Update of Ukrainian TP rules in 2017
Ukrainian Parliament has adopted important amendments to Ukrainian TP rules (Article 39 of the Tax Code of Ukraine) effective from January 1, 2017.
New financial threshold for controlled transactions
From now on transactions are deemed controlled for TP purposes if taxpayer’s income exceeds the threshold of UAH 150 million (approximately EUR 5,2 million), with the value of the transactions with a particular counterparty exceeding UAH 10 million (EUR 345,222). In previous years, these thresholds were UAH 50 million (EUR 1,7 million) and UAH 5 million (EUR 172,611) respectively.
Transactions with “fiscally transparent” entities trigger TP control
In addition to the controlled transactions with legal entities registered at the “low-tax” jurisdictions (according to the list, adopted by the Cabinet of Ministers), from 2017 TP control will cover transactions with special legal forms of entities that do not pay corporate income tax at their tax residence. The Cabinet of Ministers of Ukraine shall adopt the list of such legal forms of entities. This change is aimed at combating schemes of avoiding TP control using fiscally transparent entities as intermediaries.
Deadline for TP Report
The new wording of the Tax Code has shifted the deadline for submission of TP Report from the 1st of May to the 1st of October of the year following the year when controlled transaction occurred.
Alongside TP report, Ukrainian taxpayers, engaged in controlled transactions, are required to prepare TP documentation with comprehensive TP analysis.
The list of information that should be provided in TP documentation was supplemented with new requirements. Now, among other things, taxpayer shall also provide:
- information on persons to whom taxpayer submits local management reports;
- the description of the taxpayer’s management structure;
- economic conditions of activity;
- information on business restructurings or the transfer of intangible assets.
The taxpayer shall also provide the copies of agreements covering the controlled transactions.
New rules of self-adjustment
In case of TP self-adjustment taxpayer is now entitled to adjust the financial results of controlled transactions not to the median of the range of prices or profitability (as it was envisaged by the previous wording of the Tax Code), but to the margins of the range. This provides an additional incentive for taxpayers to correct their prices (profitability) themselves and not to wait for a TP audit. Thus, if the fiscal authority during TP audit establishes that the prices are not at arm’s length, they will calculate a new amount of tax liabilities of the taxpayer using the median of the range.
Changes regarding the sources of information
The list of sources of information on “external” comparable transactions has been extended and clarified. From now on the taxpayer and fiscal authorities may use:
- any sources of information containing public information and providing information on the comparable transactions and persons;
- other sources of information regarding comparable transactions and persons provided that the information has been acquired by the taxpayer in conformity with legal requirements and that such information has been transmitted to fiscal authorities;
- information obtained by fiscal authorities under international agreements of Ukraine.
Transfer pricing penalties: general overview
The list of legal forms of non-residents who do not pay income tax (corporate tax), including tax on income received outside the state of such non-residents’ registration, and /or are not tax residents of the state in which they are registered as legal entities