{"id":568,"date":"2013-02-10T10:02:10","date_gmt":"2013-02-10T08:02:10","guid":{"rendered":"https:\/\/kmp.ua\/?p=568"},"modified":"2018-02-15T16:29:51","modified_gmt":"2018-02-15T14:29:51","slug":"zvychaini-tsiny-chastyna-2","status":"publish","type":"post","link":"https:\/\/kmp.ua\/en\/analytics\/infoletters\/zvychaini-tsiny-chastyna-2\/","title":{"rendered":"Arm\u2019s length prices in uncontrolled transactions: Part II  Related parties and non-residents are back\u2026"},"content":{"rendered":"<p><strong>On December 20, 2013 <\/strong>the Ministry of Revenues and Duties of Ukraine on the official web site published the <strong>amended <\/strong>draft Law of Ukraine \u201cOn Introduction of Amendments to the Tax Code of Ukraine (regarding application of the concept of &#8220;arm\u2019s length price&#8221;)&#8221;, which initial wording was reviewed in our <span style=\"color: #b40637;\"><a href=\"https:\/\/kmp.ua\/en\/analytics\/infoletters\/zvychaini-tsiny-v-nekontrolovanyh-operatsiyah\/\" target=\"_blank\" rel=\"noopener\"><span style=\"color: #b40637;\">previous Newsletter at the end of the year 2013<\/span><\/a><\/span>.<\/p>\n<p style=\"text-align: justify;\">What are the main \u00a0amendments? Namely, it is the extension of the new subparagraph 14.1.2291 of the Tax Code, which introduce the definition of the term \u201cfair market price\u201d, in comparison with the initial wording of this draft law.<\/p>\n<p style=\"text-align: justify;\">Thus, \u00a0now it clearly establishes that for determination of the fair market price a method of comparable uncontrolled price (analogues sales) shall be applied <strong>in order, stipulated by subpara. 39.3.3 <\/strong>of the Tax Code in accordance with <strong>usage of information sources stated in subpara. 39.5.3 of the Tax Code <\/strong>(paragraph two of subpara. 14.1.2291 of the Tax Code).<\/p>\n<p style=\"text-align: justify;\">In paragraphs three-eight of subpara. 14.1.2291 of the Tax Code there is actual doubling of provisions of subpara. 14.1.71 of the Tax Code &#8220;<strong>arm\u2019s length price&#8221;<\/strong>, while in paragraphs nine-thirteen it is foreseen that:<\/p>\n<ul>\n<li style=\"text-align: justify;\">the duty of proof of the fact that the price of a contract (deed) does not correspond with the level of fair market price lies on the controlling authority in order, stipulated by the law (<strong><em>para. 39.14 of the Tax Code in wording effective till 01.09.2013<\/em><\/strong>);<\/li>\n<li style=\"text-align: justify;\">during audit of a taxpayer the controlling authority has right to send a request, and a taxpayer <strong>is obliged <\/strong>to justify the level of contract prices (<strong><em>para. 39.14 of the Tax Code in wording effective till 01.09.2013<\/em><\/strong>);<\/li>\n<li style=\"text-align: justify;\"><strong>base, object of taxation and other indexes of tax accounting, determined <\/strong>by means of application of fair market prices are used by the controlling authority for calculation of tax liabilities, adjustment of negative value of an object of taxation or other indexes of tax reporting upon the results of tax audit (<strong><em>para. 39.15 of the Tax Code in wording effective till 01.09.2013<\/em><\/strong>);<\/li>\n<li style=\"text-align: justify;\">issuing of tax notifications-decisions upon the results of this tax audit and their challenging shall be performed in order, foreseen by Articles 86 and 56 of the Tax Code;<\/li>\n<li style=\"text-align: justify;\">for goods, previously imported to the customs territory of Ukraine in customs regime of import or reimport, fair market price on the customs territory of Ukraine shall be deemed a market price, <strong>however not lower than the customs value of goods, based on which taxes and fees were paid during their customs clearance (<em>para. 39.13 of the Tax Code in wording effective till 01.09.2013<\/em>).<\/strong><\/li>\n<\/ul>\n<p style=\"text-align: justify;\">Thus, regarding the application of fair market price in uncontrolled transactions we have practically all old provisions of the Tax Code regarding the arm\u2019s length price (in wording, effective till 01.09.2013) with the difference that now these rules should be &#8220;working&#8221;, since there is concrete mechanism of determination of arm\u2019s length price and, accordingly, of fair market price.