{"id":20095,"date":"2021-08-13T12:05:48","date_gmt":"2021-08-13T10:05:48","guid":{"rendered":"https:\/\/kmp.ua\/?p=20095"},"modified":"2021-08-26T16:00:38","modified_gmt":"2021-08-26T14:00:38","slug":"wages-payment-is-not-a-controlled-transaction-how-the-court-took-the-side-of-adequacy-and-took-away-the-opportunity-for-the-tax-authorities-to-fine-persons-for-non-existent-violations","status":"publish","type":"post","link":"https:\/\/kmp.ua\/en\/analytics\/infoletters\/wages-payment-is-not-a-controlled-transaction-how-the-court-took-the-side-of-adequacy-and-took-away-the-opportunity-for-the-tax-authorities-to-fine-persons-for-non-existent-violations\/","title":{"rendered":"Wages payment is not a controlled transaction! How the court took the side of adequacy and took away the opportunity for the tax authorities to fine persons for non-existent violations"},"content":{"rendered":"

For some time, there has been an unresolved issue between taxpayers and tax authorities on the matter of referring of wages to the area that falls under the transfer pricing control (hereinafter \u2013 TP). We remind you that the Ministry of Finance supported the State Fiscal Service in a letter as of February 1, 2019 No. 11420-08-63\/2874<\/a>, where it indicated that transactions on the payment (accrual) of wages to individuals \u2013 non-residents can be considered controlled transactions (hereinafter \u2013 CT), if the cost criteria for recognizing the CT are met, and therefore it is necessary to submit a Report on CT for such transactions.<\/p>\n

Previously, we have argued against such a conclusion in the material “Are TP rules applied to wages payment? The Ministry of Finance of Ukraine assumes \u201cyes”. What\u2019s wrong with this position?”<\/a>. It seems that the Court has the same opinion that this interpretation of the law by the supervisory authorities and the Ministry of Finance is groundless and unlawful.<\/p>\n

In its decision as of August 4, 2021, in the case No. 640\/847\/19, the Court of Appeal upheld the position of the taxpayer in this case and took the side of the taxpayers. KM Partners represented interests of plaintiff company in a dispute with the Main Department of the State Tax Service in Kyiv and proved that it was not necessary to include the wages to the Report on CT, as the TP rules do not apply to labor relations.<\/p>\n

As regards wages, the case concerned the fact that the tax authority recognized the wages payment to a related non-resident individual as a business transaction. As the amount of such “transaction” and “annual income” of the enterprise exceeded the threshold for the CT recognition, the plaintiff, in the opinion of the tax service, had to report this “transaction” in the annual TP report. As the transaction was not included to the Report, the supervisory authority applied penalties to the plaintiff.<\/p>\n

The Court did not agree with the “arguments” of the supervisory authority and noted the following:<\/p>\n