Transfer pricing in action

Press service of the State Tax Service of Ukraine, published 31 December 2021 at 11:25 Chapter: News

Taxpayers submitted 19.2 thousand reports for a total of 17.8 trillion UAH according to results of reporting periods for 2013-2020. That is, 2.4 thousand taxpayers annually report on controlled operations in the amount of more than 2.2 trillion UAH.

STS carries out tax control over transfer pricing, which is aimed at identifying and preventing risks.

In order to analyze submitted reports and identify transfer pricing risks, the STS uses data from leading global information and analytical sources (Platts, Bureau van Dijk, Argus, Royalty Range, Refinitiv, Youcontrol, others) which are also included in the recommended list of sources published on the STS’s web portal for obtaining quotations for analysis of operations with commodities.

That is, taxpayers and the STS actually use data from the same sources of information to analyze and establish compliance with conditions of controlled operations on the principle of "outstretched hand".

However, the STS sent requests for documentation on transfer pricing for almost every 14th report according to monitoring results almost 17 thousand reports on controlled operations for the reporting years 2013-2019.

617 documents were requested (including 276 or 45% during 2020-2021) and 559 answers were received. At the same time, the transfer pricing risks are confirmed in more than 80% of processed documents.

Due to the establishment of a well-reasoned and constructive dialogue with the STS, some taxpayers, without waiting for the start of audits, independently adjust prices of controlled operations and, as a result, increase income tax liabilities. This stimulated relevant recalculations not only for the periods for which the transfer pricing documentation was requested.

883 taxpayers (or 18% of the total number of taxpayers reporting on controlled transactions) submitted 1846 income tax declarations (clarifications), voluntarily increasing the financial result by 25.5 billion UAH during 2015-2021.

521 taxpayers submitted 869 declarations, which increased financial result by 10.9 billion UAH or 43% of the total amount of adjustment calculations during 2020-2021.

These facts show that tax control over the transfer pricing helps to increase tax culture of taxpayers, increase tax efficiency and voluntary payment of income tax.

In cases where there are indisputable facts and argumentations of supervisory authority on the existing transfer pricing risks and failure to make independent adjustments to income tax liabilities, audits are organized.

During 2021, the number of 28 audits or 28% of the total number of audits conducted in 2015-2021 (100 audits) were completed on the established facts of non-compliance with conditions of controlled operations with principle of "outstretched hand".

According to their results, 417 million UAH of income tax was accrued and losses were reduced by 1.6 billion UAH.

Also, 26 audits on compliance with the taxpayer's hand length principle are ongoing, which are planned to be completed in 2022.

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