State Tax Service of Ukraine in order to ensure compliance with the Tax Code of Ukraine, taking into account changes made in connection with imposition of the martial law in Ukraine and simultaneous application of taxation peculiarities, which were introduced during the implementation of measures aimed at preventing emergence and spread of the coronavirus disease (COVID-19), to ensure cooperation between taxpayers and the State Tax Service, informs about rights and responsibilities of taxpayers and regulatory authorities regarding control over the transfer pricing.
1. Regarding submission of reporting on controlled operations and taxpayers’ liability for violations of tax legislation.
According to requirements of Paragraph 39.4 Article 39 of the Tax Code of Ukraine № 2755-VI as of 02.12.2010 with changes and amendments (hereinafter – TCU) for tax control over the transfer pricing there are following types of reporting and deadlines for its submission:
- Report on controlled operations and Notification of participation in an international group of companies – the deadline for submission of reporting for 2021 is 01.10.2022 (Sub-paragraph 39.4.2 of the TCU).
- Documentation on transfer pricing (local file) – at request of the State Tax Service within 30 calendar days from the date of receipt of request (Sub-paragraph 39.4.4 of the TCU).
- Global documentation (master file) – is applied for the first time for financial year ending in 2021, submitted at request of the State Tax Service within 90 calendar days from the date of receipt of request, but the State Tax Service has a right to request a master file not earlier than 12 and not later than 36 months from the end of financial year established by the international group of companies to which such taxpayer belongs and in the absence of information about financial year established by the international group of companies – not earlier than 12 months and not later than 36 months after the end of reporting year (Sub-paragraph 39.4.7 of the TCU).
- Report by country of the international group of companies – is applied for the first time for financial year ending in 2021 but not earlier than a year in which the competent authorities concluded a multilateral agreement on the automatic exchange of interstate reporting (Article 53 of “Transitional Provisions” of the TCU).
Temporarily, for a period before termination or abolition of the martial law on the territory of Ukraine, collection of taxes and levies is carried out taking into account features specified in Sub-paragraph 69.1 Paragraph 69 Sub-section 10 Section XX “Transitional Provisions” of the TCU (amendments made by the Law of № 2260). Legislative changes for taxpayers provide for the tax collection peculiarities in the following situations:
- taxpayer does not have opportunity to fulfill tax obligation in a timely manner – there is a release from liability but such taxpayer is obliged to perform such obligation within 6 months after termination or termination of the martial law;
- taxpayer has opportunity to timely fulfill tax obligation – there is a release from liability for late performance of such obligations deadline for performance of which falls on a period from 24.02.2022 to 26.05.2022 under condition of registration of tax invoices and adjustment calculations until 15.07.2022, submission of tax reporting until 20.07.2022 and payment of taxes and levies not later than 31.07.2022;
- taxpayer’s opportunity resumed to perform tax obligations, term of execution of which falls on a period from 24.02.2022 to the date of resumption of opportunity – there is a release from liability for late performance of such obligations, subject to registration of tax invoices and adjustment calculations, submission of reporting, payment of taxes and levies within 60 calendar days from the first month following month of resumption of such opportunities.
Please note that confirmation of possibility or impossibility of the taxpayer’s performance of obligations will be carried out according to a separate Procedure, which will be approved by the Ministry of Finance of Ukraine.
Herewith, according to requirements of Paragraph 521 Sub-section 10 Section XX "Transitional Provisions" of the TCU, for violations of tax legislation committed during a period from 01.03.2020 to the last calendar day of a month (inclusively), which ends quarantine established by the Cabinet of Ministers in the territory of Ukraine in order to prevent spread of the coronavirus disease on the territory of Ukraine (COVID-19), the penalties are not applied (except for exceptions, which do not include issues related to transfer pricing).
2. Limitation periods.
According to requirements of Paragraph 102.1 Article 102 of the TCU, the total statute of limitations (from 2015) for conduction of audits and determination of amount of monetary obligations for regulatory authority and the taxpayer is 2555 days (7 years), following the last day of a deadline for submitting tax declaration and / or deadline for payment of monetary liabilities accrued by the regulatory authority and if such tax declaration was submitted later – on the day of its actual submission.
