On 1 July 2014, the Ministry of Revenues and Levies of Ukraine has issued Order #368 "On amendment of Generalized tax consultation on transfer pricing related issues, adopted by the order #699" (hereinafter - the Order) which significantly changed the respective tax consultation #699 (hereinafter - the Consultation).
In particular, the Order included additional questions and clarifications and drastically changed certain previous interpretations of the tax authorities. Overall, the restated Consultation contains position of the tax authorities in respect of 41 questions related to application of transfer pricing regulations (hereinafter - TP). Below we have summarized the most important points.
Exclusion of some transactions from UAH 50 million threshold
Dividends, investments, value of give-and-take raw materials from non-residents and respective final products, principal amount of loans and credits, deposits and repayable financial aid should be disregarded upon calculation of the UAH 50 million threshold of controlled transactions. Previously the tax authorities had absolutely opposite position in this regard.
New interpretation leads to decrease of number of cases when transactions are qualified as controlled ones. This ultimately should reduce the reporting burden for taxpayers.
Extension of scope of controlled transactions
The following transactions are deemed to be controlled (subject to UAH 50 million threshold):
- indirect sales of goods to non-resident related party via non-related commissioner (agent)
- transactions with related individuals which are residents of Ukraine
- transactions with related parties which are paying VAT and CPT at standard rates but paid withholding tax during the reporting period.
The abovementioned interpretation generally extends the general scope of controlled transactions, which ultimately will increase taxpayers' burden on their administration.
Disallowance of self-adjustments during the TP audits
Tax authorities confirmed that taxpayers are not allowed to submit any adjusting CPT and VAT tax returns for the period which is being subjected to TP audit (even if such adjustments do not relate to controlled transactions subjected to the audit).
Therefore during the whole term of TP audit taxpayers will not be able to submit adjusting CPT and VAT tax returns for the audited period (statutory term for TP audit is 6 months with possible prolongation for another 6 months).