INSIDETAX
1. Each ground for a transfer pricing audit must be proven unlawful in order for an order on conducting such transfer pricing audit to be declared unlawful
grounds for a transfer pricing audit
Report on Controlled Transactions
subclauses 78.1.16 and 78.1.14 / Tax Code
transfer pricing dispute
The taxpayer challenged the order on conducting a transfer pricing audit, arguing that the tax authority had breached the procedure for appointing such audit, by failing to send prior to the audit a proper request for additional information under Article 39 of the Tax Code of Ukraine. The courts of first instance and appeal agreed with this reasoning and cancelled the order.
The Administrative Cassation Court within the Supreme Court noted that the courts of first instance and appeal had focused only on one ground for the audit, namely subclause 78.1.14 of the Tax Code of Ukraine, but failed to assess the second independent ground expressly stated in the order, namely subclause 78.1.16 of the Tax Code of Ukraine, i.e. the receipt of the Report on Controlled Transactions. For this reason, the Administrative Cassation Court within the Supreme Court cancelled the judgments of the lower courts and remitted the case for a retrial.
2. Provided that a request contains the minimum sufficient amount of information regarding the grounds for sending it, such request cannot be deemed to have been issued in material breach of the requirements of applicable law and, accordingly, does not evidence the unlawfulness of an audit concerning the provision of transfer pricing documentation
deficiencies in the request
transfer pricing documentation
tax authority
transfer pricing dispute
subclause 73.3 of the Tax Code
A taxpayer challenged the tax assessment notice imposing a fine on it for failure to provide transfer pricing documentation for 2015–2020 in response to requests from the State Tax Service.
The courts of previous instances concluded that the said requests did not comply with the requirements set out in the first to fifth paragraphs of clause 73.3 of Article 73 of the Tax Code of Ukraine, since they did not specify the grounds for sending the request, the information confirming such grounds, and the list of documents proposed to be provided by the taxpayer.
However, the Administrative Cassation Court within the Supreme Court disagreed with the findings of the courts of previous instances, noting that the content of the requests of the State Tax Service of Ukraine made it possible to identify the factual grounds for sending them and the scope/content of the information to be included in transfer pricing documentation in accordance with the requirements of clause 39.4.6 of the Tax Code of Ukraine. Certain defects in a request for information do not affect the claimant’s obligation to provide all required information in response to such request, since the absence or incompleteness of references to specific sources from which tax information was obtained should not be regarded as grounds for finding that the request fails to comply with the requirements of clause 73.3 of the Tax Code of Ukraine.
3. Only from 1 January 2018, as part of scheduled and unscheduled tax audits, did the tax authorities acquire the right to review compliance with transfer pricing rules under clause 140.5.4 of the Tax Code of Ukraine
powers of the State Tax Service authority
transfer pricing matters
subclause 75.1.2 of the Tax Code
subclause 140.5.4 of the Tax Code
transfer pricing dispute
In September 2017, the tax authority conducted a scheduled documentary audit, following which it established that the taxpayer had failed to apply the "increasing" tax adjustment under clause 140.5.4 of the Tax Code of Ukraine. At the same time, the Administrative Cassation Court within the Supreme Court held that transfer pricing matters, including those specified in clause 140.5.4 of the Tax Code of Ukraine, could not have been the subject matter of that audit, since the tax authority acquired such powers only from 1 January 2018, following amendments to subclause 75.1.2 of clause 75.1 of Article 75 of the Tax Code of Ukraine.
As a result, the tax authority's findings regarding the understatement of corporate profit tax and the overstatement of the negative value due to the understatement of tax adjustments arising under the Tax Code of Ukraine were found by the court to be unlawful and unsubstantiated.
4. "Constructive dividends" arise in the period of self-adjustment of the financial result for corporate profit tax purposes, rather than in the period in which the controlled transactions were conducted
constructive dividends
timing of recognition
tax on income of non-residents sourced from Ukraine
individual tax consultation
The Administrative Cassation Court within Supreme Court noted that the tax base for the purposes of taxation of "constructive/hidden dividends" is determined based on the amount of adjustment to the financial result before tax, which is made either independently by the taxpayer or by the tax authority, in the period in which such adjustment is made, rather than in the period in which the controlled transaction is carried out.
5. The absence of controlled transactions is not the ground for failure to submit a Country-by-Country Report of an international group of companies (CbCR)
Country-by-Country Report of an international group of companies
CbCR
QCAA
controlled transactions
tax ruling
If a taxpayer did not carry out controlled transactions during the reporting period, this fact does not exempt such taxpayer from the obligation to submit a Country-by-Country Report of an international group of companies, IGC, (CbCR), since subclause 39.4.10 of the Tax Code of Ukraine does not establish any restriction on the submission of the CbC Report by taxpayers that did not carry out controlled transactions. In addition, there is an effective international treaty between Ukraine and the United States, where the ultimate parent entity of the IGC is registered, which contains provisions on the exchange of information for tax purposes. However, the relevant QCAA has not become effective yet.
