Compliance of conditions of controlled operation with regard to raw materials to the principle of an "outstretched hand" is now regulated by the Procedure

Ministry of Finance of Ukraine approved Order № 19 as of 18.01.2022 "On approval of Procedures for establishing compliance with conditions of controlled operation regarding raw materials to the principle of an "outstretched hand" (hereinafter – Procedure), which was registered in the Ministry of Justice of Ukraine as of 16.06.2022 under №662/37998.

Taking into account provisions of the Tax Code of Ukraine (hereinafter – TCU), the Procedure will enter into force on January 1, 2023.

Procedure is applicable to controlled operations with raw materials, list of which is approved by Resolution №1221 of the Cabinet of Ministers of Ukraine as of 09.12.2020.

Procedure is a joint development of the Ministry of Finance, State Security Service and international experts. It is based on recommendations of the OECD Guidelines, which are generally recognized as methodological materials in the transfer pricing sphere.

Purpose: regulation of methodological aspects of establishing compliance with conditions of controlled operations regarding raw materials to the principle of an "outstretched hand" according to Sub-paragraphs 39.3.3.4 and 39.3.3 of Paragraph 39.3 Article 39 of the TCU.

Users: taxpayers and regulatory authorities.

Expectation: introduction of Procedure will allow taxpayers who carry out controlled operation with raw materials to correctly determine amount of taxable profit according to principle of an "outstretched hand" and make independent adjustment of tax liabilities based on revision results of the property price before the audit start. It will also help increase tax culture and voluntary tax payment.

At the same time, approved rules will provide an opportunity for the supervisory body to conduct quality tax control to establish compliance of conditions of controlled operations with principle of an "outstretched hand", which, in turn, will ensure practical implementation of provisions of the TCU regarding raw materials and effectiveness of preventive measures in matters of tax evasion.

Structure:

General Procedure for establishing compliance of conditions of controlled operation with regard to raw materials to principle of an "outstretched hand".

Specified Procedures for operations with:

- export of grain, oil crops and products of their processing;

- export of iron ore raw materials;

- import of energy and coking coal;

- import of oil products and liquefied hydrocarbon gases;

- export of cast iron, ferrous metal scrap and metal products from ferrous metals;

- export and import of ferroalloys.

Procedure provides for definitions, in particular:

- priorities of the comparative uncontrolled price method;

- peculiarities of making adjustments for comparability of operations with raw products;

- application peculiarities of other methods of transfer pricing (approaches to functional analysis, definition of business models, selection of investigated party, use of external sources of information);

- application peculiarities of quoted prices and adjustments in terms of groups of raw materials.