We have prepared a brief overview of transfer pricing in Ukraine for you so that you can better understand this relatively new concept
1. What is transfer pricing?
Transfer pricing is the sale of goods, work, and services between related parties at intra-group prices other than market prices.
One of the consequences of setting non-market prices is the tax base erosion. Therefore, in order to prevent tax evasion, the state may recognize such transactions as controlled and assess their price for compliance with market prices.
2. What are controlled transactions?
Controlled transactions are transactions with non-residents, the prices for which must comply with market conditions. Each transaction with a non-resident, which meets all the following criteria, is a controlled one:
a) According to the economic essence of the operation:
- Transactions with goods (works, services);
- Transactions with intangible assets;
- Financial transactions.
b) According to the type of operation:
- Transactions with related non-resident persons;
- Purchase and sale of goods (services) through commission agents-non-residents;
- Operations with non-residents from offshore jurisdictions;
- Transactions with non-residents who do not pay corporate tax;
- Transactions between a non-resident and its permanent establishment.
c) By value criterion (if both following conditions are present):
- Annual income of Ukrainian corporate tax payer exceeds 150 million UAH ;
- The volume of transactions with one non-resident (commission agent) exceeds 10 million UAH.
3. Additional information
A company must establish the compliance of the terms of a controlled transaction with the arm’s length principle using transfer pricing methods. At the same time, calculations confirming the price of the transaction and the chosen method of accounting shall be recorded in transfer pricing statements.
Statements of tranfer pricing includes a report on controlled transactions and transfer pricing documentation.
The reporting period is until October 1 after the reporting year.
In addition, if the controlled transaction does not meet the business purpose, the tax authority has the right not to take it into account when calculating the financial result.
Автори: Evgeniy Stolyarchuk, Roman Suslov