Ukraine: The War is not an excuse to ignore Transfer Pricing Compliance
This autumn has seen hard-fought victories of Ukrainian defenders at the frontline, criminal attacks on Ukrainian critical energy infrastructure, resulting in severe power shortages (which I had the dubious pleasure to experience while writing this note), and…Ukrainian taxpayers’ struggling to comply with the Transfer Pricing reporting deadline.
Surprisingly, the Ukrainian government has not eased Transfer Pricing compliance rules, irrespective of the war. Ukrainian taxpayers had to file reports on controlled transactions by October 1 and should be ready to submit Transfer Pricing documentation (Local file in Ukrainian legislation) upon the request of the tax authorities.
The only exception is for taxpayers for whom the war made it impossible for them to comply, and this fact should be supported by evidence. Not many taxpayers have used this opportunity. Therefore, even our clients whose facilities were destroyed or remain on the territories occupied by Russians have decided to file mandatory Transfer Pricing reporting.
The rules are even more stringent compared with 2021. Thus, 2022 is the first year when the tax authorities have the right to request master files from the taxpayers belonging to international groups.
Furthermore, November 3, 2022 saw the Ukrainian State Tax Service announce that it has joined the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports. Entry into force by the set of rules on Country-by-Country Reporting was linked to this event. Hence, in 2022, taxpayers received additional Country-by-Country Reporting compliance obligations. The tax authorities, in turn, obtained new powers in the area of TP control.
Finally, on November 3, Ukrainian Parliament adopted the law by which it lifted the wartime moratorium from the selected types of tax audits. And the Transfer Pricing audits have a prominent place in this list.
The reason for “deblocking” Transfer Pricing audits is obvious. During the drastic fiscal deficit caused by the war, the government considers Transfer Pricing rules as the perfect instrument to fill in “the budget gaps”.
The law has been provided to the President for signing and after promulgation it will enter into force. This is expected to happen soon.
Therefore, even if the Transfer Pricing report has been filed on time, Ukrainian taxpayers will not yet be able to breathe a sigh of relief. It is quite likely that a lot of them will soon face tax auditors “on the war path” for extra taxes.
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?
Comparables Analysis Insufficient; Ukrainian Court Remands Case
Ukraine adopts new procedure on advance pricing agreements for transfer pricing purposes
Ukraine Ministry of Finance clarifies general tax consultation on deemed dividends
Ministry of Finance of Ukraine clarifies some TP issues
Ukraine’s new transfer pricing rules expand taxpayer obligations
Country-by-Country Reporting: Form and procedure of submission