Tax Regulation

The new legislation in the area of transfer pricing implies a large number of additional regulations that would provide the necessary mechanisms for the practical application of the relevant norms. In particular, these include documents that should be approved by the Cabinet of Ministers of Ukraine.

As of now, there are three resolutions that have been approved and published by the Cabinet of Ministers and two orders that regulate application of the legislation in the area of transfer pricing. These include the following:

— Resolution of 2 October 2013 No.749 On Approval of the Percentage Range of Prices for Certain Goods in accordance with the Ukrainian Goods Classifier for Foreign Trade for the Purpose of Transfer Pricing. This Resolution approves the list of certain goods that are subject to special provisional rules for the period through 1 January 2018.

— Resolution of 17 October 2013 No.764 On Approval of the Order for Coordination of Prices in the Controlled Foreign Transactions, based on which Bilateral or Multilateral Agreements are Executed, for the Purposes of Transfer Pricing.

“This Order has been developed for major taxpayers and defines the procedure for coordination of prices that precedes conclusion of agreements with the controlling authority”, noted Yaroslav Romanchuk, managing partner of the International Legal Center EUCON, Vice-Chairman on legal, tax and customs issues of the ICC Ukraine, Chairman of the Public Council at the Ministry of Revenue and Taxes. As a result of such coordination, they may approve the list and price of goods, works (services), sources of information, and the period of such coordination, he adds.

Resolution of 17 October 2013 No.763 On Approval of the Order of Calculation and Application of the Market Price Range and the Market Profitability Range for the Purposes of Transfer Pricing.

In accordance with legislation, the market price range is calculated for application of the method of comparative uncontrolled price (analogue of sales), and the market profitability range is calculated in order to determine the usual price under the resale price method, “cost-plus” and net profit. For the method of profit distribution, the market price range and/or the market profitability range are calculated.

The approved Order regulates price sampling and offers mechanisms for determination of maximum and minimum values of the market price and the market value of the profitability range:

Order of 23 October 2013 No.866-r On the List of the Sources of Information on Market Prices for the Purpose of Transfer Pricing Order of 23 October 2013 No.865-r On the List of Specialized Business Publications for the Purpose of Transfer Pricing.

In addition, the Cabinet of Ministers of Ukraine shall approve the list of countries (territories), where the income tax rate (corporate tax) is 5% or more percent lower than in Ukraine.

“In order to determine prices of banking services, the National Bank of Ukraine and the Ministry of Revenue and Taxes shall approve an appropriate methodology”, Mr. Romanchuk stressed. A working group of experts is currently working on this issue. And the National Commission for the State Regulation of Financial Services Market shall approve the methodology for determination the price of insurance rate for controlled transactions. Currently, the finalized draft order with comments and suggestions of the Ministry of Revenue and Taxes is published on the official site of the National Commission.

“The Draft suggests to use the method of comparable uncontrolled price (analogue of sale) to determine the insurance rate for controlled transactions for agreements on voluntary insurances”, he added. The method is based on comparing insurance rates of controlled transactions against the range of insurance rates of the insurance agreements concluded by a given insurer with unrelated parties.

In addition to the above documents, the Ministry of Revenue and Taxes has developed and published on its website Drafts of the following Orders:

On Approval of the Form and the Procedure of the Report on Controlled Transactions;

On Approval of the Act (Information) about the Findings of the Audit of a Taxpayer on Completeness of Calculation and Payment of Taxes and Fees during Controlled Transaction(s) and Requirements to the Report.

“All of the above regulations will be discussed in detail at the upcoming seminars that are held weekly by the Transfer Pricing School”, Mr. Romanchuk concluded.