Criteria for classifying transactions as controlled have been changed
The State Tax Service of Ukraine draws attention to the following in order for taxpayers to comply with the requirements of transfer pricing legislation.
Starting from 01.01.2025, amendments to the Tax Code of Ukraine regarding the classification of business transactions as controlled transactions, as provided for by the Law of Ukraine dated 18.06.2024 No. 3813-IX "On Amendments to the Tax Code of Ukraine on Peculiarities of Tax Administration during Martial Law for Taxpayers with a High Level of Voluntary Compliance with Tax Legislation" (hereinafter - Law No. 3813), will come into force.
In particular, the criteria for recognizing persons as related by virtue of an economic connection have been expanded.
Thus, subparagraph "a" of subparagraph 14.1.159 of the TCU was supplemented with the following paragraphs:
♦ "income (revenue) of a resident legal entity from the sale of products (goods, works, services) (net of indirect taxes) to a separate non-resident legal entity or a separate foreign entity without the status of a legal entity (including a non-resident that carries out economic activities through a permanent establishment in Ukraine) during a calendar year amounts to 75 percent or more of the income (revenue) of such resident legal entity from the sale of products (goods, works, services) (net of indirect taxes) to all
♦ the cost of products (goods, works, services) purchased by a resident legal entity from another separate non-resident legal entity or a separate foreign entity without the status of a legal entity (including a non-resident conducting business through a permanent establishment in Ukraine) during a calendar year is 75 percent or more of the cost of products (goods, works, services) purchased by such entity from all non-residents, provided that the amount of such purchase transactions is 50 percent or more of the total cost of the products (goods, works, services).
Also, Law No. 3813 in the thirteenth paragraph of subparagraph "c" of subparagraph 14.1.159 of the Tax Code replaced the numbers "20" with the numbers "25", i.e. increased the lower limit of the share of ownership of corporate rights of each person in the next legal entity in the chain for determining the relationship (regardless of the results of multiplication) from 20% to 25%.
In addition, from 01.01.2025, in accordance with the seventh paragraph of subparagraph 1 of paragraph 2 of section I of Law No. 3813 to subparagraph 16, subpara. 14.1.159 of the Tax Code will be amended to allow the controlling authorities to prove the relatedness of persons not only in court, but also based on the results of an audit.
The approaches to the formation of the list of states (territories) for the purposes of subparagraph "c" of subparagraph 39.2.1.1 of the TCU have been changed, in particular, the following criteria will be taken into account:
♦ inclusion of states (territories) in the list of offshore zones approved by the CMU;
♦ inclusion in the list of states (jurisdictions) that do not implement or improperly implement the recommendations of international and intergovernmental organizations involved in the fight against legalization (laundering) of proceeds of crime or terrorist financing or financing of proliferation of weapons of mass destruction;
♦ failure to ensure timely and complete exchange of tax and financial information (in particular, information on the ultimate beneficial owner) by the competent authorities of states (territories), based on the results of two consecutive reporting (tax) periods (years).
With regard to the legal forms of non-residents that do not pay income tax (corporate tax), including on income earned outside the state (territory) of registration of such non-residents, and/or are not tax residents of the state (territory) in which they are registered as legal entities, according to the amendments introduced by Law No. 3813, transactions with such entities will be recognized as uncontrolled if at least one of the following conditions is met
♦ the non-resident is a resident of a state (territory) with which Ukraine has concluded an international treaty for the avoidance of double taxation, which is confirmed by submitting to the central executive body implementing the state tax policy, by October 1 of the year following the reporting year, a certificate in paper or electronic form in compliance with the requirements of the Laws of Ukraine "On Electronic Documents and Electronic Document Management" and "On Electronic Identification and Electronic Trust Services", which confirms that the non-resident is a resident of the country with which the treaty was concluded
♦ all participants (partners) of the non-resident are residents of states (territories) with which Ukraine has concluded international treaties for the avoidance of double taxation, which is confirmed by submitting to the central executive body implementing the state tax policy by October 1 of the year following the reporting year, a certificate in paper or electronic form in compliance with the requirements of the Laws of Ukraine "On Electronic Documents and Electronic Document Management" and "On Electronic Identification and Electronic Trust Services", confirming that all participants (partners) of a non-resident are residents of the country with which the international treaty of Ukraine is concluded (except for states (territories) included in the list of states (territories) approved by the CMU in accordance with subpara.2.1.2 of the TCU), in accordance with paragraph 103.5 of the TCU.
More detailed information on the amendments to the Tax Code provided for by Law No. 3813 is available at the link.
