Practice Areas Review: Transfer Pricing

Transfer Pricing Trends of 2016



Managing Partner, Attorney-at -law, International Legal Center EUCON, President of the Ukrainian Business Association in Poland. Yaroslav Romanchuk focuses on the most complicated issues of corporate and tax law, transfer pricing, commercialization of IP rights objects and tax planning with the use of non-material assets, corporate restructuring and assets protection. He represents the interests of international and national corporations in the most complicated and high-profile corporate and tax disputes



Partner, Auditor, International Legal Center EUCON. Larysa Vrublevska advises well-known national and multinational companies on transfer pricing documentation with justification of contractual prices and introduction of transfer pricing control, as well as on tax planning and tax strategies. Larysa Vrublevska is a head of Transfer Pricing School and holds course of lectures on the most sensible issues of transfer pricing. She regularly takes part in conferences, forums, round tables. Specialization: tax consulting, tax planning, transfer pricing, business restructuring, accounting and tax accounting



33 Taras Shevchenko Blvd,
Office 12, Kiev, 01032
+380 44 238 0944
+380 44 238 0413
+48 50 339 2053
53 Emilii Plater
Warsaw, 00-113, Poland
+48 22 528 9490
+48 50 339 2053

 Our philosophy on protecting a client’s rights is simple — to prevent legal risks and litigation.

International Legal Center EUCON provides services representing the interests and outsourcing of non-residents and residents doing business in Ukraine and abroad.

An important feature of services provided by the firm is a comprehensive study of clients problems, in particular, the involvement of auditors, financial advisers, tax advisers, deep doctrinal research tasks. This approach in work has led to the structure of the Center, which includes the attorneys sector, audit sector, tax sector and sector of scientific advisers together finding not only effective but also competent decisions.

The firm operates at two offices. Yaroslav Romanchuk heads the Ukrainian office in Kiev and Ihor Yatsenko is head of the Polish office in Warsaw.

The team of International Legal Center EUCON advises clients on the most complicated issues of tax, transfer pricing, corporate, business restructuring, assets protection, commercialization of IP rights objects, tax planning with application of non-material assets.

The firm’s clients include international and Ukrainian industry leaders that come from oil and gas, energy, agriculture and food industry, telecommunications, trade, transport, metallurgy, chemical industry, construction, hospitality, finance, etc.

The performance of the International Legal Center EUCON and its partners is highlighted by numerous recognitions and awards.

Since 2010 EUCON is included into the list of top 50 Leading Law Firms in Ukraine according to the annual ratings conducted by the Yuridicheskaya Practika Weekly and Kommersant-Ukraine Publishing House. EUCON is recognized among leading law firms according to international directories Legal 500 EMEA, World Tax and World Transfer Pricing, International Tax Review, and national legal directory Ukrainian Law Firms. A Handbook for Foreign Clients, the Kyiv Post, by Legal Awards. In 2015 EUCON has won the Ukraine Transfer Pricing Firm of the Year award at the annual European Tax Awards 2015, International Tax Review.

In view of the current trends in tax policies, the International Legal Center EUCON has established a separate transfer pricing practice and engaged lawyers, auditors, assessors.

International Legal Center EUCON and the International Audit Union established and operate the Transfer Pricing School attended by managers of accounting and financial divisions.


The Organization for Economic Cooperation and Development has been working on the measures of fighting against offshores and aggressive tax planning lately. In this context, transfer pricing has always been one on the most efficient means of prevention of understatement (erosion) of the tax base and shift of taxed profits to low-tax jurisdictions. G20 heads of government within the BEPS plan implementation have adopted the final version of amendments (autumn, 2015). The plan itself provides for 15 basic measures of fighting against the tax base erosion with 4 points related to transfer pricing (TP). Currently, the main amendments have to be implemented to the national legislations of countries. Let us consider what exactly is to be amended regarding transfer pricing.    

On Intangible Asset-based Profit Taxation

1. The concept of an economic owner of intangible assets is introduced. It means that the legal owner does not necessarily have the right to receive total profit from use of intangible assets. In order to distribute profit, the contribution of parties to the creation of value is to be analyzed and associates performing essential functions (such as design, promotion, protection, development and operation) are to benefit correspondingly from it, not just through compensation of their expenses as is usually stipulated by licensing agreements.    

