EU4PFM provided expert and methodological support to the development of the draft Procedure for establishing compliance with the conditions of controlled transactions with raw materials under the arm’s length principle

On September, 7th, the Ministry of Finance of Ukraine together with the Committee of Entrepreneurs on Tax Issues of the Ukrainian Chamber of Commerce and Industry/Ukrainian CCI 7  presented the draft of the Procedure for establishing compliance of the conditions of controlled operations with raw materials under the arm’s length principle.

The draft document was prepared by the Ministry of Finance and the State Tax Service of Ukraine. Expert and methodological support were provided by the EU4PFM project.

According to the Deputy Minister of Finance of Ukraine, Svitlana Vorobey, the presentation began a public discussion of the draft document, the purpose of which is to finalize it together with business representatives before final adoption.

Lyudmyla Palamar, Director of the International Taxation Department of the Ministry of Finance of Ukraine, noted that OECD experts have conducted an expert analysis of the Draft Procedure and will join the discussion of the Project with business on September 23.

“We expect that this step-by-step algorithm, based on the experience of inspections and specific examples and cases, will allow taxpayers to independently analyze and adjust their tax liabilities,” said Kateryna Ryzhenkova, Head of the Transfer Pricing Department of the Tax Audit Department of the State Tax Service of Ukraine.

“Ukraine does not stand aside from these processes and continues to implement global standards aimed at counteracting the erosion of the tax base and the withdrawal of income from taxation,” said Paulus Majauskas, International Key Expert on tax reform of the EU4PFM project in Ukraine. According to him, thanks to all initiatives, PFM institutions, in particular, the State Tax Service of Ukraine will be able to increase the level of interaction with taxpayers and improve risk-based approaches and analytical capacity to reduce risks of taxpayers’ non-compliance with transfer pricing legislation.

To recall, the Law of Ukraine of January 16, 2020, № 466-IX “On Amendments to the Tax Code of Ukraine to Improve Tax Administration, Eliminate Technical and Logical Inconsistencies in Tax Legislation” was amended to establish compliance with the conditions of controlled transactions with raw materials” (Subclauses of the Code).

Improving transfer pricing rules for commodities is important for Ukraine, as the share of commodities in the structure of Ukrainian exports is more than 50%.

By introducing innovations in the regulation of transfer pricing rules, Ukraine is partially implementing Step 8-10 of the BEPS Plan.

In the summer of 2020, a working group was formed including the representatives of the Ministry of Finance of Ukraine, the State Tax Service of Ukraine, EU4PFM experts, to develop bylaws for further implementation of changes to the legislation.

Today, with the support of the EU4PFM project was made:

  • developed and published the Recommended list of sources of information for obtaining quotations;
  • approved the List of raw materials for which unrelated persons use quotation prices as a reference for setting the price of uncontrolled transactions;
  • assistance in project preparation on the general procedure for establishing compliance with the conditions of controlled transactions with raw materials and specific procedures for each type of raw material, namely:
    •  on the export of grain, oilseeds,, and products of their processing;
    • on the export of iron ore;
    • from the import of thermal and coking coal;
    • on imports of petroleum products and liquefied hydrocarbon gases;
    • on export and import of ferroalloys;
    • exports of pig iron, ferrous scrap,, and ferrous metal products.

The draft Procedure can be found at the following link:

For reference: The arm’s length principle is an international standard that is primarily used to determine the amount of taxable income of a taxpayer participating in a controlled transaction. The amount of taxable income received by a taxpayer participating in one or more controlled transactions is under the arm’s length principle if the terms of those transactions do not differ from those applied between unrelated parties in comparable uncontrolled transactions. If the conditions in one or more controlled transactions do not comply with the arm’s length principle, the profit that would be accrued to the taxpayer in a controlled transaction that complies with this principle is included in the taxable income of the taxpayer.

“The task of the normative document is to give a common understanding of the application of transfer pricing rules to transactions with raw materials to all interested participants, taxpayers, tax authorities, judges,” said Roman Goptsiy.

The project is posted on the website of the Ministry of Finance of Ukraine to receive suggestions or comments from business representatives until September 21, 2021.s

The received proposals and issues will be discussed with experts and business representatives during a round table on September 23, 2021.

Let’s implement change together!