{"id":703,"date":"2013-12-23T12:26:12","date_gmt":"2013-12-23T10:26:12","guid":{"rendered":"https:\/\/kmp.ua\/?p=703"},"modified":"2018-02-15T16:36:05","modified_gmt":"2018-02-15T14:36:05","slug":"zastosuvannya-spetsialnyh-tsin","status":"publish","type":"post","link":"https:\/\/kmp.ua\/en\/analytics\/exclusive\/zastosuvannya-spetsialnyh-tsin\/","title":{"rendered":"Transfer pricing: application of special rules according to Transitional provisions of the Tax Code of Ukraine"},"content":{"rendered":"<p style=\"text-align: justify;\">The provisions of para. 21. of Chapter XX \u201cTransitional Provisions\u201d of the Tax Code of Ukraine (hereinafter \u2013 &#8220;the TC of Ukraine&#8221;) envisage a special order (applicable till January\u00a01, 2018) of determination of arm\u2019s length prices for the purpose of taxation of import\/ export transactions of the following commodity items:<\/p>\n<p><span style=\"display: none;\">p<\/span><\/p>\n<ul>\n<li>1001 \u2013 1008 according to Ukrainian classification of goods in foreign economic activity (UKTZED) (grain crops: wheat, barley, oats, rye, rice, buckwheat, sorghum);<\/li>\n<li>1501 \u2013 1522 according to UKTZED (Fats and oils of animal or plant origin; their cleavage products, prepared edible fats, waxes of animal or plant origin);<\/li>\n<li>2601 \u2013 2621 according to UKTZED (Ores, slag and ash);<\/li>\n<li>2701 \u2013 2716 according to UKTZED (Mineral fuel, oil and products of their distillation; bituminous substances, mineral waxes);<\/li>\n<li>2801 \u2013 2853 according to UKTZED (Inorganic chemicals, inorganic or organic compounds of precious metals, of rare earth metals, of radioactive elements or isotopes);<\/li>\n<li>2901 \u2013 2942 according to UKTZED (Organic chemicals);<\/li>\n<li>7201 \u2013 7229 according to UKTZED (Ferrous metals) and 7301 \u2013 7326 according to UKTZED (Ferrous metal products).<\/li>\n<\/ul>\n<p style=\"text-align: justify;\">As regards special methods, the wording of the mentioned transitional provisions is extremely unclear. Thus, from the literal wording of transitional provisions it follows that a taxpayer can use one of several methods.<\/p>\n<p>First of such \u201cmethods\u201d implies that an arm\u2019s length price is determined for every commodity item at the price level:<\/p>\n<ul>\n<li>reduced not less than by 5 % \u2013 in case of sale of goods;<\/li>\n<li>\u00a0increased not more than by 5 % \u2013 in case of purchase of goods.<\/li>\n<\/ul>\n<p>However it is not clear, for which price this \u201cdeviation\u201d of 5 % should be applied. Price of agreement or some other price?<\/p>\n<p>The second of such \u201cmethods\u201d establishes that the price shall be determined &#8220;<span style=\"font-family: courier new,courier,monospace;\">according to stock quotes \u2013 in case when goods are listed on the stock exchange, and according to reference prices, published in information sources (specialized commercial editions), in case if these goods are not listed on the stock exchange.<\/span><span style=\"font-family: 'courier new', courier; font-size: 10pt;\">&#8220;<\/span><\/p>\n<p style=\"text-align: justify;\">At the same time if such sources of information contain data on range\/ interval of prices for determination of arm\u2019s length price the maximum value of a range is applied \u2013 in case of purchase of goods and\/or minimum value of range\/ interval \u2013 in case of sale of goods.<\/p>\n<p style=\"text-align: justify;\">This method is more or less clear \u2013 it is suggested to use the stock quotes or reference prices. Only one thing is not clear \u2013 in what way such \u201ctransitional method\u201d of determination of arm\u2019s length price is different from the regular methods \u2013 method of comparable uncontrolled price.