On 19 April 2019, the State Fiscal Service (SFS) of Ukraine published a guidance letter 1723/6/99-99-15-02-02-15/IPK on the treatment of transactions between a non-resident and its permanent establishment (PE) in Ukraine as controlled for transfer pricing purposes, as well as the determination of taxable profits under Art. 52 of the Tax Code of Ukraine.
Under the guideline, PEs of non-residents are regarded as taxpayers in Ukraine if it receive income from a Ukraine source or that perform agency (representative) and other functions related to such non-residents or their founders. As such, any transactions including internal settlement carried out between a non-resident and its Ukraine PE that may affect the taxable income of the PE as a taxpayer would fall under the definition of controlled transactions.
Additionally, business transactions carried out between a non-resident and its PE office in Ukraine are recognized as controlled if the volume of such transactions determined in accordance with the accounting rules exceeds UAH 10 million (net of indirect taxes) for the relevant tax year. This includes all types of transactions, agreements, and arrangements, whether or not confirmed through documentation.
The letter further explains that the main factor in taxing a PE is not the legal nature of the relationship between a non-resident and his PE, but the nature of the relationship as if the PE was a separate legal entity, which is in accordance with the comments and recommendations of the UN and OECD.
