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Important transfer pricing court practice: the cassation appeal of the tax office has been (partially) satisfied again by the Supreme Court – why is the case important and what significant nuances have not been taken into account?

author: Ivan Shynkarenko

13 November, 2023 Exclusive

On August 10, 2023, the Supreme Court of Ukraine issued a decision in a case examining fundamental approaches to the transfer pricing analysis made under the net profit method, namely approaches to the selection of companies, on the basis of which the market range of profitability will be calculated.

In this case, the company selection approach used by the Taxpayer reflects the usual approach most taxpayers use.

However, the tax authorities' approach involved two additional non-standard criteria.

That is, a fundamental question of transfer pricing practice arises before the courts in this case: is it appropriate for the tax authorities to introduce additional criteria that significantly reduce the number of companies selected, and shift the range on the "pro-fiscal" direction?

Unfortunately, certain important aspects of the dispute were overlooked by the judges. Today, the "scales of Themis" are tipped in favor of the tax authorities. This can have negative consequences: during transfer pricing audits, tax authorities will begin to manipulate the selection criteria to achieve the desired results.

Therefore, the consideration of the dispute continues and there is hope that during the re-examination in the appellate court, a reasonable assessment of the tax authorities’ approach will be provided.

The full version of the article is available in Ukrainian by the link.

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