Given the rise in the exchange rate in recent years, the number of taxpayers engaged in foreign economic operations, which are controlled in terms of transfer pricing, is growing steadily. Based on the information of the DFSU, about 3,000 companies submitted a report on controlled transactions for 2015. At the same time, quite a number of companies currently find themselves under inspection procedures related to establishment of facts of failure to submit reports and quite often company officials are not ready to accept information on the amount of fines established for violations of legislation in the field of transfer pricing. “It is because of high fines that we always emphasize the need to treat legislation requirements very carefully in order to avoid mistakes that entail significant losses”, says Yaroslav Romanchuk, managing partner of ILC EUCON.
For the period of legislation activity the amounts of fines were changed several times and currently they are established as follows, under Clause 120.3 of the Tax Code of Ukraine.
Failure to submit a report on controlled transactions and/or documentation on transfer pricing by a taxpayer, or omission of information on all controlled transactions performed during the reporting period in such a report, entails a fine in the amount of:
— 300 minimum wages established by the law on 1 January of the tax (reporting) year — in case of failure to submit (late submission of) report on controlled transactions;
— 1% of the amount of controlled transactions, undeclared in a submitted report on controlled transactions, but not more than 300 minimum wages established by law on 1 January of the tax (reporting) year for all undeclared controlled transactions;
— 3% of the amount of controlled transactions, for which no documentation was submitted, but no more than 200 minimum wages established by law on 1 January of the tax (reporting) year for all controlled transactions carried out in the respective reporting year.
For example, for the 2015 reporting year the sum of the fine for failing to submit a report on controlled transactions totals UAH 365,400.00.
As explained by Mr. Romanchuk, fine sanctions are applied (both for failure to submit the report and for incomplete declaration) on the basis of unscheduled documentary inspections carried out in accordance with Article 78 of the TCU. “These inspections are not inspections of controlled transactions themselves because their subject is not an audit of transfer pricing (accuracy of price determination)”, he added.
Many questions arise as in what cases is a decision adopted to impose a fine for failing to submit documentation, and whether submission in the inappropriate form or incomplete submission are deemed as failure to submit.
The DFSU provided the following explanation on this issue: fine sanction for failure to submit documentation, stipulated for in Clause 120.3 of the TCU, is applied by a supervisory authority to a taxpayer in the following cases:
— If a taxpayer did not provide an answer to the request in accordance with requirements of Article 39 of the TCU. As documentation is submitted by a taxpayer in any form, as failure to submit documents is considered absence of a taxpayer’s response to request of the DFSU within the established time limit of thirty days;
— If a payer provided documentation at the first request, but not in full, as provided in Clause 39.4.6 of the TCU, such a taxpayer is sent an additional request. If the response to an additional request does not include the amount of information specified in Clause 39.4.6 of the TCU, a fine is applied to such taxpayer.
“The fact of failure to submit documentation must be recorded in the act of unscheduled documentary inspection. Inspection results are recorded by the relevant act, under which the head of a supervisory authority adopts the tax assessment notice (with calculation of fines)”, notes Mr. Romanchuk.
According to the requirements of the TCU, it was found that fine sanctions as a result of inspections, carried out by supervisory authorities, are applied in the amounts stipulated by the legislation in force on the day of adoption of the decision on application of such fine sanctions.
Thus, in the case of application of a fine sanction in 2015 for failing to submit documentation on controlled transactions carried out by a taxpayer in the period of 2013–2014, a fine sanction is applied in the amount prescribed by Clause 120.3 of TCU, as in force on the day of the adoption of the decision on application of sanctions.
Source: The Ukrainian Journal of Business Law, December 2016