The Cabinet of Ministers revised the list of low-tax jurisdictions for the purposes of transfer pricing

On 27 December 2017, the Cabinet of Ministers of Ukraine approved, by its Order No. 1045, the List of states (territories), which comply with the criteria set in paragraph 2) of subsection 39.2.1 (Section 39.2 of Article 39 of the Tax Code of Ukraine).

The List now includes 85 states (territories) (previously it included 65 states). Thus, the Cabinet of Ministers has supplemented the list of countries for the purposes of recognizing transactions as the controlled ones. That means that the transactions with non-residents registered in such states will be deemed to be the controlled transactions in the instances of compliance with certain qualification criteria. Thus, the tax payers participating in the controlled transactions should determine the amount of their taxable profit derived from such transactions pursuant to the “at arm’s length principle”; in addition to the above, they should prepare, and submit, a report based on the results of the tax year, in which such controlled transaction took place.

When preparing the list of states (territories), the Cabinet of Ministers of Ukraine took into account the below statutory criteria:

  1. States (territories), where a corporate profit tax rate is five or more percentage points lower than in Ukraine
  2. States, with which Ukraine failed to conclude international treaties pertaining to the information exchange
  3. States, in which competent authorities do not provide for timely and complete tax and financial information exchange in response to the inquiries from the central body of executive power who implements the state tax and customs policies.

The Kingdom of Lesotho and French Guiana have been excluded from the previous list.

The below countries have been added to the list:

  1. Republic of Burundi
  2. Guadeloupe
  3. Republic of Guatemala
  4. Georgia
  5. Republic of Djibouti
  6. Commonwealth of Dominica
  7. Dominican Republic
  8. Republic of Estonia
  9. Islamic Republic of Iran
  10. Republic of Cuba
  11. Lao People's Democratic Republic
  12. Republic of Latvia
  13. Lebanese Republic
  14. Republic of Mauritius
  15. Republic of Malta
  16. Kingdom of Morocco
  17. Principality of Monaco
  18. United Arab Emirates
  19. Commonwealth of Puerto Rico
  20. Independent State of Samoa
  21. Republic of Singapore
  22. Hungary

The Order is effective as of 1 January 2018.

Pursuant to the Tax Code, transactions with a counterparty registered in the state (on the territory), which is included into the aforesaid list, shall be deemed to be the controlled ones, commencing from 1 January of the year under review, that is subsequent to the calendar year, in which the states (territories) were included into the aforesaid list.

The transactions shall be deemed to be the controlled transactions for the purposes of transfer pricing as of 1 January 2018. if the company is conducting transactions with its non-resident counterparty (related and non-related), provided that:

  • The Ukrainian tax payer’s annual proceeds from any activities, which are determined in compliance with the accounting rules, exceed 150 million Hryvnias
  • A volume of such business transactions conducted by the Ukrainian tax payer with each counterparty defined hereabove, exceeds 10 million Hryvnias.

The tax payers, which conducted these controlled transactions in the reporting year, shall file a report on the controlled transactions, with the central body of executive power, that is implementing the state tax and customs policies, before the first day of October of the year subsequent to the year under review (for instance, the 2018 reports are to be filed before 1 October 2019).