On September 8, another online webinar was held by the Association of Taxpayers of Ukraine on the topic “Application of International Financial Reporting Standards and Transfer Pricing”. Larysa Vrublevska, Auditor, Partner, Head of Transfer Pricing Practice at EUCON, became a speaker at the event of the Association of Taxpayers of Ukraine, delivering a lecture on “Transfer pricing. Transfer pricing reporting for 2021”.
Thus, the lecturer began the report by describing the stages of preparation of reporting on Controlled Transactions, in particular in terms of reporting, liability, exemption from liability, amendments to reporting and penalties.
In the context of military realities, important issues of responsibility, inspections and reporting obligations during the martial law were discussed. The speaker emphasized that tax audits are not initiated, and initiated audits are suspended, except for: a) cameral audits; b) documentary unscheduled audits conducted on the grounds specified in subpara. 78.1.7 and 78.1.8 of the Tax Code of Ukraine, and / or documentary unscheduled audits of taxpayers, on which tax information was received, which indicates that the taxpayer violated the currency legislation in terms of compliance with the deadlines for the receipt of goods for import operations and / or foreign exchange earnings from export operations; c) actual inspections. Documentary unscheduled inspections on all other grounds are prohibited during martial law.
Larysa Vrublevska also considered the aspects of monitoring, describing in detail all the features of the mechanism and the moratorium on inspections. Separately, the participants analyzed the transfer pricing scheme in action.
The lecturer analyzed in detail the peculiarities of reporting in the field of transfer pricing for 2021, the issues of an international group of companies, the calculation of the total consolidated income of international group of companies, the impact of the COVID-19 pandemic on the transfer pricing sphere.
Particular attention was paid to important problems in the field of transfer pricing, including problems with the justification of losses, comparability analysis, fluctuations in the level of operating profit of negative exchange rate differences, the growth of certain types of unplanned expenses, the inability to use historical / retrospective data, the delay in obtaining information on the indicators of 2020/2021, the inability to additional financing of losses by the main companies, the redistribution of losses and expenses within the Group, the increased impact of additional risks (commercial, financial), etc.
Larysa Vrublevska voiced recommended solutions that should be applied to solve these problems. For example, the expert advised to try to change the approaches to the use of data for comparative analysis, in particular, to apply the OECD recommendations to tax administrations to ensure flexibility; change the transfer pricing methods; try to prove the impact of force majeure; use the revision/cancellation of the terms of existing APA agreements/preliminary pricing agreements, etc.
The expert comprehensively analyzed the issue of business purpose with examples, in particular, the content of the definition and the legislative basis, changes introduced in 2021, tax periods, analysis algorithm, lack of commercial rationality, etc.
Ms. Vrublevska also considered hidden (constructive) dividends, in particular, presented a scheme in the context of the sale of goods, works, services. The issues of adjustment by 30% of subpara. 140.5.4., 140.5.5.-1 of the Tax Code of Ukraine were not ignored.
The EUCON auditor did not ignore the issue of practical aspects of transfer pricing: 1) the criteria of revenue volume for the formation of the primary sample; 2) the quality of the final sample; 3) segmentation of accounting data; 4) the choice of time period for analysis, the use of historical data.
The speech ended with the review and analysis of the current court practice of the Supreme Court in the field of transfer pricing.