Thank you for not approving it on the 31th of December! The Cabinet of Ministers of Ukraine has approved a list of raw-material goods that fall under the TP scope
The Cabinet of Ministers of Ukraine (hereinafter the “CMU”) has approved the list of commodities for transfer pricing purposes by adopting the Resolution as of December 9, 2020 No. 1221 “On the Approval of the List of Commodities and Invalidation of the Resolution of the Cabinet of Ministers of Ukraine as of September 8, 2016 No. 616” (hereinafter the “Resolution”).
The Resolution has been adopted for implementing the new special transfer pricing rules for commodities (raw materials), namely the subparagraph 220.127.116.11 of the Tax Code of Ukraine (hereinafter the “TCU”) which stipulates the following:
“For the purposes of this subparagraph, primary commodities (raw materials) are commodities for which unrelated persons use quoted prices as a standard (benchmark) for setting the price of uncontrolled transactions. The List of Commodities is determined by the Cabinet of Ministers of Ukraine”.
The new Resolution comes into force on the 1st of January 2021. The List of Commodities is available by the link.
After the Resolution had been adopted, the Resolution of the CMU as of September 8, 2016 No. 616 “On the Approval of the List of Commodities quoted on exchanges and the world commodity exchanges for establishing the compliance of conditions of controlled transactions with the arm’s length principle” (hereinafter the “Resolution No. 616”) was invalidated, which is logical since special transfer pricing rules for commodities quoted on exchanges doesn’t exist anymore.
When analyzing the wording of the Resolution and the Resolution No. 616, we have noticed that the new wording does not include certain commodities such as cardamom, coriander seeds, mustard seeds, etc. At the same time, according to the new Resolution the new special transfer pricing rules will be applied to some new commodities such as mineral or chemical fertilizers, sunflower or safflower oil and their crude fractions, all kinds of sulfur, etc., which previously have not been subject to the rules for exchange commodities.
Let us remind that after the Law of Ukraine as of January 16, 2020 No. 466 “On amendments to the Tax Code of Ukraine regarding improvement of tax administration, elimination of technical and logical inconsistencies in tax legislation” had been adopted, Article 39 of the TCU was supplemented with the following subparagraphs:
“18.104.22.168. Regarding controlled transactions on primary commodities, establishing the compliance of conditions of controlled transactions with the arm’s length principle is carried out by using the comparable uncontrolled price method.
The State Tax Service of Ukraine publishes the recommended (non-exclusive) list of information sources for obtaining quoted prices on its official web portal by the beginning of the reporting year.
22.214.171.124. The taxpayer carrying out controlled transactions on primary commodities shall notify the State Tax Service of Ukraine on entering into respective contract in the form and procedure prescribed by subparagraph 126.96.36.199 of subparagraph 39.3.3 of this paragraph.
The taxpayer`s notification is a confirmation that the negotiation on the essential contract terms, including characteristics and price of the commodities, quantity, delivery terms, payment, and responsibility of the parties, was carried out by the parties to the controlled transaction at the time of conclusion of such a contract.
188.8.131.52. If the range of quoted prices specified in the information source has been used for comparing the price of controlled transaction on primary commodities, then the minimum and maximum value of such a range corresponds to the minimum and maximum value of the prices range for the purposes of subparagraph 184.108.40.206 of subparagraph 39.3.2 of paragraph 39.3 and subparagraph 39.5.4 of paragraph 39.5 of this article”.
Therefore, the taxpayer must take the following factors into account while carrying out controlled transaction on primary commodities: 1) the necessity to notify the State Tax Service of Ukraine about entering into respective contract on primary commodities that will confirm the negotiation on the essential contract terms by the parties to the controlled transaction; 2) the obligation of analyzing the controlled transaction on primary commodities by using the comparable uncontrolled price method (or providing the argumentation prescribed by the respective subparagraph of the TCU in case of using another transfer pricing method); 3) to use the information sources recommended by the central body of executive power, which implements the state tax policy, for obtaining quoted prices while using the comparable uncontrolled price method in appropriate cases.
In view of the above, to date the following questions remain unanswered:
- What information sources should be used for obtaining quoted prices as the Resolution No. 616 was invalidated?
- What kind of form and procedure should be used for notification of the State Tax Service of Ukraine on entering into respective contract on primary commodities?
The answer to these questions has already been partially provided by the Ministry of Finance of Ukraine, as this executive authority has already published certain draft orders for discussion on its official website:
- Draft Order “On the Approval of the form and Procedure for submitting the Notification on the conclusion of a forward, futures contract, or a contract for transactions on primary commodities”. The Procedure and the Notification are available by the links.
- Draft Order “On Amendments to the form and the Procedure for preparing the Report on controlled transactions”, in which the Annex to the report on controlled transaction named as “Information about the person involved in controlled transactions” is supplemented with the Column 26 (“Code(s) of the source type”) and Column 27 (“Name(s) of the information source(s)”) concerning the used information sources. The Form and the Procedure are available by the links.
Now we are looking forward for the recommended (non-exclusive) list of information sources for obtaining quoted prices. So far as the State Tax Service of Ukraine is going to publish such list on its web portal by the beginning of the reporting year, the taxpayers have every reason to expect one more “Christmas tree gift” at the end of the turbulent 2020.
Update: The recommended (non-exclusive) list of information sources for obtaining quoted prices was already published by the State Tax Service of Ukraine on its web portal on the 30th of December 2020. The List of information sources is available by the link.
The above commentary presents the general statement for information purposes only and as such may not be practically used in specific cases without professional advice.
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