Ukraine. Transfer pricing bill

On 17 January 2013 the Ukrainian government approved the draft transfer pricing bill. The Ukrainian parliament should consider and vote on this bill within the next few months. It is expected that this tax bill becomes effective either on 1 July 2013, or on 1 January 2014.

In general terms, the draft transfer pricing bill:

• introduces important transfer pricing definitions, including a definition of a controlled transaction. Controlled transactions include transactions of Ukrainian businesses with the related persons or non-residents of Ukraine, which are registered in low-tax jurisdictions, provided that the total amount of such transactions with a person referred to above equals or exceeds UAH50 million (USD6.25 million)
• eliminates the 20% safe-harbor rule
• clarifies the procedure and specifics for using the prescribed transfer pricing methods, which are consistent with the Organization for Economic Co-operation and Development Transfer Pricing Guidelines 
• introduces a special mechanism enabling the tax authorities to monitor and audit compliance with the transfer pricing requirements
• enables other parties to the controlled transaction to make tax adjustments based on the price correction assessed by the tax authorities and 
• introduces the transfer pricing reporting requirements and significant tax penalties for failure to comply with these requirements. For instance, a failure to file transfer pricing reports and/or certain primary documents can result in a tax penalty of 5% of the amount of the controlled transaction(s).

Source: KPMG Ukraine