Due to efforts of the European Business Association the list of suggestions was taken into consideration in the revised version of the Draft Law “On Amendments to the Tax Code of Ukraine regarding Transfer Pricing” No 2515 dated 12 May 2013 that was adopted on 4 July 2013.
Background: on 12 May 2013 the Draft Law “On Amendments to the Tax Code of Ukraine regarding Transfer Pricing” No 2515 (hereinafter – the Draft Law No 2515) was registered in the Verkhovna Rada.
The idea of implementation into the national legislation of the transfer pricing rules that have been already implemented both in the developed markets of Europe and the developing markets, was initiated and fully supported by the European Business Association (hereinafter – the Association) from the very beginning. However, a number of provisions of the Draft Law No 2515 caused significant criticism from the business community, particularly in relation to:
- control over the operations within the country;
- uncertainty about sources of information on the prices and rules for calculating the range of market prices and profitability;
- requirement for large taxpayers to send the report and documentation;
- extremely high penalties for not sending the reports and primary documents;
- the terms of entry into force of the Law;
- special transitional provisions for the taxation of import / export of certain headings, etc.
The Association has made significant efforts in the improvement of the Draft Law No 2515. The Association has repeatedly appealed to the Ministry of Revenues and Dues of Ukraine and to the Committee of the Verkhovna Rada of Ukraine on Taxation and Customs Policy with the suggestions prepared and processed by member companies, took part in the meetings of the Public Board and workgroups of the Committee, etc.
Unfortunately, the list of suggestions but not all substantiated ones were taken into account by legislators. Now we are pleased to announce that the Draft Law No 2515 included a number of suggestions of the Association, namely:
- control will apply to transactions inside the country only with residents that are unprofitable, enjoy special tax regimes or pay income tax and VAT distinct from the base rate, etc;
- providing documentation about economic operation will be carried out only at the request of the tax authority;
- large taxpayers will be exempt from the obligation to submit original documentation;
- penalties for failures in documentation decreased to 100 minimum wages, etc.
Along with these positive changes, there are a lot of issues and problematic moments that could not find a solution during the parliamentary hearings. In particular, this applies to the 5 per cent penalty of the amount of the controlled transaction for failure to report, a number of uncertainties regarding the scope of controlled operations, the methodology for calculating normal price, holding the inspections, adjustment procedures, reporting and coordination of prices, etc. Apart from the controlled operations, the Tax Code of Ukraine continues to refer to the normal price in many cases, but the calculation of such normal price is uncertain.
Furthermore, given that the Draft Law No 2515 comes into force on 1 September 2013, there are a lot of issues concerning the application of new transfer pricing rules in the last four months of 2013, in particular regarding income tax.
The Draft Law No 2515 still refers to numerous regulations that have yet to be developed and adopted by the Cabinet of Ministers of Ukraine, the Ministry of Revenues and Dues of Ukraine, National Bank of Ukraine, failing which the application of the law is impossible. The urgency of entry into force of the Draft Law and significant uncertainty about the number of its provisions create for the business many practical problems in the implementation of new rules that must be resolved in a very short time – even when declaring taxes in 3 quarter of 2013 and for 2013, and for the preparation of the first report on transfer pricing, which should be submitted as early as 1 May 2014.
We want to thank all member companies of the Association’s Tax Committee for their active participation and persistence and People Deputies of the Parliament for their assistance in solving this problem and ensure that the Association will continue to work for resolution of problematic issues to protect the legitimate interests of its members.