Transfer pricing: attention to dates

The court of cassation upheld the position of the controlling authority regarding the legality of the tax notification-decision, which increased the amount of the plaintiff's monetary obligation to pay corporate income tax.

The Supreme Court upheld the position of the tax authority on the essence of the arm's length principle in tax legislation, which is based on the logic of "during the transaction", therefore, for the purposes of transfer pricing, the price should be determined as of the date of the controlled transaction (the date of transfer of ownership of the goods), and not as of the date of the conclusion of the foreign economic agreement.

The correct interpretation of subpara. 39.3.3.3 of the TCU is to compare the price of a controlled transaction with the price (price range) of comparable uncontrolled transactions and is based on the available information as of the date closest to the date of the controlled transaction, which is determined depending on the specific conditions, since the change in the structure of the plaintiff's assets and liabilities occurred at the time of transfer of ownership of the goods.

In other words, the plaintiff mistakenly equates the date of price determination (signing of the contract) with the date of the controlled transaction, since the Tax Code does not equate such categories, in particular, subparagraph 39.3.3.3 of the Tax Code provides that the comparison of the price of a controlled transaction with the price (price range) of comparable uncontrolled transactions is carried out on the basis of available information as of the date closest to the date of the controlled transaction.

The appellate and cassation courts agreed with the defendant's arguments that the individual licensing regime does not establish pricing in foreign economic transactions, but rather establishes certain prohibitions, restrictions or regimes for conducting foreign economic transactions with the permission of the state and cannot be considered a source of information for establishing arm's length prices for controlled transactions.

Thus, the plaintiff unreasonably used a one-time individual license as a source for establishing the compliance of the prices of a controlled transaction with the arm's length principle.

Taking into account the plaintiff's selective approach to building the price range and the features of the transactions listed in the fact sheet that fall under the definition of controlled transactions, the supervisory authority reasonably did not apply the prices of the transactions listed in the fact sheet to build a market price range for comparable transactions.

Based on the results of the calculations, the controlling authority established understatement of prices for certain deliveries in controlled transactions, namely: prices are lower than the minimum value of the market price range.

Therefore, the Administrative Court of Cassation as part of the Supreme Court of 09.07.2024 in case No. 160/3387/22 dismissed the plaintiff's cassation appeal; the decision of the Third Administrative Court of Appeal of 16.03.2023 was upheld.