<\/p>\n<p style=\"text-align: justify;\">And the last of the \u201ctransitional methods\u201d is a provision which, in fact, may hardly be considered as a separate method. Particularly, this \u201cmethod\u201d envisages that a taxpayer which fulfills transactions with goods of mentioned items and a price of transaction is different from the arm\u2019s length price (determined upon aforementioned \u201ctransitional methods\u201d), then a taxpayer has the right to:<\/p>\n<ul>\n<li style=\"text-align: justify;\">\u00a0independently (not later than May 1 of the year, following the reporting one) determine and settle tax liability based on the arm\u2019s length price and submit the documents to the Ministry of Revenues and Duties, regarding such transaction and approach to determination of arm\u2019s length price. In this case a taxpayer is exempted from payment of fines and penal interest. In other words, basically it is a somewhat modified self-adjustment envisaged in Article 39;\u00a0or<\/li>\n<li style=\"text-align: justify;\">apply Article 39 of the Tax Code and with application of any other method of justifying of contract price. In this case additionally one should submit copies of contracts (agreements) between contractor and subsequent recipient of goods (if such recipient is not a related person of a contractor of controlled transaction and\/ or taxpayer). From this requirement regarding submitting the documents it follows that it implies first of all the method of re-sale price.<\/li>\n<\/ul>\n<p style=\"text-align: justify;\">From the provisions mentioned it is difficult to understand, what are the \u201ctransitional methods\u201d of determination of arm\u2019s length prices and what are their benefits compared to regular methods envisaged by Article 39 of the Code.<\/p>\n<p style=\"text-align: justify;\">The Resolution of the Cabinet of Ministers of Ukraine of October 2, 2013 No. 749 approved an Interest price range for some commodity items according to UKTZED for the purpose of transfer pricing. However the mentioned Resolution does not contain in fact anything new compared to transitional provisions of the Tax Code. It still was unclear, for which price should 5 % deviation be applied.<\/p>\n<p style=\"text-align: justify;\">Eventually, there was an attempt to clarify the mentioned provisions by the Ministry of Revenues and Duties, namely in the Summarizing tax consultation on separate issues of application of tax legislation\u2019s provisions regarding transfer pricing, which was approved by the Order of the Ministry of Revenues and Duties of 22.11.2013 No. 699.<\/p>\n<p style=\"text-align: justify;\">Particularly, in the Summarizing tax consultation under the No. 25 the following question is considered: \u201cTo which prices a 5 per cent range of prices according to subpara. 1 of para. 21 of subsection 10 of Chapter XX of the Code is applied?\u201d.<\/p>\n<p style=\"text-align: justify;\">The answer is as follows:<\/p>\n<p><span style=\"font-family: courier new,courier,monospace;\">&#8220;A five per cent range is applied to prices, determined according to provisions of subpara. 2 of para. 21 of subsection 10 of Chapter XX of the Code, namely: prices, determined according to stock quotes \u2013 in case when goods are listed on the stock exchange, and according to prices, determined according to reference prices, published in information sources (specialized commercial editions), in case if good are not listed on the stock exchange.&#8221;<\/span><\/p>\n<p style=\"text-align: justify;\">Thus, according to opinion of the Ministry of Revenues and Duties, provisions, which are listed as first and second special method of determination of arm\u2019s length prices, in fact constitute single method.<\/p>\n<p style=\"text-align: justify;\">Therefore, 5 % fluctuation is allowed from the level of stock quotes (if the goods are listed on the stock exchange) or from the level confirmed by the reference prices, published in information sources (if the goods are not listed on the stock exchange). Such reading seems to be logical, but it contradicts the literal wording of the Tax Code, which is advisable to clarify by way of amending.<\/p>\n<p style=\"text-align: justify;\">Expediency of the transitional method for the taxpayer fundamentally depends on the level of prices, to which a 5 % deviation can be applied.<\/p>\n<p style=\"text-align: justify;\">Thus, a 5 % deviation is applied to price of stock quotes (if goods are listed on the stock exchange) or to reference prices, published in information sources (on goods are not listed on the stock exchange).