By Yuri Nikolaychuk, Associate Partner, Rödl & Partner, Kyiv, Ukraine
Ukraine’s required transfer pricing forms for reporting controlled transactions have been updated, effective March 19. A new country-by-country reporting form became effective one month earlier, on February 19.
The Ministry of Finance approved these new forms to implement changes made to Ukraine’s transfer pricing documentation and reporting rules introduced by law No 466-IX of January 16, 2020.
Notification on participation in multinational group of companies
According to the new reporting requirements, a resident taxpayer must submit the notification on participation in the multinational group of companies. In the notification, the taxpayer must provide details about the multinational group, group’s parent company and, if applicable, the entity authorized by the group’s parent company to submit the country-by-country report.
In certain cases, information must be provided about jurisdictions where the multinational group is not required to submit the country-by-country report. This information helps the tax authorities to determine whether the Ukrainian taxpayer is obliged to submit the country-by-country report.
Information must also be provided on consolidated group income for the year preceding the reporting year and the end date of the group’s fiscal year.
The filing shall be submitted in electronic form by October 1 of the year following the reporting year. The obligation to submit the filing applies to each taxpayer engaged in a controlled transaction, regardless of the value of transactions, group turnover, or whether the taxpayer belongs to a multinational group or not.
Failure to submit the notification or inclusion of misleading information in the notification is subject to a penalty of UAH 113,500 (approximately USD 4,100). Late submission is also subject to a penalty of up to UAH 227,000 (approximately USD 8,300) or up to UAH 681,000 (approximately USD 24,800) for continuing failure to submit the notification.
Country-by-country report
The country-by-country report in Ukraine follows the OECD template and consists of three main parts.
The first part of the report contains general information about the resident taxpayer submitting the report, the name and fiscal year of the multinational group, and the basis on which the taxpayer submits the report (e.g., as a group parent company, as an authorized entity, or otherwise).
The second part of the report provides an overview of the allocation of income, taxes, retained earnings, assets, personnel, and information about group entities (name, registration details, principal business activity) by tax jurisdiction.
The third part of the report may be used to provide any additional information, in free form, which explains or can help tax authorities understand the information concerning the multinational group provided in the report.
The submission requirements also follow the OECD guidelines. A resident taxpayer shall submit the country-by-country report in Ukraine if the total consolidated group revenue for the fiscal year preceding the reporting year exceeds EUR 750 million and the taxpayer is the ultimate group parent company.
If the taxpayer is not the ultimate parent company, the taxpayer is still obliged to submit the report in Ukraine if the taxpayer is authorized by the ultimate parent company to submit the report, the ultimate parent company is not obligated to file the report in its home jurisdiction and no other group entity is authorized to submit the report, or if the jurisdiction of the ultimate parent company or the entity authorized to submit the report has a valid international agreement with Ukraine on the exchange of tax information, but the procedure for the exchange of country-by-country reports has not become effective or there have been systemic failures to comply with such procedure.
The language of the country-by-country report is Ukrainian, but in many cases, the taxpayer should provide translation in the English language. The submission deadline is 12 months after the fiscal year-end of the multinational group, which can differ from the calendar year.
The fiscal year ending in 2021 will be the first reporting period for the country-by-country report if Ukraine joins the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports in 2021.
Failure to submit the country-by-country report is subject to a penalty of UAH 2,270,000 (approximately USD 67,800). The same penalty can apply if the taxpayer fails to include information about an entity in the report or in the case of late filing of the country-by-country report.
Report on controlled transactions
The updated form of the report on controlled transactions contains only a few changes. The key change relates to a new column in the main part of the report related to the sources of information.
The taxpayer must now additionally specify information sources that the taxpayer has used to establish the compliance of controlled transactions with the arm’s-length principle. There are 11 information sources from which the taxpayer can choose. They include internal comparable transactions, various databases, and quoted prices.
Other changes reflect the new 25% (instead of 20%) capital ownership threshold which serves to determine whether the parties are related for transfer pricing purposes. The updated form also provides new codes for commodity transactions to which special transfer pricing requirements can apply. The Ukrainian government shall approve such special requirements.
The report on controlled transactions shall be submitted in electronic form by October 1 of the year, following the reporting year.
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