Changes in Ukrainian transfer pricing regulation

On 1. September Ukraine entered into force new transfer pricing regulations, which are essentially quite similar to OECD guidelines and therefore it can be assumed that the Ukrainian transfer pricing policy is now looking towards regulations developed by the OECD.

However, there are still some differences between Ukraine and OECD transfer pricing concept, but despite that, Ukrainian regulations are quite similar to the existing rules which are used in many countries.

While analyzing Ukrainian transfer pricing regulations, it is important to pay attention to the fact that in addition to the transactions between related parties, transfer pricing rules also apply to transactions between unrelated parties if they are made with non-residents from low-tax countries. In transfer pricing regulation we are talking about low-tax countries when the enterprise income tax rate is 5% lower than in Ukraine (in 2013 it is 19% and in 2014 it is 16%). A complete list of low-tax countries is prepared by Government of Ukraine.

According to the transfer pricing regulation transactions which exceeds the annual threshold 50 million UAH (per one counterparty) qualify as controlled transactions. Taxpayer has right to use five methods to control the transactions – comparable uncontrolled price method (CUP), resale price method (RPM), cost-plus method (CPLM), profit-split method (PSM) and transactional net margin method (TNMM). Also, current 20% „safe harbor” rule is replaced with the „arm´s length price” concept.  

Until 2018 some businesses have right to use simplified transfer pricing rules. First of all it concerns the exporters and importers of certain goods (oil, gas, chemicals, metals) whose partners are in countries with low tax rates. According to the simplified rules, the price of goods must be calculated on the basis of information obtained from sources approved by government and companies are allowed to have 5% variation.

While preparing documentation the big companies has obligation to submit documentation annually – the deadline is 1. May. On the other hand, small businesses must be ready to provide documentation when Tax Authorities request it. It is also required that supporting evidence – such as invoices, contracts, bank statements etc – are attached to the documentation. 

Ukraine Transfer Pricing Rules
1. Minimum requirements
  • TP applies to controlled transactions that simultaneously exceed UAH 50 mln (approx. EUR 3.5 mln) and are either with (a) non-resident affiliated parties, or (b) resident affiliated parties that: (i) declare tax losses for previous reporting year, or (ii) apply special tax regimes, or (iii) apply irregular corporate tax and VAT rates, or (iv) are no corporate tax or VAT payers, or (c) non-residents registred in jurisdiction that applies corporate tax at least 5 percent points lower than in Ukraine
  • Several criteria for affiliated parties, for example, if at least 20% of share capital is owned by another party, etc.
2. Deadlines and files submission
  • Standard-form report on controlled transactions for the previous reporting year must be submitted in electronic format by 1 May
  • Tax authorities may request to file additional TP documentation
3. Minimum content of Master/Local Documentation File
  • Subject of controlled transaction
  • Value
  • Used TP method
  • Source of information
  • Arm´s lenght price
4. Specific requirements on certain type of transactions
  • No specific requirements at this stage
  • Special TP rules are expected for cross-border transactions with some products
Article topic: