Transfer pricing documentation in Ukraine

  1. A. Transfer pricing documentation requirement
    1. 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)?
    2. 2. What is the content of the documentation that must be prepared?
    3. 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)?
    4. 4. In the event that the documentation is not provided within the applicable timescale, or is incomplete, do documentation-related penalties apply in your jurisdiction? If so, please detail the penalties and the circumstances in which they do and do not apply.
    5. 5. Does the absence or incompleteness of documentation reverse the burden of proof as regards the arm’s length character of the transactions?
    6. 6. In the event that the tax authorities (i) impose documentation-related penalties and (ii) make a transfer pricing reassessment, does the imposition of documentation-related penalties prevent the taxpayer from initiating any mutual agreement procedure which may be contained in an applicable tax treaty (or, for EU countries, the procedure contained in the EU Arbitration Convention) with a view to eliminating any double taxation resulting from the transfer pricing reassessment?
    7. 7. Any other relevant aspect not addressed above?
  2. B. Country-by-Country reporting (“CbCR”)
    1. 1. Did your jurisdiction implement the obligation to file a CbCR? If not, is the introduction of the CbCR in your jurisdiction contemplated and, if so, when?
    2. 2. If the obligation to file a CbCR is in force, what is the tax year from which this obligation applies and what is the deadline for filing the CbCR?
    3. 3. Which taxpayers have to file a CbCR in your jurisdiction?
    4. 4. Is the content of the CbCR fully in line with the OECD model (final report on Action 13 of the BEPS project)? If not, what are the differences?
    5. 5. What is the penalty for failing to file the CbCR on time? Can local subsidiaries of a foreign group suffer the local penalty if the foreign group has not filed the CbCR?
    6. 6. Are there tax treaties in force in your jurisdiction allowing the communication of CbCR with other jurisdictions?
    7. 7. Any other relevant aspect not addressed above?
  3. C. As the case may be, other documentation/filing requirement in relation to transfer pricing?
    1. 1. In your jurisdiction, are there any other documentation/filing requirements in relation to transfer pricing?
    2. 2. If so, what is the content of such documentation/filing requirement? What language(s) are to be used by taxpayers?
    3. 3. What is the deadline for meeting this documentation/filing requirement?
    4. 4. Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
    5. 5. What is the penalty for failing to meet this requirement on time?
    6. 6. Any other relevant aspect not addressed above?

A. Transfer pricing documentation requirement

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 conducting controlled transactions are obliged to maintain transfer pricing documentation.

Starting from 1 January 2017 business transactions of Ukrainian taxpayers qualify as “controlled transactions” if the following criteria related to (i) type of transaction, and (ii) thresholds are met simultaneously:

  1. (i.) type of transaction criteria:
    • transactions with non-resident related parties;
    • international sale and purchase of goods by Ukrainian companies via non-resident commission agents ;
    • transactions with non-residents (regardless of related status) registered in a “black list” of jurisdictions established by the Cabinet of Ministers of Ukraine. The “black list” includes jurisdictions, which (i) have income tax rate lower by 5 and more percentage points than in Ukraine (i.e. 13% and lower), and/or (ii) have no information exchange agreements with Ukraine and/or (iii) competent authorities of such states (jurisdictions) do not provide comprehensive and timely exchange of tax and financial information;
    • transactions with non-residents who do not pay corporate profit tax (including on foreign-source income) and/or are not tax residents of jurisdiction of their incorporation.
    • chain transactions between a taxpayer and its non-resident related party where title to the goods passes to non-related party(ies) before being transferred to a related party, and where the non-related intermediaries (i) do not perform significant functions related to acquisition/sale of goods between the related parties, and (ii) do not use significant assets and/or do not undertake significant business risks in connection with the purchase/sale of the goods (services) between the related parties.
  2. (ii.) threshold criteria:
    • annual income of the Ukrainian taxpayer from any activity exceeds UAH 150m (net of indirect taxes) for the fiscal (reporting) year;
    • volume of the transactions listed under (i) above of the taxpayer with each counterparty exceeds UAH 10m (net of indirect taxes) for the fiscal (reporting) year.

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

Transfer pricing documentation can be prepared in any format, but should include the following:

  • information about related parties;
  • information about the group, including the legal structure, description of the activities, as well as the group’s transfer pricing policy;
  • description of management structure and its organizational chart;
  • description of activities performed by the taxpayer, particularly, economic conditions of the activity, analysis of relevant markets of goods/services where the taxpayer performs its activities, major competitors;
  • information on participation in business restructurings or transfer of intangible assets in the reporting or the previous year with explanation of how they affect taxpayer’s activity;
  • description and conditions of the controlled transaction, with copies of the respective agreements (contracts);
  • description of the goods (works, services) including physical characteristics, quality and market reputation, country of origin and producer, trademark, other information on quality characteristics of goods;
  • information on payments made (amount, currency, date, payment documents);
  • factors that influenced the price determination, including business strategies that impact the price of goods (works, services);
  • information about functions performed, assets used and economic risks assumed by the parties to the controlled transaction;
  • economic and comparability analysis including a benchmarking study, justification of the appropriateness of the transfer pricing method(s), amount of income (profit) and/or expenses related to the controlled transaction, its profitability, source of information used;
  • information about the year-end adjustment(s) performed by the taxpayer (if any).
a) Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)?

