The article examines the regulations governing the taxation of controlled transactions in Ukraine. It is determined that the main problems of legal regulation of taxation in the implementation of controlled transactions in Ukraine are: inconsistencies and inaccuracies in terminology (inconsistency of the title of Article 39 of the Civil Code of Ukraine with the essence of public relations governed by this article), vagueness of certain rights and responsibilities of the subjects of controlled operations (in the PC of Ukraine and accordingly there are a significant number of gaps in the specifics of the conclusion of an agreement on preliminary approval of pricing), failure to take into account recent changes in international instruments in the field of dating of controlled transactions (in the current legislation of Ukraine governing taxation in the implementation of controlled transactions does not take into account the provisions of international documents on three-level documentation on transfer pricing) and the need to determine the legal status of controlled transactions taking into account the rules of different branches of law. The ways of the decision of the revealed problems are offered, in particular: 1) to change the name of Art. 39 of the Civil Code of Ukraine; 2) establish a higher amount of total income of the entity that falls under the rules of control over transfer pricing; 3) increase the percentage of ownership of corporate rights in a legal entity in order to recognize such two persons as related and exclude from the criteria of connection of taxpayers family relations; 4) make changes to the PC of Ukraine regarding the three-level documentation on transfer pricing; 5) establish an administrative fee for obtaining an opinion on the expediency of applying for a preliminary approval of pricing and set clear deadlines for individual stages of the procedure of preliminary approval of pricing. Also, the possibility of creating a web application to solve the problem is analyzed.
The first legal acts regulating taxation in controlled transactions in Ukraine were adopted in 2013. Since the adoption of regulatory regulation of taxation in the implementation of controlled transactions, the legal acts in which the relevant rules of law have been amended several times. However, despite the frequent changes and improvements of certain elements of the legal regulation of taxation of controlled transactions, the rules of law governing these relations remain logically contradictory, imperfect and unfounded in terms of economic laws and legal expediency. Transfer pricing and controlled transactions as phenomena of objective reality and some aspects of their legal regulation have been studied by the following scientists: О. Bulana, O. Valieva, L. Grundel, V. Dubnytsky, K. Mazoruk, A. Nepesov, O. Zhukova and others. However, a holistic analysis of regulations governing the peculiarities of taxation in the implementation of controlled transactions for their consistency and validity was not conducted. 2
Taxation in the implementation of controlled transactions is governed by Art. 39 of the Civil Code of Ukraine, other norms of the Civil Code of Ukraine and several resolutions of the Cabinet of Ministers of Ukraine. When creating rules of law, the legislator must follow a number of logical and methodological rules, as well as take into account the nature of the phenomena governed by such law. After analyzing the rules of law governing taxation in the implementation of controlled transactions, we have identified a number of problems that need to be addressed in the future lawmaking process. We will present the problem and ways to solve it.
To date, Art. 39 of the Civil Code of Ukraine is called "Transfer pricing", however, neither the Tax Code of Ukraine nor any other legal act contains a definition of this concept. The concept of transfer pricing is economical, if we analyze the definitions of this concept given by economists, we can identify the following features of transfer pricing as an economic category:
2. the subject is the price (the term "transfer price" is also used) for goods, works, services; 3. in essence - the process, the application of the transfer price, which always involves a certain consequence - to obtain economic benefits.
Given the economic essence (features mentioned above) of transfer pricing, as well
as the need to control it, we support the following definition of transfer pricing as a
legal phenomenon - a process of determining the level of prices for goods, works,
services in business transactions. between related parties, the price level determined
by the principle of "outstretched hand" (the level of market prices) [
St. 39 of the Tax Code of Ukraine, regulates public relations between the taxpayer of Ukraine (resident of Ukraine), which has contractual relations with related nonresidents, non-residents in low-tax jurisdictions and non-residents included in the relevant lists approved by the Cabinet of Ministers Of Ukraine. Given the above, we believe that the name of Art. 39 of the Criminal Code of Ukraine is disproportionate to the relations regulated by Art. 39 of the Criminal Code of Ukraine. To address this situation, two ways can be proposed: 4. to consolidate the proposed definition of transfer pricing in the PC of Ukraine, while excluding from the range of entities engaged in controlled transactions, persons in low-tax jurisdictions and entities of the relevant organization -national legal form; 5. change the name of Art. 39 of the Criminal Code of Ukraine on "Peculiarities of taxation of controlled transactions".
