+ Word must be in search result. - Words must not be in search result. * Word start/end on characters before/after symbol. ""Words in quotes will be searched as phrase.

 

Ukrainian Parliament implements three-tier approach to TP documentation and other important changes to the Tax Code

author: Ivan Shynkarenko

source: "WTS Transfer Pricing Newsletter, #1/2020"

26 May, 2020 Press

On 16 January 2020, the Ukrainian Parliament adopted the hugely debated draft law #1210 which introduced considerable amendments to the Ukrainian tax code.

BEPS Implementation

A large portion of the new legislation concerns the implementation of TP-related actions of the BEPS plan into Ukrainian tax law. The most important changes are as follows:

The law adopts a three-tier approach to transfer pricing documentation according to Action 13 of BEPS. Namely, TP documentation shall consist of a (i) master file, (ii) local file and (iii) country-by-country (CbC) report. In addition, Ukrainian entities of multinational companies will have to file a notification about participation in the international group of companies.

Suggested amendments are generally in line with BEPS recommendations. Yet there are also some differences. For instance, although it envisages a general threshold of EUR 750 million for the submitting of the CbC Report, the master file may be requested by Ukrainian tax authorities if annual consolidated group revenue is equal to or exceeding EUR 50 million.

The law introduces new penalties for the failure to comply with added reporting requirements which may be very material. They are linked to subsistence wage amounts which are gradually revisited. By way of illustration, the penalty for the failure to submit the CbC Report is 1,000 times the subsistence wage, which currently would amount to UAH 2 million (around EUR 74,000 under current exchange rate).

Business Purpose

A key novelty is the introduction of the principle of the business purpose of transactions. Namely, taxpayers will be obliged to prove in the TP documentation that controlled transactions have a clear business purpose. When calculating the profit tax base, the Tax Authorities may disregard the transactions that do not have a reasonable business purpose.

Deemed Dividends

According to the law, the amount of TP adjustment that increases the tax base in Ukraine may be treated as deemed dividend distribution. Such dividend distribution would be subject to withholding tax (WHT) in Ukraine under a regular WHT rate of 15% unless otherwise provided by applicable double tax treaties.

Independence Threshold

The threshold for the recognition of the parties as related would be raised to 25% as compared to 20% which is applied currently. This change would bring Ukrainian legislation closer to the dominant international practice.

Special TP Rules for Commodities

The law introduces new rules for transactions with commodities. Namely, the taxpayers would need to apply the so-called quoted prices for TP analysis of some transactions with commodities. The quoted prices are defined as pricing data which includes exchange quotations, price indices published by recognised agencies, statistical and government agencies.

The law envisages that the list of commodities which are subject to these rules as well as the procedure of application of the quoted prices would be adopted by the Cabinet of Ministers of Ukraine.

There are also other changes, including the introduction of rules on controlled foreign corporations (CfC) and specific adjustments of profit tax on transactions with non-residents which fall under the Ukrainian list of low-tax States or list of organisational forms (covering fiscally transparent entities).

In conclusion, the law provides for a dramatic overhaul of the Ukrainian tax system. Yet, it shall be noted that as of the date of this material the President of Ukraine is yet to sign the law1. Reportedly, the President is considering vetoing it. Yet even in the case of a veto, we expect that BEPS-related amendments would still be introduced soon as the separate law comprising most of the rules outlined above.

Download pdf-file of the article (76 Kb)

Footnotes:

1The draft law #1210 was signed by the President on 21 May 2020.

Views 503

SIMILAR POSTS

Transfer Pricing and the Law No. 466-IX: Review of the most important changes 09 June, 2020    829

Starting from January 01, 2020, the List of legal forms of non-residents that do not pay profit tax and/or are not tax residents in the countries of their registration has been changed in Ukraine 14 January, 2020    2095

Interest payment to Cyprus: pitfalls of applying the Convention 03 December, 2019    2043

High-end Transfer Pricing
Series of materials: Transfer Pricing and losses are not a verdict yet. In what cases are they justified and how shall it be done
Part 1, 2
28 November, 2019    783

The revolution in international taxation is approaching. Now officially.
OECD publishes proposals on unified approach to taxation of “digital economy”
15 October, 2019    1225

When the tax authorities may request price justification in operations, which fall under the norm of 30 % adjustment (subpara. 140.5.4 Article 140 of the Tax Code)? 11 October, 2019    648

Taxation of “digital economy” is a tax reform that is worth thinking about or what the “legislative printer” is silent about 02 October, 2019    835

Received a request on providing transfer pricing documentation: what to do? 30 July, 2019    3182

Transfer pricing for agribusiness: what we need to focus on 09 July, 2019    3449

New changes in Ukrainian transfer pricing rules in 2019 24 June, 2019    1126

PEs and Transfer Pricing: what should be known? 29 May, 2019    2141

Why will everything change from October 1 for representations of non-residents? 20 May, 2019    2044

Comment