Global Tax Alert (News from Transfer Pricing) | 9 July 2013

Ukrainian Parliament approves Transfer Pricing Law

  • Share

On 4 July 2013, the Ukrainian Parliament approved the Law “On Amending the Tax Code on Transfer Pricing” (the TP Law).1 If the President signs the TP Law, it should become effective on 1 September 2013.

The TP Law introduces a number of important changes, including but not limited to:

  • Extension of the existing definition of related parties.
  • Limitation of controlled transactions to the following:
    • Transactions with non-residents from “low-tax” jurisdictions (the Cabinet of Ministers of Ukraine will approve the list of these);
    • Transactions with non-resident related parties; and
    • Transactions with Ukrainian related parties (only those in tax-loss position or having tax benefits).

The above transactions qualify as controlled if their value exceeds the annual threshold of UAH 50 million (USD 6.25 million) per counterparty.

  • Basic rules of functional and comparability analysis.
  • Five TP methods, including CUP, Resale Minus, Cost Plus, Transactional Net Margin and Profit Split.
  • Mandatory formal annual TP report regarding controlled transactions, due by 1 May of each year. Failure to file the report triggers a fine at 5% of the value of all controlled transactions of the reporting year.
  • Requirement to prepare extensive TP Documentation if requested by the tax authorities.
  • Procedure for domestic corresponding adjustments. Downward cross-border adjustments are not mentioned in the TP Law at all.
  • Certain special rules regarding TP audits (e.g., overall timing of up to 1 year).
  • Simplified transition rules (valid until 2018) for calculating arm's length prices for exporters and importers of certain commodities (oil and gas, grains, chemicals, metals, food oils and others) to/from ”low-tax” jurisdictions. These rules require the arm's length price to be based on information from the sources approved by the government with allowed deviation of 5%. Standard TP methods may apply subject to disclosure of the whole supply chain up to the first unrelated party.

The TP Law is generally aligned with OECD practices; however, it contains quite a few provisions and gaps that will likely make the application of the transfer pricing rules in Ukraine different than in other jurisdictions.

There are a few regulations to be developed by the government, e.g., the list of ”low tax” territories, rules on the calculation of the arm's length range of prices/profitability, the list of officially recognized sources of information on market prices, and the forms of reporting, among others.

Given that the TP Law may come into force on 1 September 2013 with rules and regulations to be further defined, businesses may have a challenging time in preparing the first reports and TP documentation by 1 May 2014.

Future Alerts will cover legislative developments.


1. See EY Global Tax Alert, Ukraine undergoes major transfer pricing reform, dated 27 June 2013.

For additional information with respect to this Alert, please contact the following:

Ernst & Young LLC, Kiev, Ukraine
  • Igor Chufarov
    +380 44 492 8231
  • Anna Johnson
    +380 44 490 3341
Ernst & Young LLP, Eastern European Business Group, New York
  • Julia Samoletova
    +1 212 773 6790

EYG no. CM3621