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 introduced a number of changes related to controlled transactions. More about these innovations – below.
For example, the following amendments will be made to Art. 39 of the Tax Code:
- transactions in the result of which the amount of income and/or financial result of the taxpayer decreases due to full or partial, irreversible or temporary transfer of functions together with tangible and/or intangible assets (or without them), benefits, risks and opportunities to another taxpayer (another person), in cases where in the relationship between unrelated persons such a transfer would not be made without compensation, regardless of whether such transactions are reflected in the accounting (paragraph 39.2.1.4 of the Tax Code) are attributed to business transactions for the purposes of transfer pricing also;
- clearly prescribe how the analysis of risks assumed by the parties to the controlled transaction will be conducted when determining the comparability of commercial and/or financial conditions of the transaction with the conditions of uncontrolled transactions (paragraph 39.2.2.5 of the Tax Code);
- separately determine that for controlled operations with raw materials the establishment of compliance with the conditions of controlled operations of the “arms’ length” principle is carried out by the comparable uncontrolled price method (paragraph 39.3.3.4 of the Tax Code);
- specify that taxpayers who carried out controlled transactions in the reporting year are required to submit by October 1 of the year following the reporting year, not only a report on controlled transactions, but also a notice of participation in an international group of companies (paragraph 39.4. 2 of the Tax Code).
The definition of a controlled foreign company from January 1,2021 will be specified in the new article 39 of the Tax Code, and paragraph 39.4.2.2 will spell out what should contain a notice of participation in an international group of companies. The form of such notice and the procedure for its preparation must be approved by the Ministry of Finance of Ukraine.
In particular:
- it is determined that fiscal authorities have the right to send a request to provide global transfer pricing documentation (master file) to a taxpayer who 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 accounted 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;
- 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 submit a report on the countries of the international group of companies in soft copies.
These innovations will become effective as of January 1, 2021.
