Ukraine: Government adopts transfer pricing (TP) secondary legislation

Following the introduction of new TP rules into the Tax Code of Ukraine from 01 September 2013 (see our law-now article dated 06 August 2013), the Government of Ukraine has adopted secondary legislation aiming to further specify and clarify the Tax Code provisions regarding TP and to set up certain procedures necessary to implement the TP rules in practice.

Namely, the mentioned secondary legislation deals with the following areas:

1. the price range and profitability range calculations for TP purposes.
2. the list of official sources of information about market prices which are allowed for the price range calculation.
3. the list of price deviations, as a percentage, allowed for certain categories of goods for TP purposes.
4. the conclusion of advance pricing agreements with the tax authorities.
5. the list of commercial publications for non-stock traded goods for TP purposes.

Although the adoption of this secondary legislation is generally good news as it aims to bring more certainty in the practical implementation of the new TP rules, our brief analysis has revealed some concerns about these new legislative acts.

In particular, the order of the price range and the profitability range calculations for TP purposes is not fully in line with the Tax Code's provisions, which potentially may result in controversies between taxpayers and tax authorities in the future.

Also, the list of official sources of information regarding market prices consists of sources which are directly or indirectly controlled by the Government of Ukraine, for example the sources include those published by the Ministry of Revenue and Duties of Ukraine, as well as by Derzh Zovnish Inform (which is the agency controlled by the Government of Ukraine). This list of official sources raises a lot of concerns among businesses in Ukraine about the possibility to make an impartial assessment of market prices based only on those sources. Moreover, this list of sources adopted by the Government seems to ignore suggestions from Ukrainian businesses to include other sources of information widely used in other countries. We note, however, that the list of sources has not been officially published yet, although the Government has already circulated an official notice about its adoption.