Taxpayers, attention! Criteria for classifying operations as controlled have been changed

Press service of the State Tax Service of Ukraine, published 31 December 2024 at 13:54 Chapter: News

State Tax Service of Ukraine, in order to ensure that taxpayers comply with requirements of the transfer pricing legislation, draws attention to the following:

Changes to the Tax Code of Ukraine (hereinafter – Code) will come into force regarding classification of business operations as controlled from 01.01.2025, which are provided for by the Law of Ukraine № 3813-IX as of 18.06.2024 “On amendments to the Tax Code of Ukraine regarding the tax administration peculiarities during the martial law for taxpayers with a high level of voluntary compliance with tax legislation” (hereinafter – Law № 3813).

Specifically, criteria for recognizing entities as related by economic ties have been expanded.

Sub-paragraph “а” of Sub-paragraph 14.1.159 Paragraph 14.1 Article 14 of the Tax Code of Ukraine (hereinafter – Code) is added with clauses of the following content: 

"income (revenues) of a resident – legal entity from sale of products (goods, works, services) (net of indirect taxes) to individual – non-resident legal entity or individual foreign entity without the legal entity’s status (including non-resident conducting economic activity through a permanent establishment in Ukraine) during a calendar year constitutes 75 percent or more of income (revenues) of such resident – legal entity from sale of products (goods, works, services) (net of indirect taxes) to all non-residents, provided that such income constitutes 50 percent or more of the total amount of income of such legal entity from sale of products (goods, works, services) (net of indirect taxes) determined according to the accounting rules;

cost of products (goods, works, services) purchased by legal entity – resident from another separate legal entity – non-resident or separate foreign entity without the legal entity’s status (including from non-resident conducting economic activity through a permanent establishment in territory of Ukraine) during a calendar year is 75 or more percent of the cost of products (goods, works, services) purchased by such entity from all non-residents, provided that amount of such purchase operations is 50 or more percent of the total cost of products (goods, works, services) purchased by such legal entity – resident".

Also, the Law № 3813 in clause 13 of Sub-paragraph "c" of Sub-paragraph 14.1.159 Paragraph 14.1 Article 14 of the Code replaced figures "20" with figures "25", i.e. increased the lower limit of share of ownership of corporate rights of each entity in the next legal entity in a chain for determining connection (regardless of the multiplication results) from 20 to 25 percent.

In addition, from 01.01.2025, according to clause 7 of Sub-paragraph 1 Paragraph 2 Section I of the Law № 3813, changes will be made to clause 16 of Sub-paragraph "c" of Sub-paragraph 14.1.159 Paragraph 14.1 Article 14 regarding the possibility for controlling authorities to prove connection of entities not only in the court, but also based on the audit results.

Approaches to forming list of states (territories) for purposes of Sub-paragraph "c" of Sub-paragraph 39.2.1.1 Sub-paragraph 39.2.1 Paragraph 39.2 Article 39 of the Code have been changed, in particular, the following criteria will be taken into account:

attribution of states (territories) to the list of offshore zones approved by the Cabinet of Ministers of Ukraine;

inclusion in the list of states (jurisdictions) that do not comply or improperly comply with recommendations of international, intergovernmental organizations involved in a fight against legalization (laundering) of proceeds from crime, financing of terrorism or the financing of the proliferation of weapons of mass destruction;

failure of the competent authorities of states (territories) to ensure timely and complete exchange of tax and financial information (information regarding the ultimate beneficial owner) based on results of two consecutive reporting (tax) periods (years).

Regarding organizational and legal forms of non-residents that do not pay income tax (corporate tax), including on income received outside the state (territory) of such non-residents’ registration, and/or are not tax residents of the state (territory) in which they are registered as legal entities, according to changes made by the Law № 3813, operations with such entities will be recognized as uncontrolled if at least one of the following conditions is present:

non-resident is a resident of the state (territory) with which Ukraine has concluded international agreement on the avoidance of double taxation, which is confirmed by submitting to the central executive body implementing state tax policy, by October 1 of year following the reporting year, a certificate in paper or electronic form in compliance with requirements of the Laws of Ukraine “On electronic documents and electronic document management” and “On electronic identification and electronic trust services”, which confirms that non-resident is a resident of the country with which Ukraine has concluded international agreement (except for the state (territory) included in the list of states (territories) approved by the Cabinet of Ministers of Ukraine according to Sub-paragraph 39.2.1.2 of Sub-paragraph 39.2.1 Paragraph 39.2 Article 39 of the Code), in accordance with Paragraph 103.5 of Article 103 of the Code;

all participants (partners) of non-resident are residents of the states (territories) with which Ukraine has concluded international agreements on the avoidance of double taxation, which is confirmed by submitting to the central executive body implementing state tax policy, by October 1 of year following the reporting year, a certificate in paper or electronic form in compliance with requirements of the Laws of Ukraine "On electronic documents and electronic document management" and "On electronic identification and electronic trust services", which confirms that all participants (partners) of non-resident are residents of the country with which Ukraine has concluded international agreement (except for the states (territories) included in the list of states (territories) approved by the Cabinet of Ministers of Ukraine according to Sub-paragraph 39.2.1.2 of Sub-paragraph 39.2.1 Paragraph 39.2 of Article 39 of the Code), in accordance with Paragraph 103.5 Article 103 of the Code.

More detailed information regarding changes to the Code provided for by the Law № 3813 can be found at the link https://zakon.rada.gov.ua/laws/show/3813-20#Text.