The documentation requirement applies to all “controlled transactions” as listed under A.1. above.

b) What is the definition of “associated enterprises” for the purposes of this requirement (in particular, are transactions between a permanent establishment and its head office in the scope of the documentation requirement)?

Ukrainian tax legislation provides that in addition to ownership (20% direct or indirect shareholding) or control criteria (appointment of at least 50% of executive body of a company), parties can also be recognized as related parties based on financial criteria – i.e., if the amounts of all loans provided (and/or guaranteed) by one party to another exceed a ratio of 3.5 of the recipient company’s own capital.

With amendment of the Tax Code in 2015, the tax authorities were granted the right to initiate court proceedings to establish that the parties are related “based on facts and circumstances” by demonstrating that one legal entity (or individual) has practical control over another entity’s (or both entities’) business decisions. Currently no related case law is available.

The recent clarification by Ukrainian tax authorities addresses only documentation requirements relating to controlled transactions between a permanent establishment (hereinafter “PE”) in Ukraine of a non-resident and a Ukrainian taxpayer. There is no guidance as to whether transactions between a PE and its head office should fall within the scope of the documentation requirement.

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?

As Ukraine is not an EU member, Ukrainian taxpayers should comply with local documentation requirements.

d) For all countries (and, in particular, OECD countries), is the content of the documentation similar to that described in the revisions to chapter V of the OECD transfer pricing guidelines (final report on Action 13 of the BEPS project)? If not, are taxpayers entitled to choose between the local requirements and the OECD approach?

Ukraine is not a member of the OECD, furthermore, Ukrainian legislation does not allow taxpayers to freely choose the approach to transfer pricing documentation. Therefore, Ukrainian taxpayers can only use (comply with) local guidelines (requirements).

At the same time, the content of Ukrainian transfer pricing documentation is generally similar to that described in the revised chapter V of the OECD transfer pricing guidelines. However, Ukrainian legislation does not provide for either (i) a master file, or (ii) country-by-country reporting. In a limited manner, master file is implemented within transfer pricing documentation as “information about the group, including the legal structure, description of the activities, as well as the group’s transfer pricing policy”.

e) 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?

Non-residents are not obliged by law to provide transfer pricing information upon requests of Ukrainian tax authorities. Ukrainian tax authorities may request Ukrainian taxpayers to provide information, which is located in another state. Under the general rule, if the tax authorities request particular tax related documents/information, the taxpayer should provide such documents/information, or explain why such provision is not possible.

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

Comparable studies are included within the list of information to be gathered in a transfer pricing documentation. However, as Ukrainian approach to transfer pricing documentation is relatively new, currently there are no guidelines or clarifications from the Ukrainian tax authorities whether regional benchmark studies can be accepted.

g) If comparable studies are to be provided in general, are safe harbours/specific circumstances exempting taxpayers from preparing benchmark studies (such as the EU Joint Transfer Pricing Forum guidelines on low value adding services 1 Report called “Guidelines on low value adding intra-group services” adopted by the European Union Joint Transfer Pricing Forum during the meeting of 4 February 2010. or revisions to chapter VII of the OECD transfer pricing guidelines about low value adding intra-group services) in your jurisdiction or are there situations in which tax authorities do not request benchmark studies? If so, in which circumstances taxpayers are exempted from benchmark studies?

Ukrainian legislation does not provide for safe harbours/specific circumstances exempting taxpayers from preparing benchmark studies. Absence of such studies may result in tax authorities’ request for provision of such studies and/or explanation that controlled transactions comply with “arm’s length” price.

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

Ukrainian language has to be used in all communication with the Ukrainian tax authorities. If the documents/information are not in Ukrainian, a certified translation should 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 authorities can request transfer pricing documentation either (i) after submission of the report on the controlled transaction (the transfer pricing report – see C. below), which should be submitted by taxpayers involved in controlled transactions, no later than October 1 following the reporting year, (ii) follow-up request for additional information after initial request for transfer pricing documents (as stated in i above), and (iii) within the course of the transfer pricing tax audit.

Depending on the type of request, the taxpayer has the following timescales for provision of transfer pricing information:

  1. (i.) Upon request following submission of the transfer pricing report – within 30 calendar days from the date of receipt of the request,
  2. (ii.) Upon follow-up request for additional information – within 30 calendar days following receipt of the follow-up request,
  3. (iii.) During the transfer pricing tax audit – within 10 working days from the beginning of the audit and during 15 working days following the date of request receipt if additional documents are needed.

Failure to provide transfer pricing documentation is fined with an amount of 3% of the value of the controlled transactions, for which transfer pricing documentation was not provided, but is capped at the amount of UAH 320,000 (approximately Euro 10,700) (as of 2017). The capped fine amount applies to all controlled transactions concluded globally within the reporting year.

