Ukraine’s progress in countering the tax base erosion

An invisible work that will later show visible results is the development and implementation of a regulatory framework harmonising Ukraine’s legislation with the EU acquis.

Specifically, in the area of the tax base erosion and withdrawal of profits from taxation.

Paulius Majauskas
Head of the Tax and Customs Duty Administration Division
Ministry of Finance of the Republic of Lithuania

According to the statistics of Ukraine’s foreign economic activity, commodities account for a significant share of Ukrainian exports, therefore it is important for Ukraine today to pay special attention to the development, improvement, and practical implementation of transfer pricing rules in this area. Their main goal is to prevent the artificial transfer of profits to low or zero tax jurisdictions and ensure, as a result, fair taxation of commodity transactions.

Back in 2017, the Organization for Economic Cooperation and Development made changes to its Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. The updated transfer pricing rules for commodity transactions are reflected in the BEPS Action Plan.

Ukraine does not stand aside from these processes and implements global standards aimed at countering the tax base erosion and withdrawal of profits from taxation.

The Law of Ukraine No. 466-IX of 16 January 2020 “On Amending the Tax Code of Ukraine to Improve Tax Administration, Eliminate Technical and Logical Inconsistencies in Tax Legislation” improved the rules of compliance with the conditions for controlled commodity transactions under the arm’s length principle.

The EU-funded EU4PFM Programme supports Ukraine’s initiatives on this difficult path and provides methodological and technical support for the practical implementation of these changes to ensure effective and transparent regulation of the whole process of controlled transactions.

Together with experts of the State Tax Service of Ukraine, the Ministry of Finance of Ukraine, OECD, and GIZ, the EU4PFM Programme team made a lot of efforts to develop:

– List of commodities for which unrelated persons use quoted prices as a reference for setting the price of uncontrolled transactions;

– Recommended list of sources of information for getting quoted prices.

It is time now to present the draft Procedure, the most comprehensive document for the systematic and practical implementation of changes to improve the rules of transfer pricing for commodities.

The draft Procedure is developed based on the OECD Transfer Pricing Guidelines and instruments, being generally accepted recommendatory and methodological materials on tax regulation of transfer pricing in international practice.

We hope that the implementation of this Procedure will ensure transparency, equality of taxpayers, and fair competition for business — the important principles of taxation in the EU. The EU4PFM Programme is ready to further support the improvement of transfer pricing rules by providing methodological and technical support, being fully aware of the importance, need, and complexity of shaping a favorable environment for cooperation between the State Tax Service and big business.

Paulius Majauskas

Head of the Tax and Customs Duty Administration Division

Ministry of Finance of the Republic of Lithuania