Viktor Yanukovych signed the law # 408-VII Amendments to the Tax Code of Ukraine on transfer pricing

Viktor Yanukovych signed the law # 408-VII Amendments to the Tax Code of Ukraine on transfer pricing (project #2515), which introduced tax control mechanism for transfer pricing, which is based on the principle of "arm's length".

This project has caused a mixed assessment from the professional community - on the one hand, the office of Alexander Klimenko (developers) insisted on the early adoption of document, but lawyers are afraid of how they will apply certain provisions of the Law on Ukrainian realities.

Let’s recall repeatedly expressed opinions on a number of provisions that should be finalized. In particular, eliminate the requirement to provide statements in original documents from taxpayers on all controlled operations; introduce transfer pricing rules for the purposes of income tax and value added tax at the same time, since the enactment of law.

In addition, lawyers have assumed that the Law will come into force until January 2014, but the text of the Law stated September 1, 2013 as the effective date.

Tax control over transfer pricing adjustment provides tax liability of taxpayer to the level of calculated tax liability, which is subject to compliance with commercial and/or financial conditions of controlled commercial operations and/or financial conditions that occurred during comparable transactions under Art. 39 of TC, the parties are not related parties.

In the case when a taxpayer in carrying out controlled operations applies prices that do not correspond to the level of ordinary price of goods (works, services), and if as a result of inconsistency arises understatement of tax liability, taxpayer has the right to make adjustments of tax liability and amounts paid tax according to §. 39.5.4 Section 39.5 Art. 39 of the TCU.

It is found that controlled operations are:

a) household purchases (sales) of goods (works, services) undertaken by taxpayers with related parties - non-residents;

- Household purchases (sales) of goods (works, services) undertaken by taxpayers with related parties - residents who:

1) have declared negative value of taxation from income tax for the preceding tax (reporting) year;

2) use special tax regimes at the beginning of the tax (reporting) year;

3) pay income tax and/or value-added tax at a rate other than the basic (core), according to the TC at the beginning of the tax (reporting) year;

4) were not taxable for income tax and/or value added tax at the beginning of the tax (reporting) year;

b) operations, one of the parties is resident, registered in country (territory) in which the rate of income tax (corporate tax) by 5 or more percentage points is lower than in Ukraine, or who pays income taxes (corporate tax ) at a rate of 5 or more percentage points lower than in Ukraine. List of States (Territories) is approved by the CMU.

When determining the price for income tax (profit, revenue) taxpayers who are parties to the controlled transaction are using one of the methods: comparative uncontrolled price (analogues sale) resale, "cost-plus", net profit, profit distribution.

When choosing a method used to price in a controlled transaction, one should take into account the completeness and accuracy of input data and validity of adjustments carried out in order to ensure comparability of controlled conditions and comparable transactions. You can use a combination of two or more methods.