Normal price. Version of State Fiscal Service of Ukraine
In our publication “Normal price as VAT base, what is it?” we analyze the problems connected with the absence in the Tax Code of distinct and understandable rules, according to which normal prices should be determined, as well as the procedures according to which controlling bodies have the right to check their level.
Recently, the State Fiscal Service of Ukraine (hereinafter –SFSU) in the letter No. 27600/7/99-99-14-02-01-17 as of August 15, 2016 has outlined the vision of normal prices application in order to determine VAT base on the transactions of the independently manufactured goods/services contributed starting from January 1, 2016.
In particular, the recommendations given in the Letter provide that the contract price should be compared with the market price in accordance with the “information sources on prices, which have appeared on the market of identical (and in case of their absence – homogeneous) goods”, which (sources) should be clarified by the controlling body. Taking into consideration this information, the controlling body has to establish compliance of the manufacturer’s delivery price with the market prices. If the level of the contract price does not correspond to the market prices, the audit act should contain the fixed fact of non-compliance with the indication of the information source, the level of market prices and the calculation of non-compliance; the conclusion nthat the supply price is not the normal price; conclusion on the violation of rules provided by the second sub-paragraph of p.188.1 of Article 188 of the Code, resulting in undervaluation of the VAT base and, consequently, the tax liabilities (overvaluation of the budget refund, the negative value) on the VAT.
Basically, the content of the Letter is related to the implementationof quasi institution of transfer pricing by SFS, where the method of comparing prices with the price on identical (homogeneous) goods isapplied. At the same time, as opposed to the transfer pricing rules provided in Article 39 of the Tax Code of Ukraine, in this case the controlling bodies will determine by themselves the information sources on prices and products, which are identical (homogeneous). And this, in terms of fuzzy control, greatly increases the discretion and the likelihood of disputes between taxpayers and the controlling bodies.
The grounds on which SFSU decided that the controlling bodies have to solely determine the sources of information still remainunder wraps, but however, this approach is the absolute violation of the part 2 in Article 19 of the Constitution of Ukraine.
Considered Letter is probably a harbinger of a new wave of disputes between taxpayers and tax authorities. To reduce them it is necessary to finalize the provisions of the Tax Code of Ukraine regarding the rules of determining and applying of the normal price as soon as possible.