 |
Co-author
Dmytro Savchuk
(senior
associate of Lavrynovych
and Partners Law Firm) |
On
September 1, 2013 the
Law on Amendments to the Tax Code of Ukraine governing the
matters of transfer pricing (hereinafter – «TP»)
entered into force becoming virtually epochal for the economy of
Ukraine. Since the main purpose of the law is to raise the state
revenues by eliminating the artificial lowering of income in
controlled transactions (hereinafter – «CTs»),
the law prescribes special characteristics of administration,
additional inspections and penalties for these transactions. Let us
consider the aforementioned innovations in a more detail.
ADMINISTRATION
The
important point is that the administration of CTs is carried out
directly by the Ministry of Revenue and Duties of Ukraine
(hereinafter – the «Ministry
of Revenue»),
and not by local tax authorities. TP returns and TP documentation are
to be filed specifically with the Ministry of Revenue which monitors
the prices in CTs and schedules inspections of CTs.
The
mechanism of CTs administration works in the following manner.
Filing
of TP returns.
If any CTs have taken place, the TP return must be filed in
electronic form (in the absence of CTs the filing of the said return
is not required). The reporting period is a calendar year. The TP
return must be filed by May 1 of the year following the reporting
year (by May 1, 2014 for the calendar year 2013). The form of the
return has been already approved by the order of the Ministry of
Revenue No 669 dated November 11, 2013.
In
case a CT has taken place, but no relevant return has been filed, a
local tax administration (in case of independent identification of
such a CT) sends a notification on the CT concerned to the Ministry
of Revenue and informs the taxpayer of sending this notification. The
dispatch of the said notification is viewed as an independent basis
for the carrying out of the inspection of the taxpayer in accordance
with the procedure given below.
Submission
of TP documentation.
The TP documentation includes source documents, other documentation,
and information relating to CTs, namely information on related
parties, goods/services, delivery terms, the results of economic
analysis for the substantiation of the price used in the CTs.
TP
documentation is submitted only upon a written request of the
Ministry of Revenue and solely upon the availability of the grounds
for issuing such a request. The grounds for issuing the said request
are as follows: (i) establishing the deviations from the arm’s
length price in the course of the monitoring conducted by the
Ministry of Revenue, and (ii) failure to file the TP return by the
taxpayer or its filing with violations. The request at issue can be
sent only after the expiry of the time limit for filing the TP
return, i.e. not earlier than May 1 of the year following the
reporting year.
The
time limit for the submission of TP documentation is one month from
the date of the receipt of the request (two months for large
taxpayers). It is important to note that in addition to the TP
documentation requested by the Ministry of Revenue, the taxpayer may
submit any other documentation that he deems appropriate for the
purpose of the substantiation of the CT’s price.
INSPECTIONS
For
exercising control over CTs, there has been a new type of tax
inspections introduced, namely inspections of CTs. These are
conducted separately from scheduled and unscheduled inspections. The
new type of inspections has following characteristics:
-
An inspection of CTs is conducted based on the decision of the
Ministry of Revenue;
-
A taxpayer is informed about the inspection of CTs ten calendar days
prior to the date of its commencement;
-
An inspection of CTs is not conducted on-site (the documents provided
by the taxpayer upon the request sent at the beginning of the
inspection are checked);
-
An inspection of CTs can be conducted in parallel with other types of
tax inspections;
-
The duration of the inspection is up to six months with the right to
extend the inspection for other six months where provided for by the
Tax Code of Ukraine (carrying out an expert examination, requesting
information from foreign government bodies, etc.);
-
One CT can be inspected only once a year; in addition, if according
to the results of the CT inspection, no TP violations have been
identified, the inspection of the counterparty cannot be conducted in
respect of this very CT.
Apart
from the introduction of the new type of inspections, the grounds for
the exercise of documentary unscheduled inspections (on-site and
off-site) have been expanded so that they can catch the TP matters.
It should be noted that the grounds for the performance of CT
inspections and documentary unscheduled inspections regarding TP are
almost the same. Thus, the taxmen, in fact, are granted the right to
choose the type of the inspection in each particular case. Notices of
assessment based on the results of CTS inspections and documentary
unscheduled inspections regarding CTs are issued and challenged
according to the standard procedure.
PENALTIES
According
to the Tax Code of Ukraine special penalties for the breach of the TP
legislation are established. Thus, for the failure to file the TP
return the tax payer will be imposed a penalty in the amount of 5% of
that of the CT, and for the non-submission of the TP documentation
the taxpayer may be fined 100 minimum wages (approximately USD
15,000).
This
being said, it should be remembered that if based on the results of a
CT inspection the tax liability in respect of a particular tax is
assessed by the tax authority, the taxpayer will be charged a penalty
amounting to 25% (50% for a repeated breach) of the amount of such a
liability. However, for now the Tax Code of Ukraine has fixed the tax
concession period for charging the above penalty: up to September 1,
2014 the penalty will be charged in the amount of 1 UAH.
Additionally,
given that the deadlines for TP returns on one part and VAT and
corporate income tax returns on the other part are not the same,
there can apparently be a situation where taxpayers would have to
make self-adjustments after filing the VAT and corporate income tax
returns and pay 3% (5%) penalty in respect of the voluntary
elimination of tax errors. For example, at the time of the filing of
a VAT return the taxpayer did not have the substantiation of the CT
price and used the contract price. At the time of the filing of the
TP return he understood that this price did not correspond to the
arm’s length price. Therefore, for the purpose of avoiding
additional charges from the tax authorities and the associated 25%
(50%) penalty, the taxpayer decided to make a correction to the VAT
return with the resulting 3% penalty.
*
- Photo from http://www.dreamstime.com
No comments:
Post a Comment