Legitimacy of conclusions of the transfer pricing audit

Ukraine has been implementing rules on control over the transfer pricing and developing relevant practices since 2013.

According to the world experience in the context of avoiding double taxation of taxpayers, as well as counteracting erosion of the tax base – shopping center mechanism is the most perspective for filling in the state budget.

In order to form a reasonable position of controlling bodies in the control of transfer pricing, the State Tax Service constantly cooperates with the OECD and other leading international experts.

Judicial practice on the transfer pricing is already being formed based on the audit results under judicial appeal.

On 21.01.2021, the Cassation Administrative Court of the Supreme Court of Ukraine made a Decision in case № 826/17841/17, which confirmed position of the State Tax Service, determined by audit of controlled operations of the large taxpayer-producer of mineral fertilizers, one of the largest financial and industrial groups in Ukraine and legality of additional accrual of corporate income tax in the amount of more than 43 million UAH and a decrease in the negative value by 195 million UAH.

The case concerned objectivity of tax audit conclusions on the pricing in controlled operations of company involved in the export of mineral fertilizers to a related resident of Switzerland at reduced prices and import of natural gas of Russian origin from a related resident of Cyprus at significantly inflated prices.

In this case, the controlling body proved that foreign economic operations of the specified enterprise were not aimed at making a profit, objective formation of the taxation object and payment of taxes in Ukraine but at creating conditions that contributed to unreasonable earning of income by non-residents.

Specified court Decision is another branch in cases of appealing results of audit of enterprises producing mineral fertilizers, according to which the Cassation Administrative Court of the Supreme Court of Ukraine in cases № 857/3010/18 and № 818/1786/17 has already confirmed the legitimacy of the State Tax Service in determining normal prices for controlled operations on export and import.

Result of the above mentioned work is a positive tendency in the removal of enterprises in this group from unprofitable, as well as payment of income tax to the state budget.

As follows, ensuring the introduction of best practices in risk identification in Ukraine, adherence to the methodology defined by the Tax Code and the OECD Guidelines and, as a consequence, formation of positive judicial practice on shopping center is one of the priority tasks for the State Tax Service.

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