From the beginning of 2021, updated rules for controlled transactions came into force. They were introduced by Law of Ukraine “On Amendments to the Tax Code of Ukraine to Improve Tax Administration, Eliminate Technical and Logical Inconsistencies in Tax Legislation” No. 466-IX of January 16, 2020 (hereinafter – Law No. 466). Let’s briefly recall them.
Law No. 466 primarily stipulates that taxpayers have the right to send a request for global transfer pricing documentation (master file) to a taxpayer that is part of an international group of companies, if the total consolidated income of the international group of companies for the financial year preceding the reporting year, calculated in accordance with the accounting standards applied by the parent company of the international group of companies, is equal to or exceeds the equivalent of 50 million euros. What information the master file should contain will be specified in the updated paragraph 39.4.7 of the Tax Code of Ukraine (hereinafter – the Tax Code).
In addition, it is established that a taxpayer – a resident of Ukraine, which belongs to an international group of companies, in some cases will be required to report in accordance with the countries of the international group of companies in electronic form.
The Law of Ukraine “On Amendments to the Tax Code of Ukraine and Other Laws of Ukraine on Ensuring the Collection of Data and Information Necessary for Declaring Certain Objects of Taxation” No. 1117-IX of December 7, 2020 has introduced several innovations. It allows taxpayers, when assessing a controlled transaction between related parties, to try to prove that such a transaction has no sound economic reason (business purpose) (for example, it was more appropriate to carry out such a transaction with an unrelated person). If the tax authorities prove this, they will have to exclude such a transaction from the pre-tax financial result or replace it with the financial result of transactions with an unrelated party (paragraphs 39.2.2.12 and 140.5.2 of the Tax Code).
It will also be specified how to choose the most appropriate method of transfer pricing to determine the compliance of the conditions of the controlled transactions with the arm’s length principle (paragraph 39.3.2.1 of the Tax Code).
