Transfer pricing control during martial law 

On 02 June 2022, the State Tax Service of Ukraine published a notification that unveils special considerations that would apply to transfer pricing in the context of martial law, in particular, the submission of transfer pricing report package, suspension of the statute of limitations, special aspects of TP tax audits, etc.

Below you may find a summary of key points of the notification as well as the comments of Deloitte experts on some issues that require a detailed clarification.

Taxpayers would be required to prepare and submit TP reports

• Taxpayers that have the capability to comply within the deadlines specified by the legislation would be required to prepare and submit all TP reports as provided for by the Tax Code of Ukraine (TCU).
• A taxpayer’s capability or incapability to comply would be subject to confirmation in accordance with a special Procedure that will be approved by the Ministry of Finance of Ukraine.

Deloitte comment

• The tax authorities stick to the opinion that the recent changes made to the TCU should be regarded as the starting point for the deadline for filing all types of TP reports (a report on controlled transactions, TP documentation, CbCR Notification, a Masterfile, and a country-by-country report). This implies that taxpayers that have the capability to prepare tax filings would be required to submit their TP reports within the deadlines specified by the legislation. For example, if a taxpayer receives a request to provide TP documentation, such taxpayer would be required to submit the same within 30 calendar days from the date of receipt of the request.
• There are certain peculiarities regarding the submission of country-by-country report and Masterfile:
  • Submission of a CbC Report for the first time would apply to the financial year that ends in 2021, not earlier, however, than the year in which a multilateral competent authority agreement on the automatic exchange of country-by-country reports was signed. No such agreement has been signed by the competent authority as of yet. If the agreement is not consummated in 2022, the submission of a country-by-country report covering the year that ends in 2021 should not apply.
  • The State Tax Service of Ukraine may request Masterfile for the financial year that ends in 2021, irrespective of whether or not the abovementioned multilateral agreement has been concluded. If a group’s financial year is different to a calendar year and ends, for example, on 31 March, the tax authorities may sent a FY2021 request starting from 01 April 2022. Taxpayers should make sure that Masterfile would be prepared by the group early in 2022; otherwise it is reasonable to start preparing the master file on their own.

Statute of limitations

In terms of TP control, the statute of limitation is suspended effective 18 March 2020.

TP tax audits

• As long as martial law remains in force in Ukraine, no TP tax audits may be initiated. Any initiated TP tax audits should be suspended.
• Deadlines for filing objections to TP audit reports and for challenging tax notifications shall be suspended for the period of martial law in Ukraine.
• Previously suspended TP audits shall remain suspended.
  

Determination of controlled transactions thresholds for TP purposes (UAH150 million and UAH10 million) for entities registered for the temporary unified tax regime and subject to tax at the rate of 2%

During martial law, taxpayers may choose to voluntarily shift from general taxation regime to the unified tax regime where the tax rate of 2% from revenue is applied. Once marital law is lifted, taxpayers having chosen this option will no longer be eligible to utilize the preferences under the unified tax regime and will shift back to the general taxation regime starting from the first day of the month that follows the month when martial law is lifted. To determine whether or not such taxpayers’ transactions meet the controlled transactions threshold criteria, the following approach will be used:

• For a UAH150 million threshold, a taxpayer’s annual income is determined on a full reporting year basis, specifically, including the income gained over the period during which the taxpayer was under the unified tax regime;
• For a UAH10 million threshold, the volume of a controlled transaction is determined exclusive of the transactions for the period during which the taxpayer was under the unified tax regime.
  

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