Given the significant amount of capital exported outside of Ukraine in order to
reduce the tax burden, as well as the difficult economic situation of the state [
An entity whose prices in business transactions are subject to verification in terms of compliance with market prices is a taxpayer whose annual income from any activity is determined by accounting rules, exceeds UAH 150 million (excluding indirect taxes) for the relevant tax (reporting) year. We consider the establishment of income in the amount of UAH 150 million. for the taxpayer in order to control the determination of the price in business transactions is unjustified for the following reasons:
setting the amount of income in the amount of UAH 150 million. leads to a situation where some small businesses are subject to the requirements of Art. 39 of the Civil Code of Ukraine, and part does not fall (provided that the first and second carry out business transactions that have the characteristics of controlled). This differentiation of legal regulation leads to a violation of the principle of equality of all taxpayers before the law, to prevent any manifestations of tax discrimination. The amount of income of the taxpayer in the amount of UAH 150 million. for a taxpayer who is obliged to use the procedure for determining the price in controlled transactions is not justified by any objective factor; establishment of the taxpayer's income in the amount of UAH 150 million. requires maintaining a register of such taxpayers in order to verify and monitor controlled transactions, which in turn incurs additional costs from the budget; establishing an obligation for small businesses to comply with the rules set out in Art. 39 of the Civil Code of Ukraine leads to additional costs for such enterprises.
Given the above circumstances, we consider it necessary to amend Art. 39 of the Tax Code of Ukraine and determine that controlled transactions can be carried out by taxpayers with an annual income of equal to or less than the largest amount of income for the recognition of a small business entity (ie more than 10 million euros). Such changes will make it possible to eliminate violations of the principle of equality of taxpayers when they are obliged to comply with the rules of certain articles. 39 of the Tax Code of Ukraine, will reduce the tax burden on small businesses, and there will be no need to create databases with information on the amount of income of enterprises for tax audits and monitoring of controlled transactions (such information can be obtained from the State Statistics Service of Ukraine, because it maintains registers of enterprises depending on the amount of income, according to the criteria defined in the Civil Code of Ukraine).
Related parties are one of the subjects of the controlled transaction. According to
the PC of Ukraine, related parties may be legal entities and / or individuals [
Another controversial issue regarding the recognition of legal entities as related is
that the PC of Ukraine determines that the possession of 20% of corporate rights of a
legal entity is sufficient to recognize a person who has such rights and a person who
has such related rights. First remark, with regard to joint-stock companies, the
procedure for calculating 20% of corporate rights is not detailed, ordinary and
preferred shares are taken into account, or only ordinary ones. We support the opinion
of K. Nepesov, who notes that taking into account the rules of corporate law and the
principle of possible influence on the conditions or economic results of individuals in
relation to joint stock companies, it should be only about voting (ordinary) shares.
Preference shares should not be taken into account (since individuals, although
shareholders, but do not have the right to vote, are effectively deprived of the
opportunity to participate in decision-making) [
The second remark, it seems that the possession of 20% of corporate rights, from
the point of view of economic legislation is insufficient to influence the conditions
and economic results of the enterprise. After all, only having 25% of corporate rights
can in some way influence the adoption of individual decisions, in particular to block
(veto) their adoption [
Regarding the recognition of individuals as related for the purposes of Art. 39 of the Criminal Code of Ukraine, there are two problems: 1. whether it is necessary to recognize individuals as related in principle and 2. the impossibility of extending the provisions of Art. 39 of the Criminal Code of Ukraine on relations between individuals.
The authors of the textbook "Transfer pricing: Ukrainian version" believe that in
the future, as Ukraine "matures", such a sign of "connectedness" of enterprise groups
as "family relations" will be excluded [
According to the Tax Code of Ukraine, controlled transactions are transactions
between a taxpayer - a resident of Ukraine and a non-resident of Ukraine. We agree
with the opinion of OV Valieva, who in her dissertation research "Improvement of tax
control over transfer pricing" expresses the opinion about the need to recognize
controlled transactions, business transactions between residents (domestic). The
author notes that the application of one of the parties to the agreement of reduced
rates or simplified tax regimes, the possibility of offsetting the accumulated tax
losses, may affect the establishment of interdependent transfer prices for transactions
within the country to avoid taxation [
As a result of manipulating transfer prices, Ukraine does not receive a "fair share"
of mandatory payments not only in the form of corporate income tax, but also in the
form of customs duties. Customs payments are calculated based on the customs value
of goods. Therefore, when carrying out control operations related to the import of
goods, there is a risk that for the purposes of corporate income tax and customs duties,
the value of these goods will be determined differently, because for the same
operation carried out thus, the taxpayer will calculate the price of the goods using
different methods [
In the case of controlled transactions, taxpayers are required to report on controlled transactions. On November 22, 2016, Ukraine applied to join the BEPS Association, and on January 1, 2017, it became an official member.
