Transfer pricing documentation requirements in Ukraine

1. In your jurisdiction, are taxpayers obliged to maintain transfer pricing documentation? Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?

Ukrainian taxpayers that enter into:

  • Transactions with related parties;
  • Barter / swap transactions (i.e., when assets are exchanged not for money but for other forms of consideration such as goods);
  • Transactions with parties who are not liable for Ukrainian corporate profit tax (“CPT”) at the standard rate, which potentially includes non-Ukrainian parties; and
  • Certain other transactions, including in-kind contributions of fixed assets to the charter capital of Ukrainian companies, as envisaged in the Tax Code of Ukraine;

are obliged to follow transfer pricing rules and therefore to maintain transfer pricing documentation.

The applicability of the transfer pricing rules to a given transaction does not depend on any threshold in terms of turnover volume or value of assets.

2. What is the content of the documentation that must be prepared?

The documents and their content may differ depending on the kind of transaction which triggers the transfer pricing rules (see above). However, the main principle is that the set of documents relating to a particular transaction has to be sufficient to prove that the value / price of that transaction is in line with fair market price.

Also, with effect from 2013 the Tax Code of Ukraine provides for major taxpayers (whose income for the preceding four tax quarters exceeds UAH 500 million (approximately EUR 45 million) or the total amount of taxes paid exceeds UAH 12 million (approximately EUR 1.1 million)) to make an advance pricing agreement (“APA”) with the principal tax authority of Ukraine, an option that was not previously available. However, it remains unclear whether the parties to an APA could set a price (or method of defining the price) for the local sale of imported goods at a lower level than the customs value of the goods. In other words, it is unclear whether the new provisions should be treated as overriding the general rule that the fair market price for the domestic sale of goods previously imported to Ukraine is no lower than the customs value of such goods.

a) Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)?

Ukrainian law does not use a value / volume threshold but provides that transfer pricing rules apply to certain types of transaction (see above).

b) What is the definition of “associated enterprises” for the purposes of this requirement?

Ukrainian tax legislation gives a rather broad definition of “associated enterprises”, including but not limited to the following cases:

  • A legal entity is considered to be an associated enterprise of another legal entity if it controls, is controlled by or is under common control with that other legal entity;
  • A physical person is considered to be associated with a legal entity if that physical person or members of his / her family control the legal entity or if a physical person or members of his / her family are officers of the entity and are authorised to enter into transactions on its behalf.

The term “control” means that the entity / individual in question directly or indirectly owns at least 20% of the authorised capital and / or possesses majority voting power in respect of the appointment of the legal entity’s governing body and its entry into agreements of crucial importance.
c) For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?

Not applicable to Ukraine.

d) Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state?

No, they do not bear that responsibility.

Yes, potentially the tax authorities may request such information. As a general rule, if the tax authorities require particular tax related documents / information, the taxpayer should provide such documents / information together with an explanation.

e) If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?

Ukrainian tax authorities may potentially accept such regional comparable studies, provided that they have been carried out by a dedicated state controlled agency or an approved provider of commercial information.

f) What language(s) are to be used by taxpayers in submitting the transfer pricing documentation?

The Ukrainian language has to be used in any communications with the Ukrainian tax authorities. If the documents / information are not in Ukrainian, a certified translation has to be provided.

3. What is the deadline or timescale for providing transfer pricing documentation to the tax authorities (is it to be provided for example upon filing of the tax returns, at the beginning of a tax audit, or on the specific request of the tax authorities)?

Tax officers are authorised to request transfer pricing documentation in a course of a tax audit and the taxpayer must provide such documentation at their request. There is no express obligation to provide such documentation with the tax return or at the beginning of a tax audit if it is not requested by the tax authorities.

There are no separate penalties for non-provision of transfer pricing documentation. In the event of absence or insufficiency of transfer pricing documentation, the tax authorities may independently determine the “fair market price” of the transaction as a basis for reassessment of tax.

The penalty itself would be applied to the reassessed amount of tax liabilities, and in most cases would be 25% of that amount.

We note, however, that where the taxpayer disagrees with the reassessment because it takes a different view as to fair market price, the tax authorities must apply to court and prove that the fair market value adopted for the purposes of the tax reassessment was correct.

5. Does the absence or incompleteness of documentation reverse the burden of the proof as regards the arm’s length character of the transactions?

The general rule is that the tax authorities have the burden of proof. During a tax audit, the tax authorities may ask a taxpayer to provide documents substantiating the level of the contractual price and the taxpayer can either provide such documents or refuse to do so and refer to the provision placing the burden of proof on the tax authorities.

However, such refusals are unusual in practice and taxpayers usually try to substantiate their contractual prices and provide relevant documentation.

Theoretically, transfer pricing re-assessment may affect the mutual agreement procedure; however, we are not aware of any instance of the procedure being used in Ukraine.

Mr Andriy Buzhor
Picture of Anna Pogrebna
Anna Pogrebna
Partner
Kyiv (CMS RRH)