On 4 July 2013 the Parliament of Ukraine
passed in the second reading the Law ‘On
Changes to the Tax Code of Ukraine in respect
of transfer pricing rules’ (hereinafter – the Law
on TP). The Law is currently awaiting the
President’s signature and is expected to come
into force on 1 September 2013.
Further to our previous communications, below
we list the most important provisions of the
Law on TP.
TP rules apply only to controlled transactions.
According to the Law on TP, the list of controlled
transactions will include:
The threshold for controlled transactions will be
UAH 50 million, net of VAT (will apply cumulatively
for all transactions with one counterparty per year).
It is unclear how this rule will apply in case of loan
and agency arrangements.
The contracting price in uncontrolled transactions
should be accepted by the tax authorities.
The following current rules are removed:
The Law on TP provides five methods for
determining the market price.
The CUP method is the primary transfer pricing
method to be used over all other methods. If this
method is not relevant, the taxpayer is entitled to chose the most appropriate method. This should be
accepted by the tax authorities provided the choice of
the method is justified.
The taxpayers are entitled to use the combination of
two or more than two methods provided in the Law
on TP. Using methods or combinations of methods
that are not prescribed in the Law on TP is not
For the purpose of applying the chosen TP method to
a particular transaction, the taxpayer should
compare the price or profit indicators prescribed in
the Law on TP in a controlled transaction with those
in transactions between non-related parties.
The tax authorities should use the same method
(combination of methods) used by the taxpayer,
unless it is proven that the taxpayer chose an
The criteria of comparability are listed in the Law on
TP. In particular, they include:
For TP control purposes, the authorities shall use the
“official sources of information” set by the CMU. In
cases where there is an absence/lack of information
in the official sources, the following sources of
information can be used:
In case the information on comparable
transactions of the taxpayers with non-related
parties is available, such information should be
used only for determining the range of the market
The tax authorities should use the same sources of
information as the taxpayer uses, unless it is
proven that taxpayer should have used other
official sources of information.
In other countries, taxpayers use international
financial information databases (AMADEUS,
RUSLANA) that have been accepted as official
sources of information.We would expect similar
confirmation from the CMU/tax authorities.
All affected taxpayers should file a report on
controlled transactions by the first of May (each
year) of the year following the reporting year. The
format of the report should be introduced by the
Ministry of Revenues and Duties.
The documentation on TP, substantiating the
market level of prices, should be submitted only
upon the request of the tax authorities based on
the conditions for an unscheduled tax audit
(Article 78 of the Tax Code).
Taxpayers (except for large taxpayers) should
provide primary documentation and other
documentation on TP upon the tax authorities
request within one month from the day of
obtainment of the request. TP documentation can
be prepared in any format.
Large taxpayers (as a general rule a large taxpayer
is a company that has UAH 500 mil revenues in
prior year) should provide TP documentation
upon the tax authorities request within two
months. TP documentation can be prepared in
any format, but should include the following:
The request on provision of TP documentation can
be sent to the taxpayer only after the first of May
(each year) of the year following the calendar year
in which the controlled transaction was performed.
If the prices of the controlled transaction do not
correspond with the market level, the taxpayer
performs the respective TP adjustment and pays
the additional tax. The other party of the controlled
transaction is entitled to perform a proportional TP
adjustment after receiving the respective approval
from the tax authorities. A proportional adjustment
is also allowed in case of TP assessments by the tax
authorities and based on the provisions of double
According to the Law on TP, the tax authorities will
monitor the TP documentation provided without
the involvement of the taxpayer.
The Law on TP introduces a specialised TP audit,
which will be conducted in the following cases:
The duration of a TP audit cannot exceed 12
The tax authorities will not be allowed to examine
pricing in controlled transactions during normal
full-scope tax audits.
The Law on TP establishes the following penalties
for non-compliance with the TP rules, including:
Large taxpayers have the right to agree in advance
on the prices in controlled transactions with the
Ministry of Income and Charges. The subject of the
advance pricing agreement may include:
The procedure for the conclusion of bilateral and
multi-lateral agreements will be developed by the
CMU. The procedure for conclusion of unilateral
agreements is currently not defined in the Law on
The Law on TP prescribes transitional provisions
for a five year period for foreign trade transactions
with residents of low tax jurisdictions in respect of
the prescribed types of commodities, such as
agricultural, metal, iron ore and chemical products.
Taxpayers performing these transactions shall use
at own choice the following two options for the
determination of prices for tax purposes:
The Law on TP provides that it will come into force
from 1 September 2013.
The Law on TP establishes a penalty of 1 Hryvnia for
each violation of the new rules during the first year of
their application, except for the violations outlined in
Section VII of this Tax Newsletter.
As the Ukrainian tax authorities increase their focus on
transfer pricing, taxpayers should address the pricing
and documentation of their related party transactions
with careful consideration.
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