Transfer pricing legislation in Ukraine has been changed effective from January 1, 2017. The law introduces changes to the Tax Code of Ukraine with respect to transfer pricing rules (TP). The following changes have been introduced on “Amending the Tax Code of Ukraine (on the Improvement of Investment Climate in Ukraine )” No. 5368.
Thresholds: The threshold for the recognition of transactions as controlled transactions (CTs) has been increased whereas taxpayer’s annual income has been increased to UAH 150 million (from UAH 50 million), and taxpayer’s volume of transactions with each counterparty has been increased to UAH 10 million (from UAH 5 million).
Documentation-Deadline: The deadline for submitting the report of controlled transactions has been changed from previous date of 1 May to 1 October of the year following the reporting year.
Reporting and documentation: In addition to the previous requirements transfer pricing documentation is expanded including copies of the agreements specifying terms and conditions of the controlled transactions; information about the payments made in the transaction; information about the taxpayers involved in the business; information about the cost allocation algorithm used in calculating the profit level indicator; and description and calculation of comparability adjustments of terms and financial results of the controlled and uncontrolled transaction.
Comparability analysis: It is possible to determine a profitability margin and perform a benchmarking study if no direct comparable data is available and in such cases, the benchmarking study can be done based on financial information of comparable legal entities. Taxpayers will be able to adjust their taxable profit for Transfer Pricing purposes to maximum or minimum values of the range of prices instead of the median.
Penalty for documentation failure: Starting from January 2017, penalties are based on the living wage for persons capable of work as of January 1 of the reporting year (previously penalties were based on the minimum wage). In case of non-submission of report on controlled transaction 300 living wages is imposed. For late submission of report on controlled transactions, 1 living wage for each calendar day of the delay but not more than 300 living wages. Failure to declare a controlled transaction in report on controlled transactions, 1 % of undeclared amount but not more than 300 living wages. For late declaration of controlled transactions, 1 living wage for each calendar day of the delay but not more than 300 living wages. Failure to submit TP documentation, 3% of the amount that document was not submitted but not more than 200 living wages. For delayed submission of TP documentation, 2 living wage for each calendar day of the delay but not more than 200 living wages. Failure to submit the report on controlled transactions or transfer pricing documentation within 30 calendar days following the last day of the payment of the penalty, 5 living wages for each calendar day of non-submission after expiration of 30 calendar days.