<\/p>\n<p style=\"text-align: justify;\">We would like to remind that the Cabinet of Ministers of Ukraine approved the List of specialized commercial editions for the purpose of transfer pricing and the List of information sources on market prices for the purpose of transfer pricing.<\/p>\n<p style=\"text-align: justify;\">Selection of information sources, given in these lists, is very limited. For example, among stocks only Agrarian Commodity Exchange is listed. Other &#8220;commercial&#8221; editions are connected to government structures. That is why there are big questions regarding the fact, whether the information from such sources will be in line with actual conditions of the market.<\/p>\n<p>And since the transitional method of determination of arm\u2019s length prices is based on application of information on prices from the mentioned sources, we have doubts regarding expediency of transitional provisions for taxpayers. In the nearest future it would be clear, if there are real grounds for such doubts.<\/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-align: justify;\">The provisions of para. 21. of Chapter XX \u201cTransitional Provisions\u201d of the Tax Code of Ukraine (hereinafter &#8211; &#8220;the TC of Ukraine&#8221;) envisage a special order (applicable till January&nbsp;1, 2018) of determination of arm\u2019s length prices for the purpose of taxation of import\/export transactions of the following commodity items:<\/p>\n<p>&nbsp;<\/p>\n<p><font style=display:none>p<\/font><\/p>\n<ul>\n<li style=\"text-align: justify;\">1001 \u2013 1008 according to Ukrainian classification of goods in foreign economic activity (UKTZED) (grain crops: wheat, barley, oats, rye, rice, buckwheat, sorghum);<\/li>\n<li>1501 \u2013 1522 according to UKTZED (Fats and oils of animal or plant origin; their cleavage products, prepared edible fats, waxes of animal or plant origin);<\/li>\n<li>2601 \u2013 2621 according to UKTZED (Ores, slag and ash);&nbsp;<\/li>\n<li>2701 &#8211; 2716 according to UKTZED (Mineral fuel, oil and products of their distillation; bituminous substances, mineral waxes);<\/li>\n<li>2801 &#8211; 2853 according to UKTZED (Inorganic chemicals, inorganic or organic compounds of precious metals, of rare earth metals, of radioactive elements or isotopes);&nbsp;<\/li>\n<li>2901 &#8211; 2942 according to UKTZED (Organic chemicals);<\/li>\n<li style=\"text-align: justify;\">7201 &#8211; 7229 according to UKTZED (Ferrous metals) and 7301 &#8211; 7326 according to UKTZED (Ferrous metal products).<\/li>\n<\/ul>\n<p style=\"text-align: justify;\">As regards special methods, the wording of the mentioned transitional provisions is extremely unclear. Thus, from the literal wording of transitional provisions it follows that a taxpayer can use one of several methods.<\/p>\n<p>First of such \u201cmethods\u201d implies that an arm\u2019s length price is determined for every commodity item at the price level:<\/p>\n<ul>\n<li>reduced not less than by 5% &#8211; in case of sale of goods;&nbsp;<\/li>\n<li>&nbsp;increased not more than by 5% &#8211; in case of purchase of goods.<\/li>\n<\/ul>\n<p>However it is not clear, for which price this \u201cdeviation\u201d of 5% should be applied. Price of agreement or some other price?<\/p>\n<p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[75],"class_list":["post-703","post","type-post","status-publish","format-standard","hentry","category-exclusive","tag-tax-trasnfer"],"_links":{"self":[{"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/posts\/703"}],"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=703"}],"version-history":[{"count":4,"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/posts\/703\/revisions"}],"predecessor-version":[{"id":8597,"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/posts\/703\/revisions\/8597"}],"wp:attachment":[{"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/media?parent=703"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/categories?post=703"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/tags?post=703"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}