Ukrainian Parliament Adopts Several Major Changes to the Transfer Pricing Legislation
13th May 2014
On Tuesday 13 May 2014, the Ukrainian Parliament adopted Draft Law No. 4527 (hereinafter, the “Draft Law”) amending the existing transfer pricing provisions (hereinafter, the “TP”) in the Tax Code of Ukraine. The Draft Law was passed by 241 votes and delivered to the acting President for signature.
Below you may find a brief overview of key provisions and changes introduced by the Draft Law. Please note that this Alert is prepared based on the previously published version of the Draft Law. Final version of the adopted Draft Law will only be available at a later date.
Key Changes in Transfer Pricing Rules
Retrospective shift of the deadline for submission of reports on controlled transactions
The deadline for submitting the reports on controlled transactions for the first reporting period (1 September 2013 – 31 December 2013) is shifted from 1 May 2014 to 1 October 2014. This has been performed in a retrospective manner, as the original deadline expired on 01 May 2014.
Significant reduction of fines for non-submission of report on transfer pricing, extension of grace period
The amount of fine for the failure to submit a report on controlled transactions is reduced to 100 minimum wages (for the first reporting period, this will amount to UAH 114,700 UAH). Previously, the fine was set at 5% of the total amount of controlled transactions.
The amount of fine for the failure to submit transfer pricing documentation is reduced to 10 minimum wages (for the first reporting period, the fine will amount to UAH 11,470). Under previous rules, the fine at the rate of 100 minimum wages was to be applied.
The grace period during which the fine for TP-related violations will apply in the amount of UAH 1 is extended until 31 December 2014 (previously, it was set to expire on 31 August 2014). Furthermore, no fine will be applied for the period from 1 September 2013 to 31 December 2014 in case of self-adjustment of TP-related tax liabilities. The fines discussed in this paragraph are not applicable to the failure to submit the report or documentation (fines for the failure to submit were addressed in the previous paragraph).
Changes to calculation of the UAH 50 mln. threshold
The Draft Law makes it clear that only business transactions involving purchase of goods/works/services must be counted towards the UAH 50 mln. threshold (which defines whether transactions between two parties will be considered as controlled for TP purposes). Note that the previous version of the Tax Code, on its literal reading, required the calculation to be performed based on all transactions. This change is intended to resolve uncertainties and reduce the volume of transactions to be taken into consideration when calculating the threshold. Previously, the tax authorities stated that such transactions as receipt/repayment of a loan, distribution of dividends, contribution to authorized capital should all be included into the calculation. The new version is supposed to provide more grounds for exclusion of these transactions from the calculation.
The above changes will take effect from the date of publication of the Law. Consequently, we cannot rule out the risk that the tax authorities will insist on application of the previous legislation with respect to the period from 1 September 2013 to 31 December 213 and, possibly, to the current year up to date.
These changes are only the first step towards improvement of transfer pricing rules in Ukraine. Other important changes are expected to be introduced in this area in the future.