Ukraine: long awaited transfer pricing reform will go live from September 2013

by DLA Piper

The Law on On the amendment of the Tax Code of Ukraine as to transfer pricing was adopted by Ukrainian Parliament on 4 July 2013. To become effective, it must be signed by the President (expected soon). The new transfer pricing regulations will be introduced on 1 September 2013. More details on the novelties of transfer pricing law in Ukraine are provided below*.

Who is affected

Ukrainian companies involved in transactions with the listed below parties provided the amount of aggregate transactions exceeds UAH 50 million per party per annum:

  • related non-residents
  • unrelated non-residents subject to corporate profit tax at the rate which is lower than Ukrainian CPT rate for 5% and more (ie below 14% in 2013 and below 11% starting from 2014). List of respective jurisdictions will be defined by the Cabinet of Ministers of Ukraine
  • related residents provided they:
    • reported tax losses for the preceding reporting year
    • use the special tax regime (eg fixed agricultural tax)
    • pay CPT and/or VAT at reduced rates (eg IT developers)
    • are not CPT and/or VAT payers (eg individuals, private entrepreneurs)


  • Mandatory annual transfer pricing reporting on controlled transactions. First report for 2013 shall be submitted by 1 May 2014
  • Submission of documentation related to controlled transactions and justification of applied prices upon request of the tax authorities. More sophisticated requirements to documentation and justification are established for large tax payers
  • Penalties for non-compliance with transfer pricing requirements:
  • 5 % of the amount of all controlled transactions for non-submission of the transfer pricing report
  • 100 minimal wages (UAH 121 800) for non-submission of primary documentation and justification by large tax payers upon request of the tax authorities
  • CPT and VAT reassessments plus up to 50% penalties for application of non-arm's length prices in controlled transactions (NB: Grace period from September 1st 2013 to September 1st 2014: 1 UAH per each violation)
  • criminal liability for taxpayer's officials in case of proven tax evasion as a result of intentional non-compliance with transfer pricing requirements

Transfer pricing audits to be conducted by special dedicated TP audit teams. The duration of the transfer pricing audit could be up to 6 months plus additional 6 months in case of necessity to request information from a foreign jurisdiction.

Actions to be taken

  • Review and adaptation of the group transfer pricing policies to Ukrainian transfer pricing requirements
  • Identification of controlled transactions
  • Preliminary assessment whether prices applied in controlled transactions correspond to arm's length level
  • Consider business and/or trade flows restructuring in order to mitigate implications from introduced transfer pricing regulations
  • Amendment of commercial/contractual conditions of controlled transactions (if needed)
  • Development of defence documentation/argumentation justifying the level of prices applied in the controlled transactions

* Novelties of transfer pricing law in Ukraine

  Tax Code of Ukraine Transfer Pricing Law
Effective date Is effective.
TP law is expected to become effective on 1 September 2013.

Once effective, it will replace currently effective provisions of the Tax Code on the arm's length prices (so called 'usual price').

It is not likely that the TP law will become effective retroactively to the whole 2013, however this is to be confirmed.
Controlled transactions
  • related parties' transactions
  • goods exchange (barter)
  • transactions with non-standard taxpayers and non-payers of corporate profit tax (CPT) (eg non-residents, individuals, simplified tax payers)
The following transactions provided their aggregate amount exceeds 50 mil UAH with one party per annum: 
  • with non-resident related party
  • with resident related party which:
    • reported tax losses for the preceding reporting year
    • uses special tax regime (eg fixed agricultural tax, single tax, etc.)
    • pays CPT and/or VAT at the reduced rate which (eg special tax regime for IT industry)
    • is not CPT and/or VAT payer (eg individuals, private entrepreneurs) 
  • with non-residents subject to corporate profit tax at the rate which is lower than Ukrainian CPT rate for 5% and more. The list of low-tax jurisdictions for TP purposes shall be established by the Cabinet of Ministers of Ukraine.
Burden of proof Is vested upon tax authorities. Tax authorities may request the taxpayer to provide a justification of applied prices. Is vested upon tax authorities. Tax authorities may request the taxpayer to provide a justification of applied prices.
TP documentation No mandatory TP documentation.
Taxpayers who are involved in controlled transactions must submit a special TP report by 1 May of the year following the reporting year, the form of which is yet to be confirmed by the government.

