Ukraine transfer pricing guidance clarifies treatment of permanent establishments

 By Leonid Karpov, AC Crowe, Ukraine

Ukraine’s tax authority issued transfer pricing guidance on March 4 addressing transactions between a foreign company and its Ukrainian permanent establishment

Official letter № 869/6/99-99-15-02-02-15 reminds taxpayer that transactions between a foreign company and its Ukrainian permanent establishment are subject to transfer pricing rules if the amount of these transactions exceeds UAH 10 million (equal approximately USD 367,000) annually. This applies whether the foreign company has annual turnover from all activities that exceed UAH 150 million (about $5.5 million) in a year or not.

The guidance also explains that a permanent establishment can determine profit for corporate tax purposes by using a separate statement of the permanent establishment’s activities or by using a notional deduction in the amount 70% from income

However, it should be noted that this guidance does not respond to taxpayer questions regarding whether the transfer pricing rules apply to a reinsurance premium paid to a nonresident insurance broker company from its PE.

In our opinion, such a transaction between a foreign company and its Ukrainian PE will not be subject to the transfer pricing rules because it does not have an influence on the income and expenses of the insurance broker company for tax purposes.

 Leonid Karpov is a partner at AC Crowe, Ukraine


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