Tax reform 2020: controlled transactions

Draft law No. 1210 approved by the Parliament is currently awaiting the signature of the President of Ukraine. In near future business will experience a lot of changes. Let us consider what will happen with controlled transactions and what may be expected.

Draft law No.1210 amends the procedure for controlled operations. Indeed, Art. 39 of the Tax Code of Ukraine (hereinafter – TCU) undergoes changes which:

• are attributed to business transactions for the purpose of transfer pricing transactions that result in the amount of income and/or financial result of the taxpayer being reduced by the complete or partial, irrevocable or temporary transfer of functions together with (or without) tangible and/or intangible assets, benefits, risks and the possibilities to another taxpayer (t other person), in cases where in the relationship between unrelated persons such transfer would not be made without compensation, regardless of whether such accounting operations have been carried out (subitem 39.2.1.4 of the TCU);
• clearly outlines how the risk analysis that the parties to the controlled transaction will undertake in determining the comparability of the commercial and/or financial terms of the transaction with the terms of the uncontrolled transaction will be carried out (subitem 39.2.2.5 of the TCU);
• separately specify that for controlled transactions with commodities, the compliance with the conditions of controlled transactions of the “outstretched hand” principle is carried out by the method of comparative uncontrolled price (subitem 39.3.3.4 of the TCU);
• clarify that taxpayers who performed controlled transactions in the reporting year are required to submit, not later than October 1, following the reporting year, not only a statement of controlled transactions but also a notice of participation in an international group of companies (subitem 39.4.2 of the TCU).

The definition of a controlled foreign company is contained in the new Art. 39² of the TCU and subitem 39.4.2.2 of the TCU stipulates what must contain a notice of participation in an international group of companies. The form of such notification and the procedure for its preparation shall be approved by the Ministry of Finance;

• it is determined that representatives of the tax office have the right to submit a request to provide global transfer pricing documentation (master file) to the taxpayer included in the international group of companies, if the consolidated statement on total income of the international group of companies for the financial year preceding the reported, calculated in accordance with the accounting standards applied by the parent company of the international group of companies, equals or exceeds the equivalent of EUR 50 million. Information the master file should contain is specified in the updated subitem 39.4.7 of the TCU;
• it is established that a taxpayer resident in Ukraine belonging to an international group of companies will, in some cases, be required to submit electronic report to the countries of the international group of companies.

These innovations will become effective on January 1, 2021.