Until May 1, all controllers (owners, individuals) of CICs (controlled foreign companies) were required to submit a report on each CIC separately, together with the declaration of property status and income.

And already at the beginning of May, the State Tax Service posted information on the results of the CIC reporting on its website.

It is interesting that the number of those who reported was 14,116 and this is a very small figure from what is actually there. After all, statistics show that more than 10,000 legal entities were opened by our citizens in Poland alone.
So clearly 14K KIK is not the number it should be. On the other hand, you and I, in fact, received a postponement regarding the application of fines for non-submission of CIC reports.

However, my recommendation is to file reports. Yes, the Verkhovna Rada of Ukraine voted to postpone the application of fines for those who do not submit reports under the CIC, but this is a postponement: first, for the period of martial law and six months after the end of martial law. Secondly, this does not exempt from the obligation to still submit a report.

Actually, why was the rule on the postponement of fines adopted? Business circles actively lobbied this issue in the parliament by submitting letters, appeals, etc. Also, the legislator understands that not all tax residents have filed their tax returns, so fining them all is not a way out of the situation. In fact, the rule delaying sanctions was adopted after May 1 on purpose to encourage reporting by those who had not yet filed. And most of them did not submit.

It will be useful to submit reports even now, after May 1, because currently there are no sanctions for late submission.

Summary and recommendations for those who have not yet reported on KIK

The legal company Dictum conducted its own internal research and synthesized all the components of the process of submitting declarations and reporting to the CIC in maximum detail. Having summarized large arrays of information, it is possible to share the conclusions of observations and provide recommendations.

So, from the reports that we followed up on, we saw a few mistakes that were made most often.

· Mistake One – Definition of Residency.

Many of our tax resident Ukrainians consider themselves non-tax residents and vice versa – some Ukrainian citizens sought advice because they believed they needed to file a CIC report. But at the consultation, we analyzed and established that they are not tax residents.

Therefore, in order to understand whether you are a tax resident or not, it is worth conducting a kind of “check up”, which is recommended for everyone.

For example, what information did you provide about yourself in the bank when opening a bank account? Many citizens of Ukraine, who opened accounts abroad, identified themselves as residents of Ukraine. We remember that the CRS (Common Reporting Standard) data exchange should start this year.

· The second error is defining the real controller.

We worked with our clients to break down the ownership structure to the ultimate beneficial owner. It often turned out that the co-founders, that is, the ultimate beneficial owners through indirect ownership, are citizens of Ukraine. In many cases, the shares are collectively owned by all participants and the foreign element is missing. This means that all participants have control.

Therefore, the recommendation is to analyze the ownership structure to the end and establish who is the ultimate beneficial owner. Because the question of controller is not a question of formal ownership of the share, it is a question of the actual ultimate beneficiary.

That is why I never work with KIK, until I myself analyze the structure of the final owners in terms of the size of the shares, and I always make sure to ask for up-to-date registration documents.
· The third mistake is not reporting the KIK.

It appears that as of May 30, 2024, there are still controllers who should have filed but have not. Therefore, it is worth paying attention to the fact that if you have not yet reported on CIC – pay attention to the dates: when the share was acquired and when CIC appeared.

If after January 1, 2022, then submit a notice before the report. At least until today the suspension of the application of terrible sanctions is not canceled, there is a good chance to use this time and report.

Mistake four. The most difficult question that arose during this reporting company is about the reporting of KIK itself.
We have seen in practice that clients, as a rule, took net profit as a basis and interpreted this net profit as turnover, although this is not the case.

There is a clarification from the tax office that turnover is the sum of all income. And this is what the majority of customers think, so we had certain contradictions in this regard, since the amount of working capital was significantly larger.

We saw this especially on the example of Cypriot companies. Cypriots list various types of income in their reports and then add up the total.

So, we saw that some clients mistakenly take not all types of income as the basis of turnover, but several – two or three, although there were five of them. That is, they do not owe the entire amount and on their account we received up to 2 million euros per group of companies. By the way, the situation is similar in Polish companies.

It is also worth mentioning that it was easier for us to work in those cases where there were extensive financial reports. That is, the accountant or auditor was not lazy and wrote down what the company does: that the company has so many employees, is engaged in such and such activities, sells the following… etc.

This is the explanation of economic activity. After all, when reporting, we justify and explain everything for the tax office.

I strongly believe that the content of KIK reporting is of very critical importance. In addition, we had to control the translation of the reports, because the translators did not always translate certain terms specifically.

· Error five. Related Party Transactions.

When, for example, the founder is an FOP and paid certain funds to himself. This is something that you need to pay critical attention to in terms of related parties and transactions with them. After all, such transactions are reflected in the CIC reports.

What you should know

Last year, such a trend was observed that following the submission of the report, the tax authority sent requests demanding disclosure of the KIK bank, contracts, payment documents, etc. At the same time, we refused to provide them with such information on legal grounds, and repeated requests did not come.
Svitlana Moroz, managing partner of UK Dictum, PhD, lawyer