Tax Regulation (#04 April 2015)

With the support ofTax Regulation

On 12 March 2015 the First International Forum Transfer pricing — 2015 was held at the Opera Hotel in Kiev. Its main objective was to inform attendees about the most recent novelties of the relevant legislation, the practice of its application in Ukraine, as well as the experience of other countries. About 100 participants attended the forum. The Forum was opened by its organizers Yaroslav Romanchuk, managing partner of International Legal Center EUCON, and Larysa Vrublevska, managing partner of the International Audit Union. They emphasized that such events can serve as a podium to exchange views on application of the transfer pricing legislation for taxpayers, legislators and regulatory agencies.

The first panel’s discussion included organizers of the event, people’s deputy of Ukraine Andriy Zhurzhiy, deputy head of the Verkhovna Rada Committee on Taxation and Customs Policy, and Ulvi Yusifov, a member of the UN Committee of Experts on International Cooperation in Tax Matters.

Mrs. Vrublevska admitted a positive aspect of the legislative changes in the area of transfer pricing effective as of 1 January 2015, i.e. controlled transactions have been excluded for the domestic market. But in general, the norms are fiscal in nature. Besides, provisions on the value criteria have serious problems when applied in practice. When commenting on the criticism, Mr. Zhurzhiy mentioned that a Draft is being developed and registered in Parliament in order to adjust Article 39 of the Tax Code of Ukraine. The Draft will set a criterion for the controlled transactions in the amount of UAH 20 million for transactions with one counterparty, replacing the current unfortunate wording that oblige the summing up of the  income of a taxpayer and related persons, as well as volumes of business transactions. When analyzing the latest trends in world tax policies in the area of transfer pricing, Mr. Romanchuk focused on the mechanisms of cooperation by the tax authorities of different countries to combat erosion of the tax base. Ulvi Yusifov further explored the topic and presented the expected changes to be discussed by the UN in April 2015. The changes relate to accounting of transactions with intangible assets, services between members of a group, and management fees. In addition, there was interesting information about some countries like China, India, Brazil and South Africa, which are supportive of the rules contradicting the international standards.

In his presentation, a representative of the Methodology Department of the State Fiscal Service of Ukraine informed the participants about details of the latest novelties in transfer pricing legislation and emphasized that reports on 2014 should be submitted under the rules effective as of 1 January 2015. When speaking about risks of transfer pricing, Ms. Vrublevska provided a practical guide that would enable tax payers to minimize such risks. The proposed measures included a review of the organizational structure of a group of companies, operation restructuring, changes to contractual work of companies, development of internal pricing policies and internal rules on transfer pricing control. The speaker informed about details of preparation and submission of documentation to regulatory authorities. The manager of the transfer pricing practice of the International Legal Center EUCON, Yevgen Petrenko, discussed some features of how related persons of a taxpayer are identified in view of the new requirements and rules of calculating shares of indirect participation. He also drew the attention of taxpayers to possible problems with application of such rules. Speakers at the forum also discussed some topics related to the methods of determining prices in controlled transactions, taking into account special features of companies, practical recommendations on preparation of documentation with justification of the contract price, and litigation cases. Speakers from Poland, the Czech Republic, Republic of Belarus, Cyprus shared information about features of the transfer pricing legislation in their countries, and focused on application of pricing methods.

Following the presentations, attendees had an opportunity to ask questions and discuss possible difficulties in application of legislation and actions that taxpayers should take in various situations.

The organizers of the Forum, International Legal Center EUCON and the International Audit Union, announced their intention to hold such events every year and to invite the best professionals in the field of transfer pricing from various countries, as well as representatives of the legislative and fiscal authorities of Ukraine.

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