Transfer pricing: application of special rules according to Transitional provisions of the Tax Code of Ukraine
The provisions of para. 21. of Chapter XX “Transitional Provisions” of the Tax Code of Ukraine (hereinafter - "the TC of Ukraine") envisage a special order (applicable till January 1, 2018) of determination of arm’s length prices for the purpose of taxation of import/export transactions of the following commodity items:
- 1001 – 1008 according to Ukrainian classification of goods in foreign economic activity (UKTZED) (grain crops: wheat, barley, oats, rye, rice, buckwheat, sorghum);
- 1501 – 1522 according to UKTZED (Fats and oils of animal or plant origin; their cleavage products, prepared edible fats, waxes of animal or plant origin);
- 2601 – 2621 according to UKTZED (Ores, slag and ash);
- 2701 - 2716 according to UKTZED (Mineral fuel, oil and products of their distillation; bituminous substances, mineral waxes);
- 2801 - 2853 according to UKTZED (Inorganic chemicals, inorganic or organic compounds of precious metals, of rare earth metals, of radioactive elements or isotopes);
- 2901 - 2942 according to UKTZED (Organic chemicals);
- 7201 - 7229 according to UKTZED (Ferrous metals) and 7301 - 7326 according to UKTZED (Ferrous metal products).
As regards special methods, the wording of the mentioned transitional provisions is extremely unclear. Thus, from the literal wording of transitional provisions it follows that a taxpayer can use one of several methods.
First of such “methods” implies that an arm’s length price is determined for every commodity item at the price level:
- reduced not less than by 5% - in case of sale of goods;
- increased not more than by 5% - in case of purchase of goods.
However it is not clear, for which price this “deviation” of 5% should be applied. Price of agreement or some other price?
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