Transfer pricing in Ukraine is 10 years old

Ten years ago, transfer pricing regulations were introduced into national legislation, which became important tool for combating tax evasion and ensuring stability of revenue part of the budget.

Law of Ukraine № 408-VII as of 04.07.2013 "On amendments to the Tax Code of Ukraine on transfer pricing" entered into force on September 1, 2013.

Process of establishing legislative rules on the transfer pricing was accompanied by implementation into the Tax Code of Ukraine of the OECD Guidelines, which are the main international advisory and methodological document in tax regulation of the transfer pricing for multinational companies and tax services.

In addition, since 2017, Ukraine has joined the Program for expanding cooperation within the framework of the OECD and has undertaken to implement the minimum standard of the BEPS Action Plan in order to counter aggressive tax planning, including by improving the transfer pricing rules, which are effective tool to combat money laundering tax base and withdrawal of income from taxation.

In general, over the past 10 years, Ukraine has made a significant breakthrough in development of the transfer pricing system, in particular, due to a consistent policy on implementation of steps of the BEPS Plan, GAAR rules, concentration of shopping centers, control over activities of non-residents, controlled foreign companies, passive income into a single effective control tool according to rules of international taxation that corresponds to the best global practice.

Analytical work and control measures were carried out by the State Tax Service in the process of ten-year formation of legislative framework for shopping centers, which in general provided significant results, as reported by director of the Transfer pricing department of the State Tax Service Kateryna Ryzhenkova.

For a period from 2013 to 2021, taxpayers submitted about 21 thousand reports, which is average of 2400 reports per year. Volume of controlled operations during this period is 21.3 trillion UAH, average of 2.4 trillion UAH per year.

During 2015-2023, more than 1 thousand business entities submitted clarifying declarations and increased tax base by 32.8 billion UAH, which led to assessment of 2.9 billion UAH of the corporate income tax and reduction in losses by 12 billion UAH.

102 documentary audits on compliance with the "arm's length" principle were carried out (during 2015-2023), as a result of which 1.8 billion UAH of the income tax was added and losses were reduced by 7.5 billion UAH. Taking into account appeal of tax notifications-decisions, 440 million UAH of the income tax was received to the budget, agreed losses according to the acts amounted to 3.8 billion UAH.

Almost 1300 cases of violation by taxpayers of requirements of tax legislation (during 2015-2023) regarding the timeliness and completeness of declaration of controlled operations, submission of documentation from shopping centers were established and fines totaling 333.6 million UAH were applied.

Due to the introduction of changes to the Tax Code of Ukraine in terms of expansion of the "dividends" concept, which came into effect on January 1, 2021 and the explanatory work carried out by taxpayers, additional 300 million UAH of tax on the income of non-residents ("constructive dividends") was paid to the budget.

In general, since the introduction of tax control in the transfer pricing direction, budget received additional 3.5 billion UAH and losses were reduced by 15.8 billion UAH.

Proper work of tax officials, whose activities are aimed at combating erosion of tax base and removal of profit from taxation, was noted by acting Deputy Head of the State Tax Service Yevhenii Sokur. To date, the State Tax Service is intensively working on the implementation into national legislation of certain steps of the BEPS Plan, which are aimed at countering aggressive tax planning, including: improvement of the transfer pricing rules, prevention of tax avoidance through international treaties, taxation of income of controlled foreign companies, exchange of information, and much more others. These are quite new directions for the State Tax Service that require specific knowledge and skills, therefore, the Transfer pricing department has formed appropriate units.

Ukraine is fully involved in global processes of combating erosion of tax base and withdrawal of profits from taxation and continues to work on improving national transfer pricing system.