“Tax inspectors without borders”: Ukraine strengthens control over the transfer pricing

Ukraine strengthens transfer pricing control by studying international best practices within framework of the Tax inspectors without borders program (TIWB).

The TIWB training, with participation of representatives of the State Tax Service, was dedicated to analysis of classic mechanisms for withdrawing profits from Ukraine – through royalties, interest or intra-group services.

Much attention was focused on the reverse process: return of economic value created by Ukrainian specialists when the business of international groups expands abroad, but is based on the Ukrainian ideas, developments, intangible assets, operating models, software and management concepts.

Ukrainian side presented practical cases that demonstrate Ukraine’s right to a share of profits in the international groups when the main economic value of the business is created in our country. This concerns possibility of using franchising models, royalties, payment for know-how and other compensation forms for the use of results of the intellectual work of Ukrainian specialists.

Training brought together experts from the HM Revenue & Customs (Great Britain), French Tax Administration and Swedish Tax Agency. International experts presented modern tools for analyzing value creation in the transnational groups, methods for valuing intangible assets and practical approaches to counteracting profit shifting.

Our country’s participation in the TIWB program has already gave practical results. International experts have confirmed a number of risks in controlled transactions identified by the Ukrainian side. This became basis for independent adjustments to prices of controlled transactions and tax liabilities by the taxpayers. These adjustments were made after proving the non-compliance of the transactions terms with the arm’s length principle, including on the basis of approaches and recommendations developed in cooperation with the TIWB.

In situations where recommendations were not taken into account, the State Tax Service has initiated documentary audits – their results will also be formalized with participation of the TIWB specialists to ensure maximum transparency and validity.

Involvement of the State Tax Service in the TIWB program systematically strengthens institutional capacity of the Service, promotes implementation of modern international standards and ensures fair distribution of the tax base in favor of Ukraine – where real economic value is actually created.