Within the framework of transfer pricing (TP), Ukrainian legislation requires certain taxpayers to submit a Notification on participation in a multinational enterprise group (MNE Group). Given the recent significant increase in penalties for failure to submit the Notification (up to UAH 302,800 for the 2024 reporting year), this issue has become particularly relevant.
However, not every company with a foreign shareholder or related party is automatically required to submit such a Notification.
When the Notification Is Required
Pursuant to Article 39.4.2 of the Tax Code of Ukraine, the Notification on participation in an MNE Group must be submitted by 1 October of the year following the reporting year. Under the current version of the Tax Code (as of 20 March 2023), this obligation arises only if both of the following conditions are met:
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the taxpayer is a member of a multinational enterprise group;
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during the reporting year, the taxpayer carried out controlled transactions subject to Article 39 of the Tax Code of Ukraine.
Thus, the mere existence of a foreign parent company does not automatically trigger the obligation to submit the Notification.
What the Notification Must Contain
The procedure for preparing and submitting the Notification is approved by Order of the Ministry of Finance No. 667 dated 31 December 2020. The Notification must include, in particular:
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the name of the taxpayer;
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the reporting period;
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the name and tax residency of the ultimate parent company;
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the name and tax residency of the authorized entity (if a Country-by-Country Report, CbCR, is prepared);
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the consolidated group revenue for the reporting period, converted into euros;
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an indication of whether consolidated financial statements were prepared.
Therefore, preparing the Notification requires specific financial data of the group (e.g., consolidated revenue exceeding EUR 750 million), as well as information on the ownership structure and reporting obligations.
Extended Definition of a Multinational Enterprise Group
According to Article 14.1.113-3 of the Tax Code of Ukraine, an MNE Group comprises two or more legal entities or entities without legal personality that are tax residents of different jurisdictions and are connected through ownership or control in such a way that the preparation of consolidated financial statements is required under IFRS or other internationally recognized accounting standards (or would be required if one of the entities’ shares were listed).
Accordingly, the obligation to prepare consolidated financial statements is the key criterion for determining MNE Group status.
Why a Foreign Parent Company Is Not an Automatic Trigger
It is common for Ukrainian companies to have a foreign parent entity, for example in Cyprus. However, if such a parent company neither prepares nor is required to prepare consolidated financial statements under international standards, the Ukrainian entity will not be considered a member of an MNE Group under the Tax Code of Ukraine.
Moreover, even a formal attempt to submit the Notification may be technically impossible without data on group structure, consolidated revenue, and tax residency of group members. In such cases, if the absence of obligation is properly substantiated, the company may avoid penalties.
Practical Example
One of our clients, a Ukrainian manufacturing company wholly owned by a foreign shareholder, sought advice on whether it was required to submit the Notification. Although the company carried out controlled transactions, it lacked confirmed information regarding the parent company’s obligation to prepare consolidated financial statements. As a result, an official inquiry was submitted to the parent company.
Court Practice
Currently, there is no publicly available court practice in Ukraine regarding challenges to MNE Group status following the submission of 2023 reporting. At the same time, previous court cases addressed late submission or failure to submit Notifications. For example, by decision of the Chernihiv District Administrative Court dated 13 October 2023 in case No. 620/12102/23, a tax authority’s decision to conduct an unscheduled audit was annulled, as the company was not part of an MNE Group and therefore was not obliged to submit the Notification.
Conclusions
To properly comply with TP requirements related to the Notification on participation in an MNE Group, companies should:
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assess whether they carried out controlled transactions;
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determine whether they qualify as members of an MNE Group under the Tax Code;
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collect supporting documentation and information regarding group status;
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where necessary, submit inquiries to the parent company.
A diligent and structured approach helps avoid unnecessary risks and penalties while ensuring compliance with Ukrainian tax legislation.
Maryna Lyzohub, Senior Transfer Pricing Manager
Andrii Popov, Partner & CEO