The BEPS plan stipulates that transfer pricing documentation should consist of three levels: 1. Master file - a document containing standardized information about the activities of companies; 2. Local file - a document with information about the controlled operations carried out within a particular country; 3. Report by country - a document containing information on the global distribution of sources of income of companies and the amount of taxes paid with details by country.
Although the Master and Local files must be developed on the basis of each
country's national tax law and used within the applicable administrative procedures
with respect to the confidentiality of information, their structure must be based on the
OECD Guidelines and comply with the structure set out in Annexes I and II to Part 5
of the OECD Guidelines, developed as part of the BEPS implementation and
presented in the OECD Report in September 2014, while the Country Report is
planned as a single document for all countries. asnyts BEPS, access to which will be
provided within the automatic exchange of information [
Given that Ukraine has committed itself to implementing the provisions of the BEPS plan on transfer pricing in terms of reporting on transfer pricing, we believe that it is necessary to adopt a standardized approach to the documentation on transfer pricing and make appropriate changes to Art. 39 of the Criminal Code of Ukraine.
Clear and common transfer pricing documentation rules will reduce the cost of
compliance that may arise in disputes over transfer pricing between taxpayers and
regulators. In addition, properly prepared documentation will provide supervisors
with some assurance that the taxpayer has analyzed the provisions reported in the
submitted reports, reviewed the available comparative data and consistently obtained
certain provisions on compliance with transfer pricing rules [
The Tax Code of Ukraine provides for large taxpayers the opportunity to enter into agreements on prior approval of pricing. One of the stages of such a conclusion is to obtain a conclusion on the expediency of applying for a preliminary approval of pricing. In order to determine the legal nature of the conclusion on the feasibility of applying for a preliminary approval of pricing, we highlight its features. Given the provisions of p. 5-7 "Procedure for preliminary coordination of pricing in controlled transactions, as a result of which agreements are concluded that have a unilateral, bilateral and multilateral nature, for the purposes of transfer pricing", the signs of such a conclusion are: issuance of an opinion is initiated at the request of the taxpayer; the conclusion is issued by a public authority; subject - determining the appropriateness of the application for approval of prices.
Having issued a positive conclusion, it can be argued that the supervisory authority
considers the conclusion of an agreement on prior coordination of pricing is possible
in principle. Given the above, we believe that in essence the activities of the SFS of
Ukraine is a service. According to the glossary, a service is an action, a deed that
benefits, helping others [
In order to issue an up-to-date opinion, the supervisory authority must analyze a
significant amount of statistics and economic indicators, which entails significant
costs of resources of the supervisory authority. Therefore, we believe it is necessary to
establish a fair payment for this service. For example, in Denmark, Canada, the
United States, Russia, and Poland, there is a fee for concluding a pre-agreement on
pricing. In the United States, the amount of duty can range from 5 to 50 thousand
dollars, depending on the category of taxpayer and the number of business
transactions provided for in the price agreement. In Russia, the state duty is 1.5
million rubles [
We offer a fee for the stage that precedes the price negotiation procedure and is optional - the issuance of an opinion on the appropriateness of the application for prior approval of pricing.
For the practical application of the principle of "outstretched hand" it is necessary
to obtain information on prices and other economic indicators of business
transactions. The PC of Ukraine notes that such information can be obtained from
virtually any available source. Most questions arise about the information published
through the media. The origin and quality of such information are not defined by law:
can it be the opinion of a businessman, official or just a person from the street? The
lack of official explanations does not make it possible to answer the questions clearly.
How incomprehensible is the range of media - from the "yellow" to the business press
and Internet publications [
The rights and obligations arising from the conclusion of pre-agreement agreements on pricing are defined by the "Procedure for pre-agreement on pricing in controlled transactions, which results in the conclusion of agreements of unilateral, bilateral and multilateral nature, for the purposes of transfer pricing."