<\/p>\n<p>The further \u2013 the funnier! In \u00a0the amended draft law the tax officers\u2019 \u201cfavorite\u201d subpara. 153.2.1 and 153.2.2 of the Tax Code return and concern with the application of arm\u2019s length prices now in the form of \u201cfair market price\u201d for the determination of income\/ expenses in the transactions with <strong>related parties, non-payers of corporate profit tax (including non-residents), benefit recipients <em>(subpara. 153.2.1-153.2.3 of the Tax Code in wording effective till 01.09.2013)<\/em>. <\/strong>Herewith there is no more mentioning of admissible 20 % deviation of contract prices.<\/p>\n<p style=\"text-align: justify;\">However, the amended draft law also provides for the provision (subpara. 153.2.4), according to which the aforementioned rules are not applicable to the transactions \u201c<em>with individuals-residents, who do not perform private entrepreneurial activity<\/em>\u201d. However, a question arises at once: it concerns only transactions with individuals-residents of Ukraine, and what about stateless persons and citizens of other states? If foreigners \u2013 citizens of other states \u00a0hold the managerial positions in the enterprise, than should the arm\u2019s length prices in a form of \u201cfair market price\u201d be applicable to relations with such employees?<\/p>\n<p style=\"text-align: justify;\">And this is not it\u2026 The most interesting are:<\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: 'courier new', courier, monospace;\">&#8220;188.1. <strong>Tax<\/strong> <strong>base of transactions <\/strong>on supply of goods\/ services is determined \u00a0proceeding from <strong>their contract price, however not lower than a fair market price <\/strong>(in transactions recognized according to Article 39 of this Code as controlled \u2013 arm\u2019s length price) taking into account state taxes and fees\u2026&#8221;<\/span><\/p>\n<p><span style=\"font-family: 'courier new', courier, monospace;\">&#8220;198.3. Tax credit of the reporting period is determined based on contract (trade) price of goods\/services, however not \u00a0higher than the level of fair market prices (in transactions, recognized in accordance with Article 39 of this Code as controlled \u2013 arm\u2019s length prices) and is composed \u00a0of amounts of the taxes accrued (paid) by a taxpayer \u00a0at a rate, envisaged by paragraph 193.1 of Article 193 of this Code, during such reporting period in connection with: [\u2026]&#8221;.<\/span><\/p>\n<p style=\"text-align: justify;\">So what has changed due to the introduction of new rules of application of arm\u2019s length prices exclusively in controlled transactions? Where is declared contraction of application of arm\u2019s length prices? In case of adoption of the draft law in the proposed (amended) wording as of December 20, 2013 it turns out that all promises were given with one purpose \u2013 to assure taxpayers that introduction of special rules regarding controlled transactions and special reporting with \u201cdraconian\u201d fees even for technical mistake in such reporting are aimed at improvement of their &#8220;life&#8221;\u2026<\/p>\n<p><em><strong>The above commentary presents the general statement for information purposes only and as such may not be practically used in specific cases without professional advice.<\/strong><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p style=\"text-indent: 0cm; text-align: left;\" align=\"center\"><strong><span>Arm\u2019s length prices in uncontrolled transactions: Part II.&nbsp;<\/span><\/strong><strong style=\"text-indent: 0cm; line-height: 1.3em;\">Related parties and non-residents are back\u2026<\/strong><\/p>\n<p style=\"text-align: right;\"><span style=\"color: #808080;\"><em>Newsletter<\/em><\/span><\/p>\n<p style=\"text-align: right;\"><span style=\"color: #808080;\"><em>February 12, 2014<\/em><\/span><\/p>\n<p>&nbsp;<\/p>\n<p style=\"text-align: justify;\"><strong>On December 20, 2013 <\/strong>the Ministry of Revenues and Duties of Ukraine <span style=\"color: #b40637;\"><a href=\"http:\/\/minrd.gov.ua\/diyalnist-\/regulyatorna-politika-\/regulyatorna-politika\/2013-rik\/125245.html\" target=\"_blank\"><span style=\"color: #b40637;\">on the official web site<\/span><\/a><\/span> published the <strong>amended <\/strong>draft Law of Ukraine \u201cOn Introduction of Amendments to the Tax Code of Ukraine (regarding application of the concept of &#8220;arm\u2019s length price&#8221;)&#8221;, which initial wording was reviewed in our <span style=\"color: #b40637;\"><a href=\"\/en\/newsletters\/900-zvychaini-tsiny-v-nekontrolovanyh-operatsiyah\"><span style=\"color: #b40637;\">previous Newsletter at the end of the year 2013<\/span><\/a><\/span>.