DESIGNING A FRAMEWORK OF INDICATORS FOR THE IDENTIFICATION OF UNREGISTERED PERMANENT ESTABLISHMENTS UNDER CONDITIONS OF DECLARATIVE FISCAL NEUTRALITY

Abstract

The article addresses the development of an indicator-based framework for identifying unregistered permanent establishments of non-residents in Ukraine under the conditions of declarative fiscal neutrality. The study highlights the declarative compliance of Ukraine’s tax system with the principle of fiscal neutrality, as stipulated in the Tax Code of Ukraine, ensuring horizontal and vertical equity. However, the research emphasizes the limitations of fiscal neutrality in counteracting BEPS (base erosion and profit shifting) practices and maintaining the sovereignty of national tax revenues. The study critically examines the hypothesis that adherence to fiscal neutrality under the capital export neutrality concept can eliminate tax-driven decisions and ensure competitive neutrality in international investment. Statistical analysis represented in author`s previous research disproves this hypothesis, demonstrating that fiscal neutrality alone cannot address the challenges posed by global economic processes, tax competition, and BEPS-related practices. These challenges often include strategies employed by non-residents to avoid recognition of permanent establishment status in Ukraine, thereby minimizing tax liabilities. The author develops a system of risk indicators based on data accessible through the implementation of controlled foreign company rules in Ukraine. This system focuses on identifying potential unregistered permanent establishments by analyzing factors such as management location, economic substance, and relationships between non-resident companies and Ukrainian residents. Key risk factors include significant income generation by controlled foreign companies with minimal personnel or assets, economic activities conducted in Ukraine, and governance structures indicative of effective control being exercised within the country. The findings stress the importance of using a comprehensive approach that integrates multiple BEPS counteraction tools rather than relying on isolated measures. The developed indicator system demonstrates the potential to enhance tax authorities’ capabilities in identifying tax evasion strategies, thereby protecting the sovereignty of Ukraine’s tax revenues and ensuring equitable conditions for all economic actors. The proposed system contributes to the broader discourse on the modernization of tax policies in response to global economic and regulatory dynamics, emphasizing the strategic importance of safeguarding national fiscal interests in an increasingly interconnected world.