However, if we analyze the wording of the rights and obligations arising from the
conclusion of agreements on prior coordination of pricing, procedures for their
implementation and execution, we can conclude that they are not clearly defined. In
our opinion, such a vague wording of rights and responsibilities, as well as the
procedures for their implementation (no deadline), will lead to disputes and may
undermine the credibility of the tax authority. Therefore, we propose to clarify certain
provisions of the "Procedure for preliminary approval of pricing in controlled
transactions, which results in the conclusion of agreements of unilateral, bilateral and
multilateral nature, for the purposes of transfer pricing" in terms of exercising the
rights and obligations of the parties preliminary coordination of pricing.
It should be fair to note that the legislator has made an attempt to address some
aspects of the above issues. We are talking about the draft Law of Ukraine "On
Amendments to the Tax Code of Ukraine to improve tax administration, eliminate
technical and logical inconsistencies in tax legislation" № 1210, adopted by the
Verkhovna Rada of Ukraine on January 16, 2020, but to date (07.05.2020) .
The President of Ukraine has not signed it and it is not known whether he will sign it.
The draft law proposes to amend the Civil Code of Ukraine during the introduction of
three-level documentation on transfer pricing, increase the amount of corporate rights
for recognition of persons related from 20% to 25% and also recognize related
persons as entities without legal personality and a number of other significant changes
that do not address the issues outlined in this article. It should be noted that the bill №
1210 is criticized by many practitioners, in particular O. Shemyatkin believes that this
bill needs a veto [
It is important to determine the relationship of the owner's identity with various companies, either one-day or concerns, which can be registered as fictitious persons. It does not matter where the companies are registered and whether they are hiding offshore or not. To do this, it is necessary to constantly collect data from open and sometimes closed sources and conduct a detailed analysis. It is possible to collect and accumulate data in the cloud, which will allow you to easily accumulate data from sources around the world.
On the basis of the received data it is possible to carry out the analysis by means of associative rules and to predict the following steps in this or that foreshortening.
The main characteristics that describe the associative rule are support and reliability. If we denote the database of transactions by D, and the number of transactions in this database is N, then each transaction di , i 1N represents a certain set of objects. Significantly, rule support is through S, and probability is through C.
Associative rule support is the number of transactions that contain both a condition and a consequence.
S ( A B) P( A B) nA; B di N (1) (2)
The probability of the associative rule A B is a measure of the accuracy of the rule and is defined as the ratio of the number of transactions containing the condition and the consequence, to the number of transactions containing only the condition: C ( A B) P( A | B) n1 A; B di n1 A di
If the support and probability are high enough, it can be said with high probability that any future transaction, including a condition, will contain a consequence. That is, for each case it is possible to predict that this or that subject will act one way or another, if it is relevant to any element of the selected link.
Given the above study, we believe that today the legal regulation of taxation in controlled transactions in Ukraine needs to be improved. In order to improve the legal regulation of taxation of controlled transactions in Ukraine it is necessary: 1) eliminate inconsistencies and inaccuracies in terminology (change the title of Article 39 of the Civil Code of Ukraine and set out in this wording "Legal regulation of taxation in the implementation of controlled transactions");
2) take into account changes in international acts governing public relations in the analyzed area (establish the obligation to maintain and submit three-level reporting on transfer pricing provided by the BEPS plan);
3) take into account the peculiarities of the status of the subjects of controlled transactions, defined in other areas of law (a) to amend Article. 39 of the Tax Code of Ukraine and determine that controlled transactions can be carried out by taxpayers with an annual income equal to or less than the largest amount of income for the recognition of a small business entity (ie more than 10 million euros), b) determine that related parties may be any entity, regardless of whether they have the formal status of a legal entity, c) indicate that in determining the status of related parties to the company should take into account only the percentage of ownership of ordinary shares, all other legal entities to increase the percentage of ownership of a share in the authorized capital from 20 to 25, d) to exclude from the criteria for classifying persons as related family relations);
4) make the provisions of certain rules clearer and more economically justified (a) extend the meaning of the concept of "controlled transactions" to business transactions between residents of Ukraine, b) amend the Customs Code of Ukraine and allow customs authorities to accept documentation on transfer pricing as proof of the circumstances that accompanied the sale of goods, in cases where it is necessary, c) to establish an administrative fee for the issuance of a conclusion on the feasibility of applying for prior approval of pricing, d) to fix a list of indicative sources of information that can be used to determine the compliance of the conditions of the controlled transaction with the conditions of the business transaction carried out on the principle of "outstretched hand"). 5