27/ 03/ 2014

Legislation norms concerning transfer pricing shall be improved

Due to the efforts of the European Business Association (hereinafter – the Association) the Draft Law “On Amendments to the Tax Code of Ukraine (concerning Improvement of the Performing of the Tax Control for the Transfer Pricing)” No4375 dated 6 March 2014 (hereinafter – Draft Law No4375) and the Draft Law “On Amendments to the Tax Code of Ukraine (concerning Reporting Period for the Transfer Pricing Norms’ Application)” No4527 dated 24 March 2014 (hereinafter – Draft Law No4527) were registered in the Verkhovna Rada of Ukraine. Draft Law No4375 and Draft Law No4527 will resolve certain issues related to the legal regulation of transfer pricing that need clarification.

Background: During an extended period of time, the Association made numerous requests to state bodies and systematically stressed during meetings with them about the imperfections of the current Ukrainian legislative norms regarding transfer pricing and the problematic moments relating to their practical introduction and application.

We are glad to announce that Draft Law No4375 and Draft Law No4527 resolve some problematic issues, in particular regarding:

  • mismatches of terms concerning the definition of “operations” for transfer pricing purposes (subpara 39.2.1. para 39.2. Article 39 of Tax Code of Ukraine (hereinafter – the TCU);

  • sources of information that have to be applied while determining the prices of controlled operations and priorities for such sources (subpara 39.5.3. para. 39.5. Article 39 of the TCU);

  • application of transfer pricing provisions to operations with related parties-residents (subpara subpara 39.2.1. para 39.2. Article 39 of the TCU);

  • rights of the taxpayer to provide the proportion correction independently in the case of existence of information about decisions regarding the re-counting of additional tax liabilities and failure to receive the appropriate announcement from the central body of the executive power, which forms and realizes tax and customs policy, during the term determined by the current legislation (subpara para 39.5. Article 39 of TCU);

  • reducing the amount of fines for non-submission of the report and/or compulsory documentation about the controlled operations, performed by the taxpayer during the year, which in the present moment is disproportionate compared with the content of the violation of the legislation (para 120.3. Article 120 of the TCU);

  • uncertainty concerning the first tax reporting period for the submission of reports regarding controlled operations, which should be stated as calendar year (1 January – 31 December 2014);

  • postponing the submission date of the first report on controlled operations, to the 1 May 2015.

The Association would like to express our gratitude to all member-companies which actively participated in the improvement process for Ukraine’s tax legislation concerning transfer pricing. We will continue to work on resolving any problematic issues to protect the legal interests of our member-companies.

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