The language of the TP report is Ukrainian.

The tax authorities can request taxpayer to provide documentation in respect of controlled transactions (the request can be made no earlier than on 1 May of the year following the reporting one):
  • primary source documentation and other documentation in relation to controlled transactions)
  • justification of prices applied in controlled transactions which should contain the following information:
    • information on related parties (jurisdictions, etc)
    • information on the whole group (group structure, description of activity, transfer pricing policy, etc)
    • information on the controlled transaction (price, terms and conditions)
    • description of goods/services (physical characteristics, quality, reputation over market, trademarks involved, etc)
    • terms and conditions as to settlement for the transaction
    • other factors that have influenced the price
    • information on related parties' functions, risks and assets used
    • economic analysis as to definition of the price used for controlled transaction
    • etc.
TP documentation update interval is not addressed in the TP law and is to be established or elaborated in practice.
Methods of TP determination
  1. Comparable uncontrolled price method
  2. Resale price method
  3. Cost plus method
  4. Profit split method
  5. Transactional net margin method

No hierarchy of methods.

General 20% deviation from the arm's length price is allowed.
  1. Comparable uncontrolled price method
  2. Resale price method
  3. Cost plus method
  4. Transactional net margin method
  5. Profit split method

Combination of several methods is allowed.

Comparable uncontrolled price method is preferable. To the extent CUP cannot be used, a tax payer may opt for the method(s) which he trusts to be the most appropriate.

Methodology of determination of arm's length range of prices or profit indicators is to be established by the tax authoriries.
Safe harbour rules  Not provided.
5% deviation from the indicative price is allowed for certain controlled export and import transactions with non-residents subjected to corporate profit tax at the rate which is lower than Ukrainian CPT rate for 5% and more.

The taxpayers following safe harbour rules are relieved from further justification of applied prices and from preparation of detailed TP documentation.

Eligible controlled transactions are import/export of certain products of agricultural, metallurgical, chemical and some other industries.

Indicative prices are to be yet established by the government.
 TP audits No separate TP audits. Separate TP audits are introduced. Conduction of TP audits does not interact with conduction of general tax audits.
 Penalties No specific penalties for violation of TP rules. Penalty for non-submission of TP report: 
  • 5% from the amount of all controlled transactions

Penalty for non-provision by large tax payers of documentation requested by tax authorities in respect of controlled transactions: 
  • 100 of minimal statutory salaries (121 800 UAH as of December 2013)
Advance Price Arrangement (APA) Available for large tax payers. Available for large tax payers.
OECD as a source of law Not regarded as a source of law. Not regarded as a source of law.
Despite this, in many instances the new transfer pricing rules (proposed by the TP law) follow the OECD Guidelines.
Source of data
  • statistical data of state bodies and institutions
  • reference prices of specialised commercial publications
  • reports and information of economical departments of Ukrainian diplomatic missions located abroad
  • other official sources of information

Conventional European sources such as Amadeus are not likely to be respected.
  • official sources of information (the list shall be determined by the Cabinet of Ministers of Ukraine)
  • prices of public auctions and of tenders, stock-exchange quotations
  • statistical data of state bodies and institutions
  • reference prices of specialised commercial publications
  • reports and information of economical departments of Ukrainian diplomatic missions located abroad
  • officially published accounting and statistical data of the taxpayers (ie official reports)
  • independent appraisal
  • information on other controllable transactions conducted by the taxpayer itself
It is yet to be seen whether conventional European sources such as Amadeus will be respected.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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