Late submission of transfer pricing documentation is subject to fine of UAH 3,200 (approximately EUR 110) (as of 2017) for each calendar day of delay in submitting transfer pricing documentation, but is capped at the amount of UAH 320,000 (approximately Euro 10,700) (as of 2017).

In addition, if a taxpayer does not provide transfer pricing documentation within 30 calendar days following the due day for payment of penalties for non-provision of transfer pricing documentation the fine in the amount of UAH 8,000 (approximately EUR 270) is applied for each day of non-provision of transfer pricing documentation (please note that this penalty is not capped).

Ukrainian law does not provide safe harbor rules with respect to this fine. Therefore, if the transfer pricing documentation is incomplete or not provided within the applicable timescale the taxpayer could face the abovementioned fine.

5. Does the absence or incompleteness of documentation reverse the burden of 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 justifying 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.

Generally, refusals to provide documents are unusual and taxpayers usually try to substantiate their contractual prices and provide relevant documentation.

Transfer pricing reassessment may be ground for initiation of the mutual agreement procedure provided by double tax treaties effective for Ukraine. Ukrainian legislation does not have any legal provisions depriving the tax payer from the mutual agreement procedure in case of lack of transfer pricing documents. In case of lack of the transfer pricing documents the penalties as listed under A.4. above apply. Please however note, that, we are not aware of any instance of the mutual agreement procedure being used in Ukraine

7. Any other relevant aspect not addressed above?

Not applicable.

B. Country-by-Country reporting (“CbCR”)

1. Did your jurisdiction implement the obligation to file a CbCR? If not, is the introduction of the CbCR in your jurisdiction contemplated and, if so, when?

Ukraine did not implement the obligation to file CbCR. Introduction of CbCR as part of transfer pricing documentation Tax Code of Ukraine is currently being discussed.

2. If the obligation to file a CbCR is in force, what is the tax year from which this obligation applies and what is the deadline for filing the CbCR?

Not applicable to Ukraine.

3. Which taxpayers have to file a CbCR in your jurisdiction?

Not applicable to Ukraine.

4. Is the content of the CbCR fully in line with the OECD model (final report on Action 13 of the BEPS project)? If not, what are the differences?

Not applicable to Ukraine.

5. What is the penalty for failing to file the CbCR on time? Can local subsidiaries of a foreign group suffer the local penalty if the foreign group has not filed the CbCR?

Not applicable to Ukraine.

6. Are there tax treaties in force in your jurisdiction allowing the communication of CbCR with other jurisdictions?

Not applicable to Ukraine.

7. Any other relevant aspect not addressed above?

Not applicable.

C. As the case may be, other documentation/filing requirement in relation to transfer pricing?

1. In your jurisdiction, are there any other documentation/filing requirements in relation to transfer pricing?

Ukrainian legislation provides for preparation and filing of the transfer pricing report.

2. If so, what is the content of such documentation/filing requirement? What language(s) are to be used by taxpayers?

The report on controlled transactions (defined under A.1. above) should include the following: (i) information about the taxpayer, (ii) general information about controlled transactions conducted within the fiscal (calendar) year, (iii) information about counterparties of controlled transactions, and (iv) information about related parties. 

The transfer pricing report should be prepared in Ukrainian language.

3. What is the deadline for meeting this documentation/filing requirement?

Each year, the transfer pricing report should be submitted by a taxpayer before 1 October, and should list controlled transactions for the previous year.

4. Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?

The report should be submitted by taxpayers, which conduct controlled transactions (as described in more detail under A.1 above).

5. What is the penalty for failing to meet this requirement on time?

Ukrainian Tax Code provides for the following penalties for failing to meet reporting requirement:

  1. (i.) failure to file the report is subject to a fine in the amount of UAH 480,000 (approximately EUR 16,000) (as of 2017);
  2. (ii.) failure to include controlled transactions into the report is subject to fine in amount of 1% of the value of the controlled transactions, which were not reported, but is capped at the amount of UAH 480,000 (approximately EUR 16,000) (as of 2017);
  3. (iii.) non-submission of the transfer pricing report within 30 calendar days following the due day for payment of penalties for non-submission of the transfer pricing report the fine in the amount of UAH 8,000 (approximately EUR 270) is applied for each day of non-submission of the transfer pricing report;
  4. (iv.) untimely filing of the transfer pricing report is subject to fine of UAH 1,600 (approximately EUR 60) (as of 2017) for each calendar day of delay in filing transfer pricing report, but is capped at the amount of UAH 480,000 (approximately EUR 16,000) (as of 2017);
  5. (v.) untimely reporting of the controlled transaction in the transfer pricing report is subject to fine of UAH 1,600 (approximately EUR 60) (as of 2017) for each calendar day of untimely reporting of the controlled transaction, but is capped at the amount of UAH 480,000 (approximately EUR 16,000) (as of 2017).

Furthermore, failure to submit (or late filing of) the transfer pricing report is one of the grounds for conducting a transfer pricing tax audit.

6. Any other relevant aspect not addressed above?

Not applicable.