Audits: Grounds for audits on the transfer pricing and international taxation have been expanded

List of grounds for carrying out unscheduled documentary audits has been expanded according to the Law of Ukraine "On amendments to the Tax Code of Ukraine and some other laws of Ukraine regarding the privatization of state and communal property subject to the tax lien and ensuring administration of the tax debt repayment" № 2719-IX as of 03.11.2022 (entered into force on 24.11.2022).

From 24.11.2022 to the following grounds, according to Sub-paragraph "b" of Sub-paragraph 69.2 Paragraph 69 Sub-section 10 Section XX "Transitional Provisions" of the Tax Code of Ukraine (hereinafter – Code), there are grounds, in particular, on the transfer pricing issues and international taxation.

In part of control over the transfer pricing, unscheduled documentary audits were renewed for the following grounds:

- tax declaration, calculations and reporting for the tax control over the transfer pricing were not submitted within a period established by the law according to Paragraph 39.4 Article 39 of the Code (Sub-paragraph 78.1.2 Paragraph 78.1 Article 78 of the Code);

- in case of receipt of documented information and data indicating non-compliance of conditions of controlled operation with the "arm's length" principle and/or establishment of non-compliance of conditions of controlled operation with the "arm's length" principle according to procedure provided for in Sub-paragraph 39.5.1.1 of Sub-paragraph 39.5.1 Paragraph 39.5 Article 39 of the Code (Sub-paragraph 78.1.14 Paragraph 78.1 Article 78 of the Code);

- non-submission by the taxpayer or submission in violation of requirements of Paragraph 39.4 Article 39 of the Code of report on controlled operations and/or documentation on the transfer pricing or in case of violations during the monitoring of such report or documentation according to requirements of Paragraphs 39.4 and 39.5 Article 39 of the Code (Sub-paragraph 78.1.15 Paragraph 78.1 Article 78 of the Code); receipt of report on controlled operations sent by the taxpayer according to Paragraph 39.4 Article 39 of the Code. In such case, audit is carried out exclusively on the transfer pricing control issues (Sub-paragraph 78.1.16 Paragraph 78.1 Article 78 of the Code).

In part of control over the international activities, the following grounds are provided for carrying out unscheduled documentary audits:

- on issues of taxation by legal entities or other non-residents who carry out economic activity through a permanent representative office on the territory of Ukraine, income received by non-residents with a source of origin from Ukraine;

- non-residents (non-residents’ representative offices);

- in case of receiving information indicating that non-resident conducts economic activity through a permanent representative office on the territory of Ukraine, according to requirements of Sub-paragraph 14.1.193 Paragraph 14.1 Article 14 of the Code, without inclusion in the tax register (Sub-paragraph 78.1.22 Paragraph 78.1 Article 78 of the Code).

In addition to those already indicated, there are grounds that are applied, in particular, due to the tax information exchange with competent authorities of foreign countries, in particular:

- if, after conduction of scheduled documentary audit or unscheduled documentary audit, information and/or documents are received from the foreign state bodies that relate to issues that were covered during the previous audits of the taxpayer and testify to the taxpayer’s violation of tax, currency and other legislation, control over compliance with which is entrusted to the controlling authorities. Such audit is carried out exclusively in relation to issues that became basis for conducting such audit (Sub-paragraph 78.1.21 Paragraph 78.1 Article 78 of the Code);

- in the case of receipt of information indicating that non-resident conducts economic activity through a permanent representative office on the territory of Ukraine, according to requirements of Sub-paragraph 14.1.193 Paragraph 14.1 Article 14 of the Code, without tax accounting (Sub-paragraph 78.1.22 Paragraph 78.1 Article 78 of the Code).

The above-specified audits are carried out taking into account norms of Paragraph 69.2 Article 69 Sub-section 10 Section XX "Transitional Provisions" of the Code, namely in the presence of safe access, admission to relevant territories, premises, documents of taxpayers and other.

Documentary unscheduled audits that have been initiated but cannot be completed due to the occurrence of circumstances provided for in this Paragraph may be stopped until the completion of such circumstances and/or removal of obstacles for audit.

It is also worth noting that unscheduled documentary audits on the grounds, specified in Sub-paragraphs 78.1.14 – 78.1.16 Paragraph 78.1 Article 78 of the Code, which were started and not completed by 24.02.2022, are renewed for the unused term.

At the same time, before grounds arise and the controlling authority begins audit, taxpayers who have carried out controlled operations have opportunity to review their controlled operations for compliance with the "arm's length" principle and take advantage of the self-correction possibility (submission of detailed calculation until 01.10.2023) according to Sub-paragraph 39.5.4 Paragraph 39.5 Article 39 and Paragraph 50.1 Article 50 of the Code.

It should also be taken into account that according to norms of Paragraph 50.1 Article 50 of the Code, taxpayers have opportunity to voluntary payment of income tax of foreign legal entities by submitting clarifying calculations.

Reminder! Sub-paragraph 69.1 Paragraph 69 Sub-section 10 Section XX "Transitional Provisions" of the Code stipulates that in the absence of opportunity to fulfill one's tax obligation in a timely manner regarding compliance with payment terms of taxes and levies, submission of reporting and/or documents (notifications), in particular, provided for in Articles 39 and 39² of the Code, Paragraph 46.2 of the Code, taxpayers are exempted from responsibility stipulated by the Code with mandatory performance of such obligations within six months after the termination or abolition of martial law in Ukraine.

Reference: Transfer pricing and international taxation issues may also be investigated during audits organized according to Sub-paragraphs 78.1.5, 78.1.7, 78.1.12 Paragraph 78.1 Article 78 of the Code.