AGGRESSIVE TAX STRUCTURING INVOLVING FISCALLY TRANSPARENT ENTITIES AS A THREAT TO THE SOVEREIGNTY OF NATIONAL TAX REVENUES

The purpose of the research is to determine the current status of fiscally transparent entities or «flow-through» organizations in the tax legislation of Ukraine, to identify cross-border structures involving such entities that pose a potential threat to the sovereignty of national tax revenues, and to formulate suggestions for eliminating such threats. To achieve the stated goal, the author set priority tasks, namely: conducting an analysis of the tax legislation of Ukraine regarding the clarity of the tax and legal status of fiscally transparent entities or «flow-through» organizations from the perspective of the Ukrainian tax system, constructing a model of aggressive tax structuring of an international group of companies involving such entities, subsequently identifying key threats to the sovereignty of national tax revenues, and also formulating recommendations for their elimination. During the research, the author found that the tax system of Ukraine contains a limited toolkit for regulating cross-border transactions between domestic legal entities and foreign fiscally transparent entities or «flow-through» organizations. Meanwhile, the tax legislation of Ukraine does not contain a special procedure for accounting and taxation of income received through such entities or organizations. The author discovered that the control over cross-border transactions involving fiscally transparent entities or «flowthrough» organizations in the Ukrainian tax system is primarily implemented through the prism of two concepts of international tax legislation, namely transfer pricing and controlled foreign companies. Control over transfer pricing in transactions involving fiscally transparent entities or «flow-through» organizations is aimed at correctly determining the tax base by taxpayers (residents of Ukraine) for the corporate income tax purposes. On the other hand, the control over controlled foreign companies, which can be represented by fiscally transparent entities or «flow-through» organizations, is aimed at countering the artificial accumulation of passive profits abroad. As a key uncertainty regarding the status of fiscally transparent entities or «flow-through» organizations, the author identified that the tax legislation of Ukraine does not assess the status of such entities or organizations as tax residents of foreign jurisdictions, which creates significant opportunities for double non-taxation of structures involving such entities or organizations. Within the framework of the research conducted, the author developed a model of aggressive tax structuring of an international group of companies involving fiscally transparent entities or «flow-through» organizations. The mentioned model demonstrates the possibility of reducing the effective tax rate to 0% through double non-taxation of structures involving fiscally transparent entities or «flow-through» organizations, leading to the taxable base erosion and profit shifting, as well as posing a threat to the tax revenue sovereignty of Ukraine. The author proposed ways to eliminate the mentioned threats by abandoning the concept of exempting controlled foreign companies (including fiscally transparent entities or «flow-through» organizations) from taxation based on the territory (jurisdiction) of registration in favor of the concept of the territory (jurisdiction) of tax residency. The author concludes that the research findings can be used to develop a comprehensive mechanism for regulating crossborder transactions and tax structuring models involving fiscally transparent entities or «flow-through» organizations as an integral part of combating the taxable base erosion and profit shifting.