<\/p>\n<p style=\"text-align: justify;\">What are the main &nbsp;amendments? Namely, it is the extension of the new subparagraph 14.1.2291 of the Tax Code, which introduce the definition of the term \u201cfair market price\u201d, in comparison with the <span style=\"color: #b40637;\"><a href=\"http:\/\/minrd.gov.ua\/diyalnist-\/regulyatorna-politika-\/regulyatorna-politika\/2013-rik\/110155.html\" target=\"_blank\"><span style=\"color: #b40637;\">initial wording of this draft law<\/span><\/a>.<\/span><\/p>\n<p style=\"text-align: justify;\">Thus, &nbsp;now it clearly establishes that for determination of the fair market price a method of comparable uncontrolled price (analogues sales) shall be applied <strong>in order, stipulated by subpara. 39.3.3 <\/strong>of the Tax Code in accordance with <strong>usage of information sources stated in subpara. 39.5.3 of the Tax Code <\/strong>(paragraph two of subpara. 14.1.2291 of the Tax Code).<\/p>\n<p style=\"text-align: justify;\">In paragraphs three-eight of subpara. 14.1.2291 of the Tax Code there is actual doubling of provisions of subpara. 14.1.71 of the Tax Code &#8220;<strong>arm\u2019s length price&#8221;<\/strong>, while in paragraphs nine-thirteen it is foreseen that:<\/p>\n<ul>\n<li style=\"text-align: justify;\">the duty of proof of the fact that the price of a contract (deed) does not correspond with the level of fair market price lies on the controlling authority in order, stipulated by the law (<strong><em>para. 39.14 of the Tax Code in wording effective till 01.09.2013<\/em><\/strong>);<\/li>\n<\/ul>\n<ul>\n<li>during audit of a taxpayer the controlling authority has right to send a request, and a taxpayer <strong>is obliged <\/strong>to justify the level of contract prices (<strong><em>para. 39.14 of the Tax Code in wording effective till 01.09.2013<\/em><\/strong>);<\/li>\n<\/ul>\n<ul>\n<li style=\"text-align: justify;\"><strong>base, object of taxation and other indexes of tax accounting, determined <\/strong>by means of application of fair market prices are used by the controlling authority for calculation of tax liabilities, adjustment of negative value of an object of taxation or other indexes of tax reporting upon the results of tax audit (<strong><em>para. 39.15 of the Tax Code in wording effective till 01.09.2013<\/em><\/strong>);<\/li>\n<\/ul>\n<ul>\n<li>issuing of tax notifications-decisions upon the results of this tax audit and their challenging shall be performed in order, foreseen by Articles 86 and 56 of the Tax Code;<\/li>\n<\/ul>\n<ul>\n<li style=\"text-align: justify;\">for goods, previously imported to the customs territory of Ukraine in customs regime of import or reimport, fair market price on the customs territory of Ukraine shall be deemed a market price, <strong>however not lower than the customs value of goods, based on which taxes and fees were paid during their customs clearance (<em>para. 39.13 of the Tax Code in wording effective till 01.09.2013<\/em>).<\/strong><\/li>\n<\/ul>\n<p style=\"text-align: justify;\">Thus, regarding the application of fair market price in uncontrolled transactions we have practically all old provisions of the Tax Code regarding the arm\u2019s length price (in wording, effective till 01.09.2013) with the difference that now these rules should be &#8220;working&#8221;, since there is concrete mechanism of determination of arm\u2019s length price and, accordingly, of fair market price.<\/p>\n<p>The further \u2013 the funnier! In &nbsp;the amended draft law the tax officers\u2019 \u201cfavorite\u201d subpara. 