Recast Transfer Pricing Ruling ~ U-Tax Blog

Tuesday, July 8, 2014

Recast Transfer Pricing Ruling

Co-authored by Andrii Kuleba 
 (Junior Associate of 
Lavrynovych & Partners Law Firm)
According to the Order of the Ministry of Revenue and Duties of Ukraine of 1 July 2014 No. 368 the generalized transfer pricing ruling was recast.

The recast ruling gives answers to 41 questions (as compared to 25 in its initial version) and contains clarifications with respect to the previously provided answers. Please see below a brief description of the recast ruling:

- Principals of loans, deposits and returnable financial assistance as well as dividends and investments are dropped out for the calculation of the value limit (UAH 50 million);

- Transactions leading to no tax implications must be also reflected in a transfer pricing return;

- Control covers transactions with related parties-residents who either carrying out (i) exportations (0% rate of VAT), (ii) trading in securities (10% rate of corporate income tax) or (iii) are subject to withholding tax;

- No provision on the imposition of the fine for the failure to submit a transfer pricing return (100 minimum statutory salaries) in case of the failure to reflect some control transactions in such a return;

- Self-adjustment of prices in controlled transactions could be done within a 1095-days limitation period (not only within a calendar year term derived from the literal interpretation of the Tax Code of Ukraine);

- For a transaction made in a foreign currency, the value limit (UAH 50 million) is calculated according to the National Bank of Ukraine’s exchange rate effective at the date of the transaction. If there is an advanced payment, then the exchange rate effective at the date of the receipt (carrying out) of the advanced payment applies;

- The value of imported raw materials/exported goods within the scope of a tolling agreement entered into with a non-resident is dropped out for the calculation of the value limit (UAH 50 million);

- Sales of goods to non-residentsrelated parties through commercial agent (commissionaire) arrangements are considered controlled transactions;

- List oflow-tax jurisdictionsapproved by the Cabinet of Ministers of Ukraine is not closed. The control also covers transactions with non-residents subject to corporate income tax at the rate by 5 and more percentage points lower than that in Ukraine irrespective of whether their jurisdictions are in the abovementioned list;

- For the purposes of the calculation of the value limit (UAH 50 million) each barter transaction should be taken into account twice: as a purchase of goods/services and as a sale of goods/services.

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