New in Transfer Pricing Rules: Ukraine 2015

This article refers not only to multinational enterprises, which are the subject of international regulations on transfer pricing, but also to any Ukrainian entity which has income more than UAH 2 000 000 (as of today less than USD 200 000) per calendar year and have transactions with foreign companies.

The transfer pricing regulations shall apply to "Controlled operations" which mostly include operations with "Associated enterprises". Those terms are to be explained below in accordance with ​current legislation of Ukraine, adopted December 28, 2014 and effective  from 1st of January 2015.

The above definitions are more comprehensive and complex ​under the  law​s​ of Ukraine ​in comparison to internationally recognized OECD recommendations.  The tax authori​ties have claimed to improve the new law​s according to International Monetary Fund and the World Bank recommendations, so this is wh​ere we ​are  now.

 

Controlled transactions are transactions with:

  1. associated non-residential Enterprises, including involvement of non-associated enterprises if “their participation is not significant”,
  2. non-residential commission merchant,
  3. non-resident registered in the state, where the corporate tax rate is  5 or more %  lower  than in Ukraine or information on shareholders is not open public, WHEN two conditions are met at the same time:
  • Total amount of taxable income from the above transaction exceeds UAH 20.000.000 UAH during one calendar year.

 Total amount of transactions between taxpayer or his associated enterprises equal to more than UAH 1.000.000 excluding VAT or 3 % of taxable income during one calendar year.

 

Controlled transactions include business operations with:

  •  Goods, including raw materials
  •  Services
  •  Intangibles: royalties, licenses, patents, trade marks, know-how etc.
  •  Financial operations, including lease, investments, credits etc.
  •  Corporate rights, shares etc.

Associated Enterprises

  • One person directly or indirectly holds 20 or more per sent of corporate rights in other person
  • One person have authority to appoint executive bodies in other entity
  • One person is entitled to appoint at least 50 % of collective executive bodies or supervisory council in other entity
  • The same persons are appointed in at least 50 % of collective executive bodies in different entities (those entities are considered associated)
  • Sole executive bodies of different entities are appointed by the same person
  • Loans from one individual (or guaranteed by one individual) exceed amount of share capital of other credited entity in 3,5 times (in 10 times for financial institutions)
  • Individual is the sole executive body in the entity
  • Close relatives and guardians, also entities owned indirectly by relatives and guardians

 

Obligations of Taxpayers in Ukraine on transfer pricing rules

 

Obligations

Responsibility

 

CIT Return 

All Taxpayers are obliged to submit information on  conducted Controlled Transactions along with CIT Return

 

 

 

Fine UAH   170-1020

 

Report on Controlled Transactions

Taxpayers which conduct Controlled Transactions on the amount which exceeds UAH 5.000.000 with one contractor should submit the Report till 1 of May of the following year in electronic form

 

 

 

Fine 100 of minimal wages in case of failure to report and 5 % from non-declared transactions

Keeping of documentation on Transfer Pricing

In case of tax authority request the Taxpayer should provide documentation on Controlled Transactions

 

 

Fine 5 % from amount of transaction, but not more than 200 minimal wages

 



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