If the taxpayer submits clarifying calculation to tax declaration or clarifying declaration, the term of 2555 days is calculated from the date of submission of the clarifying calculation (declaration) within the submitted clarifications.
To determine periods to which the statute of limitations applies, it is necessary to take into account that according to Sub-paragraph 39.4.2 Paragraph 39.4 Article 39 of the TCU (as amended on 01.01.2017), the deadline for submission of reporting on controlled operations for 2015 expired on 01.05.2016 and for 2016 and subsequent reporting years – 01.10.2017 and subsequent years.
Paragraph 522 Sub-section 10 Section XX "Transitional Provisions" of the TCU (as amended by the Law № 591-IX as of 13.05.2020) stipulates that for a period from 18.03.2020 to the last calendar day of a month (inclusively), which ends quarantine established by the Cabinet of Ministers of Ukraine throughout Ukraine to prevent spread of the coronavirus disease in Ukraine (COVID-19), there is suspended statute of limitations determined by Article 102 of the TCU.
However, validity of Paragraph 522 Sub-section 10 Section XX "Transitional Provisions" of the TCU is suspended for a period of the martial law, state of emergency (as amended by the Law of Ukraine № 2120-IX as of 15.03.2022).
Herewith, according to requirements of Paragraph 102.9 Article 102 of the TCU (as amended by the Law of Ukraine № 2120-IX as of 15.03.2022), expiration of the statute of limitations is suspended for payers and the controlling body during the martial law, state of emergency.
As follows, the statute of limitations in terms of control over transfer pricing has been suspended since 18.03.2020.
3. Regarding conduction of audits on the transfer pricing.
During the martial law in Ukraine, tax audits are not initiated and ongoing audits are suspended, except for certain exceptions (which are not applicable to audits on transfer pricing) (Sub-paragraph 69.9 Paragraph 69 Sub-section 10 Section XX "Transitional Provisions" of the TCU).
It should be also noted that for completed audits, terms for submitting objections against the audit act and appeals against tax notifications-decisions are also suspended for a period of the martial law in Ukraine.
In this case, audits on compliance with principle of the "outstretched hand" are suspended according to the above specified norms of the Code and defined in Sub-paragraph 188.8.131.52 Article 39 of the Code terms of such audits are also suspended.
4. Regarding the single tax at 2% interest rate and criterion of controlled operations.
According to requirements of Paragraph 9 Sub-section 8 Section XX "Transitional Provisions" of the TCU (Law № 2120-IX), the taxpayers were able to voluntarily change taxation system from general to Group III of the single tax at 2% of income rate.
Forming reports on transfer pricing it should be noted that after termination or abolition of the martial law, a state of emergency in Ukraine, taxpayers, who used taxation peculiarities to pay the single tax at 2% interest rate of income, from the first day of a month following the month of its termination or abolition lose the right to use such taxation peculiarities and are automatically considered those who use taxation system on which they were before election of these taxation peculiarities.
In this case, in order to determine compliance with the "cost" criteria for classifying operations as controlled, amount of annual taxpayer’s income is calculated from any activity for the entire reporting year, including taking into account the above specified taxation peculiarities (payment of the single tax at 2% interest rate of income).
At the same time, operations carried out by the taxpayer during payment of the above specified single tax are not taken into account determining criterion of controlled operations in the amount of 10 million UAH if they do not affect the corporate income taxation object.
This information is provided taking into account the Laws on amendments to the Tax Code of Ukraine №2118-IX as of 03.03.2022 (entered into force on 07.03.2022), №2120-IX as of 15.03.2022 (entered into force on 17.03.2022), №2142-IX as of24.03.2022 (entered into force on 05.04.2022), № 2173-IX as of 01.04.2022 (entered into force on 16.04.2022), №2260-IX as of 12.05 .2022 (entered into force on 27.05.2022).