New Draft Law on BEPS implementation
In September this year the working group, led by the Ministry of Finance of Ukraine and the State Fiscal Services, has finished elaboration of the new draft Law aimed at implementation of TP-related Actions of BEPS into Ukrainian tax law.
The most important changes are as follows.
The draft Law adopts a three-tier approach to transfer pricing documentation according to Action 13 of BEPS. Namely, TP documentation shall consist of (i) master file, (ii) local file and (iii) Country-by-Country (CbC) report.
Suggested amendments are generally in line with basic BEPS recommendations. Yet, there are also some differences. For instance, although it envisages general the BEPS compliant threshold of EUR 750 million for submitting of CbC Report, there are also specific rules designed for MNCs of Ukrainian origin.
Namely, MNCs with the annual consolidated group revenue equal or exceeding EUR 50 million would be obliged to file CbC Report in Ukraine if one of the following conditions is met:
- the beneficial owner of the parent company of the international group of companies is a resident or a citizen of Ukraine;
- ≥ 50 % of shares in international group of companies belong to residents or citizens of Ukraine;
- ≥ 50 % of the total number of employees of all companies of the group at the end of the reporting period are employed in Ukraine;
- ≥ 50% of the total balance sheet value of fixed assets of all group companies at the end of the reporting period are actually located in Ukraine;
- ≥ 50% of consolidated income of the international group of companies is the income from sales of goods (works, services) which country of origin is Ukraine;
- if the parent company of international group of companies is registered in an offshore zone, included in the list, which is approved by the Cabinet of Ministers of Ukraine, and such company did not submit a CbC Report or this report was submitted in the country which has not concluded agreement on exchange of information with Ukraine.
The draft Law also provides special provisions on possibility to submit simplified TP documentation for low value-added intra-group services. This is the new provision not currently established in the Tax Code of Ukraine. The Action 10 of BEPS is the basis for provisions of the draft Law in part of such services.
An important novelty is introduction of the principle of business purpose of transactions. Namely, taxpayers will be obliged to prove in TP documentation that controlled transactions have clear business purpose, which is actually the benefit-test.
According to the draft Law, the controlled transactions are deemed to have a reasonable business purpose in case if under comparable circumstances an independent person would be ready to buy the same services or goods from other independent person in order to obtain the same benefits or would be ready to pay the same value of the services or goods. Otherwise (i.e. in the absence of business purpose of controlled transaction) the value of such controlled transaction shall be considered to be a zero.
The abovementioned novelty is going to make tax payers feel themselves in vulnerable position. Thus, the draft Law does not provide for the definite list of possible evidences of business purpose of transactions. At the same time, the controlling authority is entitled to disregard for tax purposes the results of controlled transactions, which they believe not to have “business purpose”.
Download pdf-file of WTS Transfer Pricing Newsletter #3/2017 (290 Kb)
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