What
follows is a brief account of the recast TP rules:
-
The notion of “arm’s length principle” is now explicitly stated in the Tax
Code of Ukraine. A transaction is considered to be in compliance with the arm’s
length principle if its terms and conditions do not differ from those of
comparable uncontrolled transactions carried out between independent parties.
-
The new TP rules normally apply to the calculation of
corporate income tax only. They do not generally apply for the purposes of the
computation of VAT.*
-
Domestic transactions (transactions between residents) are not normally viewed
as controlled transactions anymore. Controlled transactions are only those
involving non-residents.*
-
The scope of controlled transactions involving non-residents has been
significantly expanded. Nowadays, in addition to transactions with related
non-residents and non-residents from low-tax jurisdictions, the following
transactions with non-residents are caught:
1)
transactions of sale of goods through commission
agents;
2)
transactions with residents in countries that do not
make publicly available information on the ownership structure of their legal
entities;
3)
transactions with residents in countries that do not
have effective treaties with Ukraine enabling the exchange of tax information.
-
Transactions involving artificially inserted intermediaries are now a separate
type of controlled transactions. In order to determine whether an intermediary
has been inserted artificially to lay the transaction outside the TP control,
the functions, risks and assets of the intermediary are examined. Should those
be insignificant, the intermediary will be most likely treated as artificially
inserted one.
- The
financial threshold for controlled transactions has been considerably
remodelled. At present, it consists of two conditions that must be simultaneously
met for a transaction to be considered as controlled. Those two conditions are
as follows:
1)
Annual gross revenues of the taxpayer, taken along
with those of all its related parties, in the current tax year exceed UAH 20
million; and
2)
Gross amount of all transactions conducted by the
taxpayer/its
related parties with any of their counterparties in the current
tax year exceeds either UAH 1 million or 3% of the taxable income of the
taxpayer.
-
The new criteria of relationship have been introduced. First, taxpayers can be
now recognised as related parties by means of debt-to-equity ratio (more than
10.0 times debt-to-equity ratio for banks, lease and financial companies, as
well as more than 3.5 times debt-to-equity ratio for other taxpayers). Second,
the state fiscal authorities can now claim “factual” relationship even where no
one of the criteria of relationship set forth by the Tax Code of Ukraine is
directly met. In this case, the state fiscal authorities should obtain a court
order confirming “factual” relationship.
-
The TP methods remain as earlier. Their description has been largely amended to
fit in more closely with that of the OECD Transfer Pricing Guidelines.
-
Taxpayers importing or exporting commodity exchange-traded products are
supposed to apply comparable uncontrolled price method (method No 1) based on
the price quotations of the commodity exchanges concerned. Such taxpayers may
also apply other methods of TP, but subject to the full disclosure of their
supply chains to the state fiscal authorities.
-
There is no more division of informational sources to “official” and
“non-official” ones. A taxpayer may use any informational source open to the
general public.
-
Further to a TP return, a new piece of TP reporting has emerged. This is a TP
annex to a corporate income tax return that lists controlled transactions. The
annex is mandatory and to be filed by all taxpayers having controlled
transactions over the reporting year. As opposed to the annex, a TP return is
not to be filed in all cases. It is to be filed only by those taxpayers whose
amount of the controlled transactions with at least one of their counterparties
exceeds UAH 5 million (excluding VAT).
 |
| Co-authored by Anton Babak |
-
The length of TP audit has been significantly prolonged. As for now, it may
continue up to 30 months from its commencement.
-
The maximum time for the issuance of TP-related tax assessments by the state
fiscal authorities has been extended to 7 years.
-
Penalties for TP-related violations have become much more severe. In
particular, the failure to report a controlled transaction in a TP return can
lead to a penalty of 5 % of the value of the non-reported transaction. The
failure to provide TP documentation at the request of the state fiscal
authorities can lead to a penalty of 3% of the value of the controlled
transactions involved, but no more than 200 minimal statutory salaries
(currently, UAH 243,600).
* - Due to the lack of clarity in the Tax Code of Ukraine, there is
still the risk of the application of the TP rules in respect of VAT and
domestic transactions in certain cases. This, in particular, may occur with
reference to controlled transactions involving artificially inserted
intermediaries.
Photo from http://galleryhip.com
Photo from http://galleryhip.com
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