TAXATION AND ACCOUNTING OF CONTROLLED FOREIGN COMPANIES' PROFITS IN UKRAINE: ADAPTATION TO EU STANDARDS

Abstract

The article explores theoretical, methodological, and practical aspects of taxation and accounting for the profits of Controlled Foreign Companies (CFCs) in Ukraine within the broader process of adapting the national tax system to European Union regulatory standards. The economic nature of CFC rules is examined as a key instrument designed to counteract base erosion and profit shifting (BEPS), enhance tax transparency, and ensure fair taxation of cross-border income in conditions of globalization, digitalization, and increasing mobility of financial capital. The research emphasizes the growing importance of coordinated international tax regulation aimed at aligning taxation with the location of real economic activity and value creation. The study analyzes regulatory approaches developed by the Organisation for Economic Co-operation and Development (OECD) and the European Union, with particular focus on the Anti-Tax Avoidance Directive (ATAD). Attention is given to methodological principles for determining adjusted CFC profits, applying the economic substance test, identifying passive income, and incorporating undistributed profits into the taxable income of controlling entities. The paper highlights accounting challenges arising from the transformation of foreign financial statements, differences between national accounting systems, currency translation procedures, and the need to harmonize Ukrainian accounting practices with International Financial Reporting Standards (IFRS) to ensure comparability, reliability, and analytical usefulness of financial information across jurisdictions. Special consideration is given to the impact of wartime economic conditions on the application of CFC rules in Ukraine, including business relocation, restructuring of international corporate groups, and the emergence of foreign operational entities performing real economic functions. These processes have transformed the role of accounting from a traditional recording function into a strategic instrument of tax compliance, risk management, and international financial coordination. The article substantiates priority directions for adapting Ukraine’s accounting and taxation framework to EU standards, including the development of digital tax reporting systems, strengthening analytical support for tax administration, and implementing a risk-oriented control model. The proposed approaches contribute to improving tax transparency, reducing compliance risks, enhancing administrative efficiency, and supporting Ukraine’s gradual integration into the European tax and regulatory environment.