Ukraine’s Parliament had reviewed a draft law that proposed further amendments to the Tax Code of Ukraine on transfer pricing rules. The draft had introduced changes covering controlled transactions, the arm’s length principle, intangible assets, TP methods, documentation and penalties.
The Ukrainian Parliament is reviewing the draft Law on amendments to the tax code of Ukraine regarding further improvement of Transfer Pricing (TP) rules, which was submitted on 4 September 2026.
If adopted, the lew would enter into force on 1 January 2028. The Cabinet of Ministers of Ukraine would have six months from that date to update related normative and legal acts. The draft would be exempt from the standard regulatory policy procedure under Ukraine’s obligations under the EU Association Agreement.
Controlled transactions
The draft would expand the scope of controlled transactions under Article 39.2.1 to cover more transactions involving non-resident related parties, foreign commissionaires or agents, non-residents in low-tax jurisdictions or certain legal forms, and non-resident Permanent Establishments (PEs).
Transactions between non-residents and their Ukrainian PEs, Ukrainian residents and their foreign PEs, and transactions between non-resident PEs would also be covered.
Resident related-party transactions would become controlled where the counterparty had accumulated tax losses exceeding EUR 3 million from previous years or used preferential tax regimes.
The definition of a transaction would also include internal calculations between PEs and changes in functions, risks, benefits or opportunities, regardless of whether assets were transferred. Series of operations and multi-party complex arrangements would expressly qualify as controlled transactions.
Arm’s length principle
The arm’s length principle would apply when determining taxable profit from controlled transactions and operations of non-resident PEs.
Tax authorities would be able to recharacterise transactions or replace their terms with alternatives that unrelated parties acting commercially rationally could have agreed upon. Transactions lacking economic reality or an equivalent between unrelated parties could also be disregarded.
Comparability analysis would consider functions, assets and risks, contractual terms, economic and market conditions, business strategies, synergy effects and market characteristics. Realistic alternatives available to the parties would also need to be considered.
TP documentation would have to reflect subsequent events, including legislative changes, force majeure, reorganisations and changes in status. Taxpayers would need to demonstrate “reasonable efforts” to establish pricing when transactions were agreed and verify actual outcomes.
Intangible assets and DEMPE
A new definition of intangible assets for TP purposes would cover rights, benefits and results of activities that unrelated parties would not ordinarily transfer without compensation. It would include copyrights, software, inventions, trademarks, goodwill/reputation, know-how, certain unique employee competencies, customer lists and usage rights.
Corporate rights, financial instruments, currency and virtual assets would be excluded.
For intangible asset transactions, functional analysis would have to address Development, Enhancement, Maintenance, Protection, and Exploitation (DEMPE) functions. Legal ownership alone would not establish an entitlement to intellectual property profits where the owner did not perform the relevant DEMPE functions.
Entities providing financing without controlling relevant risks would generally be limited to a risk-free rate of return, while entities controlling financing risks could receive a risk-adjusted return. Where DEMPE functions and associated risks were not properly substantiated, they would be presumed to have been performed or borne in Ukraine.
TP methods and documentation
The Comparable Uncontrolled Price (CUP) method would be expressly treated as the primary and most reliable method where comparable transactions were available.
The interquartile range would apply where comparability uncertainty existed, while the full range would apply where equivalent comparability existed. Adjustments outside the applicable range would generally be made to the median.
For certain transactions involving intangibles, corporate rights, shares, real estate or business transfers where direct comparables were unavailable, the Discounted Cash Flow (DCF) Method could be used.
Taxpayers would have 60 calendar days to submit TP documentation following a request from tax authorities. Documentation would need to provide economic justification showing that the parties had acted commercially rationally and considered realistically available alternatives.
Penalties and tax adjustments
A new Article 123² would establish penalties for tax underpayments or reductions in tax losses resulting from TP financial result adjustments under subpoints 140.5.2 and 140.5.21.
The standard penalty would be 7% of the adjustment amount, increasing to 10% where taxpayers also failed to submit TP reports, the Master File, CbC reports or TP documentation.
A 15% penalty would apply in specified aggravating circumstances, including misrepresentation or non-disclosure of facts, improper selection of the TP method, analysed party or comparables, failure to account for a series of transactions, or insufficient DEMPE justification.
Article 120 would also introduce penalties for inaccurate information in CbC reports, the Master File, TP documentation and CbC notifications. Daily penalties would apply for failure to submit CbC reports or notifications after 30 days.
Under proposed Article 140 amendments, subpoint 140.5.2 would cover taxable profit not received because of non-arm’s length conditions, while subpoint 140.5.21 would cover transactions disregarded or recharacterised under subpoint 39.2.2.12.
Article 141.4.2 would impose 18% non-resident income tax on relevant TP adjustment amounts where tax had not been withheld at payment, unless an international treaty provided another rate. The tax would be payable by 1 October following the reporting year.
Separate rules would also apply to controlled transactions conducted by JIIs or non-state pension funds, with the TP adjustment spread subject to the standard CIT rate.