Tax ruling dated 20 August 2025 No. 4470/ІПК/99-00-21-02-03
6. If the IGC has authorised another non-resident entity whose country of residence has signed an agreement on the automatic exchange of CbCR with Ukraine (QCAA — Qualifying Competent Authority Agreement), the taxpayer is not required to submit the Country-by-Country Report of the IGC (CbCR) in Ukraine
Multilateral Competent Authority Agreement
Country-by-Country Reports
IGC
MCAA CbC
international group of companies
authorised entity
tax ruling
If there is an effective international treaty between Ukraine and the jurisdiction of tax residence of the authorised company of the IGC – the Republic of Cyprus – containing provisions on the exchange of information for tax purposes, and given that the Convention on Mutual Administrative Assistance in Tax Matters and the MCAA CbC between Ukraine and the Republic of Cyprus are also in force, the taxpayer may be exempt from submitting the Country-by-Country Report of the IGC (CbCR) for the financial year.
7. Inadmissibility of evidence of a breach of transfer pricing rules indicates the unlawfulness of the tax assessment notice issued following a transfer pricing audit
admissibility of evidence
market research
transfer pricing dispute
In determining whether the terms of the controlled transaction complied with the arm's length principle, the tax authority relied on market studies of cargo transshipment services in Ukrainian ports prepared by third-party organisations. The courts established that no evidence had been submitted confirming that those studies had been duly commissioned by the tax authority itself; on the contrary, the case file confirmed the absence of any such commission.
The Administrative Cassation Court within Supreme Court agreed that such market studies as evidence cannot be regarded as a proper and undisputed basis for the tax authority's findings in a transfer pricing dispute. Therefore, the tax authority's cassation claim was dismissed, and the judgments of the courts of previous instances were left unchanged.
8. The physicochemical properties of goods are not, in themselves, a decisive criterion for assessing whether the terms of controlled transactions comply with the arm's length principle. What is decisive is their economic purpose, the functions of the parties, and the conditions under which such goods are sold on the market
CUP method
comparability of controlled and uncontrolled transactions
clause 140.5.4 of the Tax Code
transfer pricing dispute
The tax authority stated in the audit report that the taxpayer should have applied the "increasing" tax adjustment as per clause 140.5.4 of the Tax Code of Ukraine, on the grounds that, in its transfer pricing documentation, the taxpayer had applied the resale price method and used internal comparable uncontrolled transactions which, in the tax authority’s opinion, were not comparable.
As one of the reasons for non-comparability, the tax authority referred, in particular, to the difference between the goods in the controlled transactions, amino acids, and those in the uncontrolled transactions – copper sulphate salt. However, the Administrative Cassation Court within the Supreme Court noted that the economic purpose, the functions of the parties, and the conditions under which such goods are sold on the market take precedence over the physicochemical properties of the goods, which, in themselves, are not a decisive criterion for assessing whether the terms of controlled transactions comply with the arm's length principle.
9. The mere fact that a transfer pricing audit was scheduled during the period of the moratorium nullifies all of its consequences, even if such transfer pricing audit was subsequently suspended and resumed after the moratorium ended
transfer pricing audit
moratorium
Law No. 2719
transfer pricing dispute
The taxpayer challenged the tax assessment notice issued following a transfer pricing audit on the grounds that the audit had been commenced and conducted during the period of the moratorium on transfer pricing audits, since the order on the transfer pricing audit was issued on 15 March 2021.
The Administrative Cassation Court within the Supreme Court held that, from 25 November 2022, the Tax Code of Ukraine allowed transfer pricing audits to be conducted, in view of the provisions of subclause 69.2 of subsection 10 of Section XX of the Tax Code of Ukraine. At the same time, the Administrative Cassation Court within the Supreme Court noted that the entry into force of Law No. 2118-IX did not create legal grounds for suspending the taxpayer's audit, while the entry into force of Law No. 2719-IX on 25 November 2022 did not empower the tax authority to issue an order resuming the transfer pricing audit.
In addition, the Administrative Cassation Court within the Supreme Court also made findings regarding the judgment of the Grand Chamber of the Supreme Court dated 8 September 2021 in case No. 816/228/17, noting that the Grand Chamber's judgment does not define specific criteria under which procedural violations committed by a controlling authority are deemed to affect, or objectively be capable of affecting, the findings made following an audit. Accordingly, the assessment of alleged or identified procedural violations must be carried out by the court in each specific case.
10. Such sources of information as the information bulletin of the State Enterprise "Derzhzovnishinform" titled "Review of Prices on Ukrainian and Global Commodity Markets", as well as the Argus and Refinitiv Agriculture Research databases, do not contain complete information that would allow the terms of controlled and uncontrolled transactions to be assessed as comparable for the purposes of applying the CUP method.
CUP method
forward contract
transfer pricing dispute
The Administrative Cassation Court within the Supreme Court concluded that none of the listed sources of information could be used for the purposes of applying the comparable uncontrolled price method, since the information presented in those sources reflected only one or two of all the criteria that materially affected the price of the goods, namely: characteristics of the goods, supply volumes, allocation of functions, risk allocation terms, contract performance periods, payment terms, amount of customary mark-ups and discounts, characteristics of the goods market, and companies’ business strategies.
The Administrative Cassation Court within the Supreme Court also concluded that, where forward contracts are concluded, the prices of goods in controlled and uncontrolled transactions must be compared as of the date of conclusion of such contract, rather than as of the date of actual delivery of the goods.
OVERVIEW PREPARED BY TAX & CUSTOMS TEAM
Viktoriia Fomenko
Partner