TRANSFER PRICING RULES 2020
05/06/2020
On May 23, the Law of Ukraine "On Amendments to the Tax Code of Ukraine to Improve Tax Administration, Eliminate Technical and Logical Inconsistencies in Tax Legislation" entered into force № 466, which covers a very wide range of tax issues, including the improvement of transfer pricing rules and the implementation of the BEPS action plan.
Most of the changes are the folowing:
1. Related entities:
- the threshold for recognizing persons as related has been reduced to 20% of one person's ownership of the corporate rights of another legal entity;
- the number of people who can be considered related has been expanded. Entities without the status of a legal entity may also be recognized as related parties.
2. A three-level transfer pricing reporting model has been implemented in national legislation, which consists of:
- transfer pricing documentation;
- global transfer pricing documentation;
- report by countries of international group of companies.
3. Taxpayers who carry out controlled transactions will be required to inform the supervisory authority about participation in an international group of companies;
4. Taxpayers who purchase services or works, intangible assets or other items from non-residents during controlled transactions are now required to justify the economic feasibility of such transactions (economic benefits resulting from their implementation) and the availability of business purpose of acquisition of such works (services), intangible assets, etc.
5. From January 1, 2021, conducting controlled transactions with non-residents - related entities or non-residents registered in "low-tax" jurisdictions or non-residents which have a "risky" legal form (in which a "hidden income" can be concentrated and stored), for tax purposes is equated to dividends in accordance with article 14.1.49 of the Tax code of Ukraine. If a taxpayer pays such "hidden income" to a non-resident, he must deduct from the difference in income (value of goods), that does not comply with the principle of "outstretched arm", income tax of a nonresident at a rate of 15 percent (unless another rate is set by an international agreement);
6. In addition to the existing import 30% adjustment of the financial result when purchasing goods from non-residents registered in "low-tax" jurisdictions or belonging to "risky" legal forms, taxpayers must make a similar 30% adjustment when conducting export transactions with such non-residents.
It is expected that these changes will not allow companies to hide profits in offshore or "risky" jurisdictions.
This document provides general information on the subject and does not constitute a legal opinion or recommendation. Consulting a specialist is recommended before taking an action. No claim arising from the content of or relating to this document can be asserted against NAZALI.