Transfer Pricing (TP) in Ukraine

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Transfer Pricing (TP) in Ukraine

 

Consulting services in the transfer pricing as part of the company's comprehensive tax planning

 

Analyzing controlled operations is one of the most significant issues for national and multinational companies carrying out interstate operations. Tax rates and tax rules vary depending on the jurisdiction and type of transaction; as such, tax authorities around the world strive to ensure an equal share of global tax revenues.

At the international level, the current changes in the guidelines and rules of the OECD (Organization for Economic Cooperation and Development) lead to a tightening of the regulatory framework, particularly in the light of the development of the BEPS (Base Erosion and Profit Shifting) action plan. The main purpose of the BEPS package, which includes 15 action points, is to ensure that the profits made by companies will be taxed in countries where the value was actually created.
 

Ukraine assumed obligations to implement the BEPS minimum standard (4 steps out of 15). Furthermore, the Law of Ukraine No. 466 was adopted and entered into force on May 23, 2021, which lays down legislative norms for the implementation of the 9 steps of the BEPS plan.

The BDO in Ukraine's team believes that in modern conditions, transfer pricing is the cornerstone of tax planning and economic risk management for the company. In the conditions of dynamic changes in state control, it is necessary to receive tax advice from external specialists.

 

Who needs TP documentation?

The Tax Code of Ukraine, namely Article 39, defines the rules of the TP and those entities that need the TP documentation.

The operation is subject to the TP rules in Ukraine, if:

(a) total income of the company is more than UAH 150 million

(b) total amount of all operations with the counterparty is more than UAH 10 million

(c) a counterparty is not a resident of Ukraine and:

      — whether the counterparty is a related party;

      — or a tax resident of a country listed in low-tax jurisdictions (for example, Cyprus or the BVI);

      — or its legal form is listed in legal forms (for example, LLP in the UK);

      — some other cases.

 

BDO in Ukraine helps companies to solve their problems in the field of Transfer Pricing. Whatever industry you work in, we have the experience and resources to help you plan, implement and maintain transfer pricing that takes full advantage of your planning capabilities and effectively controls the risks associated with compliance with regulatory requirements.

 

Consulting services in transfer pricing from BDO in Ukraine
  • dentification of controlled operations and ensuring compliance with the requirements of the TP legislation  
  • identification of risks (analysis of the sensitivity of changes)
  • analysis of the TP policy and intra-group contracts
  • functional analysis and value chain analysis
  • profit determination and cost allocation
  • review and comparative analysis of current operations in foreign economic activity
  • consultations on the preparation of contracts with the analysis of tax risks
  • support of tax audits and protection in disputes
  • protection of the company's interests in court against counterparties or third parties
  • support in the preparation of agreements on the preliminary approval of pricing

Transfer pricing from BDO in Ukraine

Our team of BDO transfer pricing specialists provides transfer pricing services in several directions. Our specialists evaluate the company's strategic potential, as well as the operational and tax structures of the entire group to make sure that the most effective (from a tax perspective) model is used.

 

1. IDENTIFICATION OF CONTROLLED OPERATIONS AND ENSURING COMPLIANCE WITH THE REQUIREMENTS OF THE TP LEGISLATION

The team of BDO in Ukraine's experts will help to prepare documentation that will comply with the Ukrainian requirements and OECD's recommendations, using the experience gained over the years in the field of TP, as well as prepare other reports and notifications that are required by law in order to minimize tax risks and penalties imposition.

2. VALUE CHAIN ANALYSIS

Value chain analysis tells the group's «Value creation story»: how, where and by which companies economic value is created in a multinational entity. This is necessary for both the disclosure of information in accordance with the updated documentation requirements and for checking and confirming the consistency of the TP results with the economic value creation.

3. CONSULTATIONS ON TP

There are many internal and external factors that can affect pricing between companies. Along with the dynamic development of control by regulatory authorities in the field of TP, this creates an uncertainty factor for companies that carry out transactions with non-residents.

Regardless of the circumstances, BDO in Ukraine's team will support your proactive position in the field of transfer pricing and will help with their knowledge and experience in managing tax risks related to TP, particularly in the development of TP policy, analysis and evaluation of existing and future intra-group contracts, analysis of the consequences of changes in the structuring of transactions and changes in tax legislation.

4. SETTLEMENT OF DISPUTES ON TP

Any dispute between the tax authorities on transfer pricing can turn into a long-term and expensive dispute. Extensive experience of interaction with the tax authorities allows BDO team to adapt the approach to the requirements that are appropriate in each specific case.

