According to innovations, regular prices for income tax and VAT are applied to so-called controlled operations
Law on Tax Transfer Pricing is published (Law from 04.07.2013, № 408-VII, Project N2515), which will take effect from 01.09.2013
According to the innovation, the usual price for income tax and VAT is applied to so-called controlled operations, which involve:
- Related parties: non-residents, residents who have declared losses for income tax for the previous financial year or at the beginning of year have special tax regimes, pay income tax or VAT on basic rate, which were not taxable with income tax or VAT;
- Non-residents who pay income tax (corporate tax) at the rate of 5 or more percentage points lower than Ukrainian.
Operations are recognized as controlled, provided that annual payments from taxpayer to counterparty are at least 50 million UAH (excluding VAT).
Determination of the normal price in a controlled transaction is carried out by one or more of the following methods: comparative uncontrolled price (unique selling), resale price "cost plus" net profit, profit distribution. When choosing a method taxpayer takes into account completeness and accuracy as well as priority of application of the first method.
Price in a controlled transaction is recognized as normal, if the tax authority does not prove otherwise. For large taxpayer provides possibility of mutual adjustment of prices in controlled transactions by signing protocol.
By January 1, 2018 under concessions in determining normal price for transactions (involving non-residents paying income under tax rate by 5 percentage points or more below Ukrainian) on import/export of cereals, fats, ores, slag, ash, fuels mineral, oil and products of their distillation, bituminous substances, mineral waxes, inorganic or organic precious metals, rare earth metals, radioactive elements or isotopes, organic chemicals, ferrous metals and products from them.
Tax control for determining prices in controlled transactions is performed by the tax authorities through:
1. monitoring prices in controlled transactions based on the data from electronic reports that taxpayers are required to file annually (May 1). Also, taxpayers are required to provide to the tax authorities requested documentation from controlled transactions;
2. inspections performed in case of tax control in omission by taxpayer the facts on controlled operations in annual report, revealing facts in order to monitor deviations from declared price in controlled operation from normal prices, failure to provide the payer's annual report or documentation of controlled operations on request. Duration of checking controlled operations shall not exceed 6 months but may be extended for another 6 months. The issue of transfer pricing is not checked as part of scheduled inspections.
Penalties for violation of Art. 39 of TCU committed before 01.09.2014, are applied as of 1 UAH, except for failure to submit to tax authorities:
- Report of controlled operations - a penalty of 5% of the total controlled operations;
- Mandatory documentation of controlled operations - a fine of 100 minimum wages.
This is not the final version of application of the normal price. Final Provisions of the Law № 408 require the CMU to develop next improvement in three months
