President Has Signed the Law on Novelties in Transfer Pricing

On 7 August 2015 President signed the Law on amendments to the Tax Code regarding transfer pricing adopted by the High Council of Ukraine on 15 July of the same year (Draft Law No.1861). The aforesaid document has clarified certain rules regarding regulation of transfer pricing in Ukraine, in particular the following:

• provisions allowing for application of transfer pricing rules to VAT-taxation were removed;
• threshold for obligatory production of report on controlled transactions to the central body of executive authority responsible for implementing tax and customs policy of the state in case of controlled transactions with the same counterparty was increased from UAH 20 to 50 millions.
• the need for drawing up a list of goods with stock quotes was given legal underpinning by the Cabinet of Ministers of Ukraine.

It was determined that business transactions envisaged by subparagraphs 39.2.1.1 - 39.2.1.3 and subparagraph 39.2.1.5 of the paragraph 39.2.1, Article 39 of the Tax Code shall be deemed controlled provided the following conditions are simultaneously met:

• taxable person's annual income from any activity determined according to the accounting rules exceeds UAH 50 million (minus indirect taxes) for the relevant tax (reporting) year;
• the volume of such business transactions of taxable person with each counterparty determined according to the accounting rules exceeds UAH 5 million (minus indirect taxes) for the relevant tax (reporting) year.

Following the amendments to the Tax Code penalty for failure to provide the report on controlled transaction was reduced from 5% to 1% of the amount of undeclared controlled transactions as well as certain technical adjustment was made to procedures determining profitability level of controlled transactions subject to transfer pricing, defining arm's length prices etc.

Moreover, it was stipulated that tax base for delivery of goods/services shall be determined based on contractual value of such goods/services taking into account national taxes and fees (except for charges for mandatory state pension insurance charges collected on the costs of mobile communication services, value-added tax and excise tax on ethyl alcohol used by manufacturing business entities for production of pharmaceutical products including blood components and preparations made of blood components (excepting pharmaceutical products in the form of balms and elixirs).