Results of the 2022 declaration of controlled operations campaign

According to results of the reporting year 2022, the State Tax Service of Ukraine received 2 292 reports on controlled operations, which is approximately equal to the last year's figure.

Amount of controlled operations declared by the taxpayers is 2.2 trillion UAH, which is 1.5 trillion UAH less than in 2021. At the same time, volumes of controlled operations with commodity positions decreased significantly, namely by more than 30%, from 1.69 trillion UAH to 1.14 trillion UAH.

Herewith, compared to previous years, after approval of Procedures for establishing compliance of conditions of controlled operations with regard to raw materials to the "arm's length" principle (Order of the Ministry of Finance of Ukraine № 19 as of 18.01.2022, which entered into force on 01.01.2023), the share of taxpayers using the comparative uncontrolled price method for the transfer pricing purpose for operations with products (including raw materials) increased by 5%.

Controlled operations were mainly carried out with non-residents registered in the Swiss Confederation (22%), Republic of Austria (16%), French Republic (7%), Kingdom of Netherlands (6%), Federal Republic of Germany and the United States of America (5% each).

Operations with products – 52% (including 19% with raw materials) and banking services – 29% take a significant share in the total volume of commercial operations. Other operation categories have a much smaller share, including services of 9%, financial services – 7%, operations with securities – 2% and other –1%.

In addition, according to requirements of Sub-paragraph 39.4.2 of Paragraph 39.4 Article 39 of the Tax Code of Ukraine (hereinafter – Code), taxpayers who in the reporting year 2022 carried out controlled operations and are part of the international group of companies were required to submit notification along with the audit report on participation in the international group of companies (hereinafter – Notification).

2 022 taxpayers have submitted Notifications as of 03.10.2023. The main states (territories) of tax residence of the parent companies of the international group of companies are the Republic of Cyprus – 22%, Federal Republic of Germany – 9%, United States of America – 9%, French Republic – 5%, Swiss Confederation, Ukraine, Republic of Austria - 4% each, the Netherlands and Great Britain – 3% each and other countries of the world – 37%.

It should be noted that year 2022 is the first reporting period, starting from 2020, when Notifications were to be submitted only by those taxpayers who are members of the international group of companies and carried out economic operations that fall under the controlled criteria.

Also, taxpayers, using norms of Paragraph 50.1 Article 50 of the Code, namely: absence of the application of fines for submitting not later than October 1 of year following the reporting year the adjustment calculation to the corporate income tax declaration for the previous tax (reporting) year in order to carry out independent price adjustment of the controlled operation and amount of tax liabilities, submitted the submitted Transfer Pricing Annexes for the reporting year2022  in the amount of 3.6 billion UAH, which is more than 60% of the total amount of adjustments made in 2023 (5.8 billion UAH).  

At the same time, please note that according to current legislation (Sub-paragraph 69.38 of Paragraph 69 Sub-section 10 Section XX "Transitional provisions" of the Code) temporarily for a period from August 1, 2023 until termination or abolition of the martial law on the territory of Ukraine, in case of independent correction by the taxpayer in compliance with procedure, requirements and restrictions specified in Article 50 of the Code, errors that led to an understatement of tax liability, such taxpayer is exempted from accrual and payment of financial sanctions and penalty provided for in Paragraph 50.1 Article 50 of the Code.

Therefore, during the martial law, the law provides for "mitigating" responsibility in case of independent establishment of non-compliance with conditions of the controlled operations to the "arm's length" principle and carrying out, without application of financial sanctions and penalties, the corresponding adjustments after October 1 of year following the reporting year.

In this regard, the State Tax Service emphasizes expediency of taxpayers reviewing conditions of controlled operations regarding their compliance with the "arm's length" principle and voluntary payment of the corporate income tax liabilities before the start of audits on the transfers pricing matters.

Taxpayers can find detailed information on declaring controlled operations for the reporting year 2022 at the following link: https://tax.gov.ua/diyalnist-/transfertne-tsinoutvorennya-ta-mijnarodne-opodatkuvannya/transfertne-tsinoutvorennya/prezentatsiyni-materiali/718830.html