Interest Payments from Ukraine to a CFC

In Individual Tax Ruling No. 2520/IPC/99-00-24-03-03 dated April 30, 2026, the State Tax Service of Ukraine (STS) considered a situation where a Controlled Foreign Company (CFC) granted an interest-bearing loan to a Ukrainian borrower, and withholding tax on non-resident income was deducted in Ukraine when interest was paid to the CFC. The taxpayer requested clarification as to whether the controlling person may reduce the amount of Personal Income Tax (PIT) payable on the CFC’s profits by the amount of such withholding tax.

The STS noted that the taxable base of the controlling person is the portion of the CFC’s adjusted profit determined in accordance with Article 39² of the Tax Code of Ukraine (the “TCU”).

According to subparagraph 170.13.2.4 of the TCU, the amount of PIT payable on CFC profits may be reduced by the amount of corporate income tax or any similar tax actually paid by the CFC, including taxes withheld at source from the CFC’s income. Such a reduction is available only if the actual payment of the tax is properly documented, and copies of the supporting documents are submitted together with the tax return.

At the same time, the ruling does not contain an explicit conclusion that withholding tax on non-resident income deducted in Ukraine from interest payments made to a CFC automatically qualifies for a tax credit under subparagraph 170.13.2.4 of the TCU.

In its conclusions, the STS focuses primarily on the crediting of taxes paid outside Ukraine and separately emphasizes that it is the amount of tax actually paid, rather than the applicable tax rate, that is relevant for the reduction mechanism. For controlling persons, this ruling is practically significant because it confirms the general mechanism for reducing PIT on CFC profits by the amount of taxes actually paid by the CFC, including taxes withheld at source from the CFC’s income.

However, where the tax is withheld in Ukraine on interest payments made to a non-resident CFC, the position of the STS remains somewhat ambiguous. Therefore, in practice, before applying such a reduction, taxpayers should ensure that they have a complete set of supporting documentation confirming the accrual of interest, the withholding of tax, and its payment to the state budget.