 

In cooperation with BDO in Ukraine on TP issues, you obtain:
  • assessment and analysis of obligations related to transfer pricing documentation
  • planning, analysis and establishment of transfer prices and transfer pricing policy
  • identification of related parties to the company
  • analysis and commenting on intra-group agreements
  • verification, completion and preparation of the master file and local files (transfer pricing documentation)
  • examination of existing related party transactions
  • preparation of comparative analyses using databases
  • determination of the price range corresponding to the "arm's length" principle
  • support of inspections by regulatory authorities
  • suggestions for optimizing the group structure
  • preparation of value chain analyses (VCA) and functional analyses
  • preparation of country-specific reports (CbCr), filling in and submitting the relevant forms
  • development of draft agreements on preliminary approval of pricing and comprehensive support in concluding such agreements

 

About BDO in Ukraine

BDO in Ukraine is the fifth largest network of independent audit, tax and accounting firms in the world. Our offices and services are organized so as to meet all the needs of small, medium and large businesses with the direct participation of partners. The pricing policy for the provision of international services is flexible and allows to apply an individual approach to customer service, ensuring an economic benefit from cooperation with BDO.

Our clients have the opportunity to receive a diverse consultation from any partner of any office of BDO Global. This can cover the simplest question or concern the consulting support of international treaties, in which several countries sometimes participate. In addition, we are able to combine the efforts of experts from different specializations and industries for an effective and progressive solution of our clients' issues.

If you need more information or want to order transfer pricing services, please contact experts of BDO in Ukraine.

 

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Key Contact

Viktor Nevmerzhitsky

Viktor Nevmerzhitsky

Tax & BSO Partner
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FAQ (Frequently Asked Questions)

  • What is Transfer Pricing (TP)?

Transfer Pricing is the process of setting prices for controlled transactions between related parties in order to determine tax obligations in accordance with the arm’s length principle.

  • Who is required to prepare transfer pricing documentation in Ukraine?

Companies must prepare TP documentation if:

(a) their annual income exceeds UAH 150 million;

(b) the total amount of all transactions with a counterparty exceeds UAH 10 million;

(c) the counterparty is a non-resident and meets the other criteria defined in Article 39 of the Tax Code of Ukraine (TCU).

  • Which international standards influence TP in Ukraine?

Transfer Pricing in Ukraine is based on the provisions of the Tax Code of Ukraine, the principles and guidelines of the OECD, and the BEPS (Base Erosion and Profit Shifting) Action Plan. Ukraine has committed to implementing the minimum BEPS standard and has already introduced several steps in accordance with Law No. 466.

  • What TP-related services does BDO in Ukraine offer?

BDO in Ukraine provides comprehensive advisory services in the field of transfer pricing, including:

– identification of controlled transactions;

– analysis of TP policies and intercompany agreements;

– functional analysis;

– preparation of mandatory TP reports (including the Controlled Transactions Report, Notification of Participation in an MNE Group, and TP Documentation);

– support during TP audits and litigation.

  • What is Value Chain Analysis (VCA)?

VCA is a method of analysis that illustrates how and where economic value is created within a group of companies. It helps verify the consistency between transfer pricing outcomes and value creation.

  • How does BDO in Ukraine assist during TP audits?

BDO experts prepare the required TP reports and documentation, support clients throughout TP audits, represent the company’s interests in disputes, and help mitigate tax risks.

  • What are the benefits of collaborating with BDO in the field of TP?

The company receives a professional assessment of TP risks, the development of an optimal TP policy, the preparation of TP reports, and expert support during audits and disputes.

Glossary

  • Value Chain Analysis (VCA) — a tool that demonstrates how value is created and allocated within a group of companies to align transfer pricing policies with profit generation.
  • BEPS (Base Erosion and Profit Shifting) — an action plan by the OECD aimed at preventing the erosion of the tax base and the shifting of profits to low-tax jurisdictions.
  • Transfer Pricing Dispute Resolution — a process of supporting a company during TP audits, handling claims and defending its interests in TP-related litigation.
  • Transfer Pricing Documentation — reporting that confirms the compliance of controlled transaction prices with the arm’s length principle and includes analytical justification of pricing.
  • Law No. 466 — the law of Ukraine that introduced several steps under the BEPS Action Plan and established new requirements for transfer pricing and reporting.
  • Controlled Transactions — business transactions with related non-residents or other non-residents that fall under the scope of Article 39 of the Tax Code of Ukraine.
  • OECD (Organisation for Economic Co-operation and Development) — an international organisation that develops standards and recommendations in the field of taxation, including transfer pricing.
  • Arm’s Length Principle (ALP) — an international standard requiring that prices between related companies reflect market conditions between independent parties.
  • Transfer Pricing (TP) — a process of setting prices in controlled transactions between related parties to determine tax liabilities in accordance with the arm’s length principle.
  • Advance Pricing Agreement (APA) — an arrangement between a company and the tax authority regarding the methodology for setting prices in future controlled transactions in order to avoid tax disputes, provided the company adheres to the parameters agreed upon by the tax authority.
  • Functional Analysis — an assessment of functions, assets, and risks of the parties involved in controlled transactions to determine the economic substance of the transactions and justify the level of profitability.