Ukrainian transfer pricing laws align with the Guidelines set by the Organization for Economic Co-operation and Development (OECD). They are incorporated within the Tax Code of Ukraine.
Arm’s Length Principle
If a taxpayer takes part in a controlled transaction, they must calculate their taxable profit as if the transaction were made between independent parties (following the arm’s length principle), when this is required by the law or international agreements. The law specifically addresses if the taxable income is found not in compliance with the arm’s length principle, the tax authority has the right to adjust the taxpayer’s income accordingly.
Controlled transactions are defined as business dealings subject that can potentially affect corporate profit tax (CPT). They include transactions with related nonresident parties, cross-border operations through nonresident commissionaires, and dealings with entities in low-tax jurisdictions identified by the Ukrainian Government. Transactions with nonresidents that either do not pay corporate tax or are not tax residents in their country also qualify. Since 2018, dealings between nonresidents and their permanent establishments in Ukraine have been considered controlled, and from 2020, permanent establishments must apply transfer pricing rules to calculate their income. Additionally, import and export operations through intermediaries that do not perform essential functions or assume significant risks are treated as controlled transactions.
Related Party Definition
In Ukraine related parties are considered those who own 25% shares or more of another company, or if the same person or company owns at least 25% in several companies. Related parties will also be considered entities with the same sole general manager, close relatives (such as a spouse, parents, or children), entities where one person appoints at least 50% of the board, and parties that have provided loans exceeding 3.5 times the company’s equity (or 10 times for financial institutions and leasing companies).
Relation status is also granted if the same person controls management or board appointments if they share the same ultimate beneficial owner or executive, or if one company gives loans or financial help to another that exceeds certain limits compared to equity.
Transfer Pricing Methods
The methods that can be used to determine the arm’s length price in Ukraine are:
- Comparable Uncontrolled Price Method
- Resale Price Method
- Cost Plus Method
- Transactional Net Margin Method
- Profit Split Method
To check if the terms of a controlled transaction follow the arm’s length principle, the taxpayer must choose the most appropriate transfer pricing method based on the transaction’s nature, available information, and how well it can be compared to similar market deals. If the “comparable uncontrolled price” method can be used, it must be chosen over others. If two methods (like resale price or cost-plus) work equally well, one of those should be used. Only one method can be applied. If the taxpayer uses an appropriate method, the tax authority must respect it unless it proves the method wasn’t the best fit. Also, the tax authority must follow any agreed method from a prior pricing agreement.
Comparability Analysis
Ukraine’s Tax Code follows OECD rules for comparing transactions. There is a preference for using local comparables unless the taxpayer can prove that foreign ones are more reliable. If there’s not enough info on actual market transactions, data from similar independent companies can be used, as long as they don’t work with related parties. Also, tax authorities in Ukraine are not allowed to use secret data that isn’t publicly available for transfer pricing checks unless they got it legally during a tax audit.
Documentation Requirements
Documentation requirements for transfer prices in Ukraine are based on the three-layer method of the OECD. That means multinationals have to report the following to the Ukraine tax authorities:
- Master file;
- Local file; and
- Country-by-Country (CbC) report.
Master file: for multinational groups (MNEs) with over EUR 50 million in total income, giving info about the group’s structure, activities, and policies. It must be ready by year-end and submitted if requested (not earlier than 12 months and not later than 36 months after the year ends).
Local file: for companies with controlled transactions in Ukraine, showing detailed info about those deals. It must also be ready by year-end and submitted upon request (not before October 1 of the following year).
Country-by-Country Reporting
Ukraine requires companies that are part of an international group with a total income over the equivalent of EUR 750 million to file a country-by-country report. This report must include financial data for each country where the group operates, such as income, profit before tax, taxes paid, number of employees, and assets, as well as details on each group member’s location and tax residency. If the Ukrainian company is not the parent but the parent is in a country without similar country-by-country rules or no agreement with Ukraine for sharing such reports or if the parent’s country fails to share reports the Ukrainian entity must file the report instead. The report must be submitted electronically within 12 months after the end of the relevant financial year. Also, companies must notify the tax office about being part of an international group by October 1 of the following year.
Advance Pricing Agreements (APA) and Mutual Agreement Program (MAP)
Large taxpayers in Ukraine can make advance agreements with tax authorities on how to apply transfer pricing rules. This option is available to companies with total income over EUR 50 million or tax payments over EUR 1.5 million in the last four quarters. The agreement sets rules for checking if prices in related-party deals follow the arm’s length principle. It can cover pricing methods, data sources, allowed deviations, and documentation. The process is done electronically and can be either unilateral (with Ukraine only) or bilateral (with other countries too).
Mutual Agreement Program (MAP)
A taxpayer can apply for the Mutual Agreement Procedure (MAP) if actions by one or both tax authorities result in, or are expected to result in, taxation that contradicts Ukraine’s Double Tax Treaties. To apply, the taxpayer must submit a request to the competent authority in Ukraine, following the relevant Double Tax Treaties. Large taxpayers companies or foreign permanent establishments with income over EUR 50 million or tax payments exceeding EUR 1.5 million in the last reporting quarters are eligible to apply for the Mutual Agreement Program.
Approach to Transfer Pricing Audits
In Ukraine, transfer pricing audits are a special type of audit which separate from general tax audits. Tax authorities may begin only one transfer pricing audit per calendar year for each taxpayer. These audits are focused on seeing that the arm’s length principle is applied in controlled transactions. The run of a transfer pricing audit is put at 18 months which in some cases may be extended by 12 months.
Penalties
If a taxpayer does not comply with the arm’s-length pricing rules, the tax authority can impose additional tax liabilities and penalties based on the offense. The penalty is calculated using the statutory subsistence minimum, which is the cost of basic goods and services. The amount of the penalty can change each year since the statutory subsistence minimum is updated annually. Some of the penalties applicable include:
- Failure to submit a transfer pricing report: 300 times the statutory subsistence minimum.
- Failure to declare a controlled transaction: 1% of the undeclared amount (capped at 300 times the minimum).
- Failure to submit transfer pricing documentation: 3% of the transaction value (capped at 200 times the minimum).
- Failure to submit a global master file: 300 times the minimum.
- Failure to submit a country-by-country report: 1000 times the minimum.
- Failure to submit a notification on group participation: 50 times the minimum.
Daily penalties also apply for delays, increasing by 1–10 times the statutory minimum per day depending on the document, but capped at maximum amounts. If the documents are not submitted within 30 days after the initial penalty, the daily penalty rate increases further.
Taxation at a Glance
Ukraine’s tax system is governed by the Tax Code of Ukraine, serving as the primary source of tax legislation. The State Tax Service has been the central tax authority since August 28, 2019, after the division of the State Fiscal Service into the State Tax Service and the State Customs Service.
The currency of Ukraine is the Ukrainian Hryvnia (UAH).
The official name of the Ukraine tax authority is the State Tax Service of Ukraine.
The table below provides a summary of the main taxation rates related to businesses:
Tax Type | Tax Rate |
Corporate Tax | 18%, 25%, 50% |
VAT | 20% |
Withholding tax on dividends to non-residents | 15% |
Withholding tax on interest to non-residents | 15% |
Withholding tax on royalties to non-residents | 15% |
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