On December 28, 2014 Ukrainian Parliament has adopted the Draft law No. 1264-1 "On amending the Tax Code of Ukraine regarding improvement of tax control over transfer pricing" as of 22.12.2014 (the Draft Law).

In order to become effective, the Draft law has to be signed by the President of Ukraine. If so, the Draft law will introduce significant changes to effective Ukrainian transfer pricing rules.

The most significant changes are outlined below.

Scope of TP control

  • scope of controlled transactions is expanded and divided in two lists - one for CPT and one for VAT purposes;
  • minimal threshold for transaction to be qualified as controlled one is substantially decreased: the amount of transactions with one counterparty should exceed either 1 mio UAH or 3% of the tax payer's annual income (provided annual income of such tax payer exceeds 20 mio UAH)
  • transactions with non-related parties under certain conditions may be considered as controlled ones; 
  • scope of related parties is also expanded.

Arm's length principle

  • legal introduction of arm's length principle for TP purposes;
  • new procedure of calculation of arm's length range of prices/profitability and of its median is to be adopted; 
  • it is confirmed that non-resident may be selected as the tested party in cross-border transactions;
  • if the price of controlled transaction falls outside of the arm's length range, the company's tax obligations are to be determined based on median of such arm's length range.

Sources of information

  • the "official list" of sources is cancelled;
  • it is allowed to use any source of information which (i) is generally accessible and (ii) contains information on comparable transactions and parties;
  • it is directly prohibited for tax authorities to use information which is generally non-accessible (i.e. available only to state authorities).

Reporting and penalties

  • report on controlled transactions now will be a part of CPT declaration (i.e. an annex);
  • non-inclusion of a controlled transaction in respective report on controlled transactions will now result in fine in the amount of 5% of such transaction;
  • non-submission of TP documentation will now result in fine in the amount of 200 minimal salaries (i.e. for 2014 - 243 600 UAH; for 2015 the amount of minimal salary is to be adopted).

TP audits

  • maximum period for TP audit is now 18 month with the possible extension up to 12 additional months;
  • look back period for TP audits is now set for 2555 days.

It is expected that the above listed changes will came into effect in 2015 (on the day, following the day of official publication of the Draft law).

The adopted text of the Draft law is not yet available, therefore the list of changes should be verified upon official publication of the Draft law.