153.2.1 and 153.2.2 of the Tax Code return and concern with the application of arm\u2019s length prices now in the form of \u201cfair market price\u201d for the determination of income\/expenses in the transactions with <strong>related parties, non-payers of corporate profit tax (including non-residents), benefit recipients <em>(subpara. 153.2.1-153.2.3 of the Tax Code in wording effective till 01.09.2013)<\/em>. <\/strong>Herewith there is no more mentioning of admissible 20% deviation of contract prices.<\/p>\n<p style=\"text-align: justify;\">However, the amended draft law also provides for the provision (subpara. 153.2.4), according to which the aforementioned rules are not applicable to the transactions \u201c<em>with individuals \u2013 residents, who do not perform private entrepreneurial activity<\/em>\u201d. However, a question arises at once: it concerns only transactions with individuals \u2013 residents of Ukraine, and what about stateless persons and citizens of other states? If foreigners \u2013 citizens of other states &nbsp;hold the managerial positions in the enterprise, than should the arm\u2019s length prices in a form of \u201cfair market price\u201d be applicable to relations with such employees?<\/p>\n<p style=\"text-align: justify;\">And this is not it\u2026 The most interesting are:<\/p>\n<p style=\"text-align: justify;\">&#8220;188.1. <strong>Tax<\/strong> <strong>base of transactions <\/strong>on supply of goods\/services is determined &nbsp;proceeding from <strong>their contract price, however not lower than a fair market price <\/strong>(in transactions recognized according to Article 39 of this Code as controlled \u2013 arm\u2019s length price) taking into account state taxes and fees\u2026&#8221;<\/p>\n<p>&#8220;198.3. Tax credit of the reporting period is determined based on contract (trade) price of goods\/services, however not &nbsp;higher than the level of fair market prices (in transactions, recognized in accordance with Article 39 of this Code as controlled \u2013 arm\u2019s length prices) and is composed &nbsp;of amounts of the taxes accrued (paid) by a taxpayer &nbsp;at a rate, envisaged by paragraph 193.1 of Article 193 of this Code, during such reporting period in connection with: [\u2026]&#8221;.<\/p>\n<p style=\"text-align: justify;\">So what has changed due to the introduction of new rules of application of arm\u2019s length prices exclusively in controlled transactions? Where is declared contraction of application of arm\u2019s length prices? In case of adoption of the draft law in the proposed (amended) wording as of December 20, 2013 it turns out that all promises were given with one purpose \u2013 to assure taxpayers that introduction of special rules regarding controlled transactions and special reporting with \u201cdraconian\u201d fees even for technical mistake in such reporting are aimed at improvement of their &#8220;life&#8221;\u2026<\/p>\n<p><em><strong>The above commentary presents the general statement for information purposes only and as such may not be practically used in specific cases without professional advice.<\/strong><\/em><\/p>\n<p style=\"margin: 0px; padding: 5px 0px; border: 0px; text-align: justify; color: #222222; font-family: Arial; line-height: normal;\">Best regards,<\/p>\n<p style=\"margin: 0px; padding: 5px 0px; border: 0px; text-align: justify; color: #222222; font-family: Arial; line-height: normal;\"><em style=\"margin: 0px; padding: 0px; border: 0px;\">KM Partners<\/em><\/p>\n<p style=\"text-align: justify;\">&nbsp;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[75],"class_list":["post-568","post","type-post","status-publish","format-standard","hentry","category-infoletters","tag-tax-trasnfer"],"_links":{"self":[{"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/posts\/568"}],"collection":[{"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/comments?post=568"}],"version-history":[{"count":4,"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/posts\/568\/revisions"}],"predecessor-version":[{"id":8584,"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/posts\/568\/revisions\/8584"}],"wp:attachment":[{"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/media?parent=568"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/categories?post=568"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/tags?post=568"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}