rules are applied. Though such countries as Great Britain, the USA, Germany and some other do not consider this criterion as effective, since states with a high tax rate may not be blacklisted, even if the effective rate is rather low for separate transactions and activities.

"White" lists are typical for Sweden, Australia and Great Britain. These countries determine jurisdictions, which are by default considered to have high taxes, and the amount of potential taxes is acceptable.


—  Does Ukraine operate in this area?

—  There was no serious discussion in Ukraine on the introduction of CFC rules until the appearance of the well-known "Panama Papers" in April 2016. The Decree of the President of Ukraine "On Creation of a Working Group to Develop Comprehensive Legislation on the Fight against Tax Evasion" became the reaction to the international investigation on tax avoidance. Several alternative draft bills on preventing and countering tax base erosion and profit shifting have been already registered, but, most likely, the comprehensive act prepared by the working group will be adopted.

The train of thought of experts can be observed according to the Concept of the BEPS plan introduction in Ukraine, which offers radically new approaches to relations with foreign companies, including CFC rule, disclosure and declaration of assets of Ukrainian residents. According to the proposals of the working group, the taxation of income of the controlled foreign companies will be performed at the level of an individual — a resident of Ukraine — the controller. The criterion of "legal" control in this case is considered to be the ownership of a share of the CFC corporate rights in the amount of at least 50%, or joint ownership of a share in the amount of at least 50% by several individuals — residents of Ukraine, provided that each share is at least 10%. Determining actual control over a company is more interesting.

To this end, the fiscal authorities will evaluate a number of criteria: the ability of the controller to control a CFC bank account, the right to give binding instructions to CFC governing bodies; availability of a power of attorney for more than one year with the right to enter into transactions on behalf of the company without agreement of the terms and conditions with governing bodies; and the existence of other tools granting the right to actually dispose of assets and control the foreign company's activities.

 —  Does it mean that all residents of Ukraine will have to disclose information about their foreign companies?

—  Formally, they should disclose only controlled companies, which correspond to the established criteria. However, due to the fact that there is a proposal to introduce "zero" declaration of assets and the income of individuals, we can also speak about submission of full information on any foreign companies.

I believe that introduction of "zero" declaration is a prerequisite for successful implementation of CFC rules. The vast majority of Ukrainian residents created their foreign corporate structures with violations of Ukrainian legislation, using nominal services for confidentiality of ownership of companies and, therefore, it is necessary to suggest a mechanism of  exemption from responsibility for previous violations.

Today, the ideas of exemption from criminal, administrative responsibility and sanctions for violation of foreign exchange legislation are being discussed actively. Nevertheless, the draft will also include liability for income tax not declared previously at the rate of 5%-10% depending on the income group. Such an initiative could have a negative impact on the desire of residents to disclose their capital.

—  What oversight tools over implementation of rules will the tax authorities receive?

—  Automatic exchange of financial information between countries can assist the fiscal authorities. The start of such exchanges will take place in September 2017, when  countries will receive the first data on the capital of their residents abroad. Currently, Ukraine is not a signatory to the OECD Standard on automatic exchange of information, but the Decree of the President and the Concept of BEPS plan introduction provide for Ukraine's accession to this Standard.

Moreover, the tax authorities will be able to use already existing opportunities to exchange information within conventions on avoidance of double taxation, and obtain data from public registers of companies, which are now being actively introduced by countries.

—  Will these innovations directly affect legal advisors? What do you think of introduction of CFC rules in Ukraine?

—  "It's a little scary, but very interesting" — my favorite answer to any legislative innovations. There is no doubt that new rules will require high-quality consultations from the legal market in international tax planning, as well as legal assistance in lawsuits with the fiscal authorities. Unfortunately, the judicial protection method is the most effective for the taxpayer.

It is also quite important how fiscal authorities will actually fulfill the new requirements. After all, the collection of information is not the only a new and complex element of the procedure. The mechanism of tax administration will also become significant, taking into account that employees of the fiscal service will have to study the tax returns of foreign companies.