Topical issues of applying the transfer pricing rules in Ukraine – that is the theme of the roundtable which was held at the SFS with the participation of the Head of the STS Serhii Verlanov, representatives of business associations, audit companies, the SFS and Head of the OECD Transfer Pricing Tomas Balko.
Participants of the event had an opportunity to discuss urgent business-related issues related to the conduction of the controlled transactions, express their suggestions and receive comments from the OECD experts and the SFS specialists.
“Conduction of such measures is extremely important as they are valuable to all parties and bring new approaches to the solution of problematic situations. We have a great opportunity to listen to all points of view, hear the experience of our colleagues and identify moments that need to be worked out” – emphasized the Head of the STS Serhii Verlanov.
According to him, during recent years Ukraine has been actively cooperating with the Organization for Economic Co-operation and Development (OECD). The result of such cooperation is the ratification of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI by Ukraine which took place in February 2019. Ukraine has become the 22nd country in the world that has ratified the MLI, which, according to the Head of the STS, has become a landmark event in bringing our country closer to high tax standards.
In addition, Ukraine has been actively working on legislation to implement the BEPS standards, the adoption of which will facilitate effective tax controls on international operations that meet all the OECD requirements. The implementation of such standards will allow the more efficient audits of the transfer pricing and proper monitoring of transactions between the related parties. This will help to prevent the erosion of the base and withdrawal of profit out of taxation.
“Firstly the Bill was presented at the end of the last year, after which we discussed it with the technical staff of the relevant OECD units and worked out each step. As of today, we have every reason to expect that it will be put to the consideration of the parliament and voted this fall” – mentioned Serhii Verlanov.
In general, according to the Head of the STS, this topic is extremely relevant for the tax system. The main desire of both business and the state is that the transfer pricing mechanism control mechanism achieves its purpose - to serve as a tool to avoid double taxation of the taxpayers on the one hand and to prevent erosion of the tax base on the other.
“In my opinion, as of today Ukraine has formed in terms of the economies and markets in which it operates in the world. These are agriculture, IT, metallurgy and services. It is time to form a business and government vision for those transfer pricing rules that can be applied in these areas of industries” - assured Serhii Verlanov.
In turn, the OECD expert Tomas Balko noted the professionalism and aspirations of the SFS employees in order to develop this mechanism in Ukraine. In his opinion, the service has a rather high potential for the further development of this topic. The positive is also the fact that representatives of business and audit companies are involved in the discussion which allows to discuss all issues that arise thoroughly and fully during the functioning of the transfer pricing mechanism.
In particular, during the meeting the participants discussed the issue of the use of the comparative uncontrolled price method for commodities the exports of which are of strategic importance for the country. According to the analysis, in more than 28% of cases payers use the method of comparative uncontrolled price in order to determine compliance with the principle of the “outstretched hand”. Specifically this method the OECD defines as extremely reliable in the case when the independent enterprise sells the same products that are sold between associates. However, there are difficulties in applying this method, which are, in particular, related to the imperfect methodology for generating data sources of information for the transfer pricing mechanism purposes and making adjustments to achieve comparability, including delivery conditions.
According to participants of the meeting, it is necessary to solve this issue in the legislative sphere, in particular, by creating a national methodology for the evaluation of commodities.
Issues of the use of the transfer pricing mechanism in financial transactions, creation of the analysis of the value chain, economic analysis, taxation of permanent missions, etc. were also discussed.
During the discussion, the participants identified problematic issues, provided their vision for solving the situation. All expressed ideas and groundworks will be analyzed by the staff of the fiscal service for further changes in the transfer pricing control system that will improve its quality and efficiency.