On 25 July 2015 the Cabinet of Ministers of Ukraine published an order on the conclusion of advance pricing agreements ("APA") in respect of controlled transactions for transfer pricing purposes* ("the APA Order"). The APA Order replaces the former procedure for the conclusion of APAs which became outdated due to the substantial amendments to the transfer pricing provisions of the Ukrainian Tax Code in December 2014.
Large taxpayers now have the possibility to obtain advance certainty on the transfer pricing treatment of their controlled transactions for a future period of up to three years. In addition to unilateral APAs (between the taxpayer and the SFS), the possibility for bilateral and multilateral APAs is introduced (as the Order states that foreign tax administrations from tax treaty countries may be party to an APA).
The APA Order provides taxpayers with the possibility "test the water" before preparing and submitting a formal APA by allowing taxpayers to request a preliminary feasibility assessment from the tax authorities. When such a request is duly made, the authorities must respond within 60 days.
Given the significant uncertainty as to how the new transfer pricing legislation will be applied in Ukraine, and in light of the current economic environment, large taxpayers engaging in controlled transactions should consider whether an APA is appropriate to their particular circumstances. Obtaining an APA can provide the following benefits:
- Pro-active engagement with the tax authorities on transfer pricing, in a cooperative (non-adversarial) environment.
- Advance certainty concerning transfer pricing treatment of controlled transactions for a three year period.
- Avoidance of protracted transfer pricing disputes with the tax authorities and saving of associated costs.
- Substantial reduction in the risk of unrelieved double taxation (particularly where a bilateral APA is obtained).
- Protection from additional tax liabilities and penalties being imposed with respect to controlled transactions covered by the APA when the terms of the APA are complied with.