The Supreme Court confirmed validity of the transfer pricing additional accruals

Press service of the State Tax Service of Ukraine, published 19 August 2024 at 11:42 Chapter: News

The Supreme Court confirmed the controlling authority’s position regarding implementation of controlled operations by the taxpayer during 2016 for export of grade B urea at undervalued prices, which do not comply with the "arm’s length" principle.

The Supreme Court agreed with chosen controlling authority to establish compliance with conditions of controlled operations with the "arm’s length" principle by the information source, namely information and analytical publication "Commodity monitor. Ukraine" of the State Enterprise "Derzhovshininform" publishing house, which published prices on commodity market and formed price range based on the data of actually concluded contracts. It was established that published prices for export of grade B urea have a higher level of comparability to conditions of controlled operations, compared to other information sources determined by the taxpayer.

Controlling authority substantiated groundlessness of the taxpayer's use of other information sources, as those that do not meet requirements of Sub-paragraph 39.5.3 Paragraph 39.5 Article 39 of the Tax Code of Ukraine (hereinafter – Code), in particular, it is stated that individual licensing regime establishes certain prohibitions and restrictions, but does not establish pricing in foreign economic operations.

The Supreme Court agreed with the controlling authority’s conclusions regarding the impossibility of using information on commodity exchanges, which are specified in Resolution of the Cabinet of Ministers of Ukraine № 616 as of 08.09.2016 "On approval of the product list with stock exchange quotations and global commodity exchanges to establish compliance with conditions of controlled operations with the "arm’s length"" principle since operations with derivative financial instruments (futures) are carried out on the stock exchange, instead of contracts for supply of real products, while futures contracts are usually closed by mutual settlements between the parties after expiration of contract or by concluding a reverse operation by one of the parties before expiration of contract.

Also, based on the volatility of market and requirements of Sub-paragraph 39.3.3.3 of Sub-paragraph 39.3.3 Paragraph 39.3.3 Article 39.3 of the Code, the controlling authority reasonably compared prices of controlled operations with price range of the information source on the date closest to the day of controlled operations, which occurred precisely at the time of transfer of ownership for the product.

Taking into account above specified, the Supreme Court confirmed validity of conclusions of the controlling authority, set out in the audit report regarding the plaintiff's violation of provisions of Article 39 of the Code, as a result, the taxpayer paid monetary obligation to the budget in the amount of 13.9 million UAH.