Special regimes of the Defense City and Diia City do not exempt from the transfer pricing rules

Press service of the State Tax Service of Ukraine, published 16 February 2026 at 11:34 Chapter: News

Introduction of special legal regimes Defense City and Diia City does not cancel requirements of the Tax Code regarding compliance with the “arm’s length” principle carrying out controlled transactions and transfer pricing reporting.

Defence city

Defense City’s legal regime was introduced to support enterprises of the defense-industrial complex. Provisions of the Law № 4577-IX entered into force on 05.10.2025.

It should be emphasized that: even within the Defense City, business entities are required to comply with provisions of Article 39 of the Tax Code, which governs controlled transactions and the “arm’s length” principle.

This means that carrying out controlled transactions, the payer must separately determine the income taxation object, taking into account excess of the price determined according to the “arm’s length” principle over the contractual (agreed) cost and vice versa.

There are certain exceptions, for example, for products, works or services that can be provided exclusively by a single manufacturer, supplier or performer, including natural monopoly entity according to the country of its registration or norms of the international law.

Responsibility for proving this status lies on the taxpayer. Corresponding confirmation must be provided in the transfer pricing documentation or upon written request of the controlling authority.

Diia Сіty

Special regime of the Diia City, introduced by the Law № 1667-IX as of 15.07.2021, is aimed at stimulating development of the digital economy. Diia City resident status provides certain tax benefits, but does not exempt from compliance with the transfer pricing rules.

According to the Tax Code, business transaction for the transfer pricing purposes is any transaction, contract or arrangement – ​​regardless of whether it is documented, that may affect profit of the enterprise.

For the Diia City residents, such transactions include those that may affect financial result before taxation, reflected in the financial reporting according to the national or international accounting standards.

If transactions of the Diia City resident meet criteria for controlled transactions, they are subject to analysis on the “arm’s length” basis, i.e. comparison with market conditions, using methods provided for by the Tax Code. In addition, in case of controlled transactions, the Diia City resident must fulfill reporting obligations:

– submit Report on controlled transactions;

– inform about participation in the international group of companies if applicable;

– upon request of the tax authority, provide the transfer pricing documentation, including:

compliance justification of the controlled transactions’ terms with the “arm’s length” principle,

description of transactions and functional analysis of the parties,

applied methodology and calculations.

Therefore, regardless of whether the one works in the Defense City or Diia City, obligation to comply with the transfer pricing rules remains the same.

It is recommended to conduct a preliminary analysis of business transactions and ensuring proper documentation of the pricing approaches.