2. Associates performing exclusively the function of financing an intangible asset-based project and assuming appropriate financial risks can benefit only from the financial default risk premium. 

3. The list of methods for determining the value of intangible assets is expected to be extended (mainly, with techniques used in valuation activities).

On Allocation of Profit Depending on Risks Assumed by Transacting Parties

In fact, the terms and conditions of agreements do not always correspond to actual functions and actions of the parties to the transaction and risks assumed by them. That’s why the principle of Substance over Form will, to a certain extent, be updated. With terms and conditions of the agreement remaining the starting point for analysis, actual risks of the parties will be taken into consideration as well. Besides, for the purposes of transfer pricing the tax authorities have the right to ignore the actions of the parties in the framework of the agreement if they do not have a certain commercial (business) goal.    

The risk will be considered to be assumed by the party:

— with authority and expertise available for taking decisions related to such risk management;

— with financial capacities to assume such risk.

Furthermore, additional measures for preventing understatement of the tax base are to be implemented for high-risk transactions. In general, transactions in raw materials, intra-group transactions and others are recognized as high-risk transactions. To impose a tax on transactions in raw materials the price is to be determined by means of stock exchange quotation, with well-grounded adjustment of delivery conditions being allowed for determining the comparability of transactions. It is worth mentioning that in this respect Ukrainian tax legislation is almost adapted to the requirements provided by the BEPS plan, as the norms regarding determining  prices for transactions in goods having a stock exchange listing correspond to all the regulations approved by the OECD. At the same time, the application of these norms by Ukrainian taxpayers does, to some extent, pose a problem. Firstly, the Cabinet of Ministers of Ukraine failed in the last year or so to approve The List of Exchange Traded Commodities and The List of World Stock Exchanges available in accordance with Article 39 of the Tax Code of Ukraine. Additionally, there are problems related to the compliance of certain commodities with those listed on world stock exchanges. Grains may serve as a perfect example. In Ukraine, DSTU (State Standards of Ukraine) 3768:2010 is relevant for wheat. This standard sets quality parameters for soft and hard wheat, with soft wheat having 6 classes (Classes 1 to 3 — Group A,  classes 4 and 5 — Group B and class 6) and hard wheat having 5 classes. Taking into account the varieties of wheat grown in Ukraine, a reduction in the number of classes is hardly ever likely.  

However, according to quality parameters, world practice divides grains into food and feed grain. In this context, there are no additional specifying parameters set. If one of the quality parameters does not comply with the requirements, grains immediately become a feed category. Thus, the absence of grading of sorts makes it impossible to find an item on the stock exchange compliant with the item identified according to the DSTU. As legal practitioners, we informed the Cabinet of Ministers of Ukraine on a number of current problems that should be eliminated by developing a document containing information on the comparability of commodities, giving an opportunity to apply safely legislative requirements on the prices determined based on stock exchange quotations. However, no positive shifts have been made so far.               

Finally, the crucial changes will be observed regarding the extent of the information disclosure in documentation on transfer pricing. The novelties are aimed primarily at setting the necessary information exchange between the tax authorities of different countries. The preparation of new forms of documentation should provide for complete understanding of the value-setting scheme for commodities or services by the fiscal authorities.

For the implementation of the transparency principle, forming the following clauses of transfer pricing documentation is suggested, namely the Master File, the Local File, the Country-by-Country Reporting.

The Master File is submitted by the main (parent) company of the group. This reporting shall contain a large amount of information regarding organizational structure of the group, the geographic location of its units and description of its economic activity including the supply chain for main goods and services as well as factors having influence on determining price. 

The Local File is submitted by the structural units of the group at the place of their location. In effect, this reporting meets current requirements of transfer pricing documentation provided by Article 39 of the Tax Code of Ukraine containing information on controlled transactions, functional analysis, selection of the pricing method, price rationale, etc.   

Country-by-Country Reporting is submitted by the members of the group to the tax authorities of the country the parent company is registered in and contains detailed information on the economic activity of the unit of the group. Groups with consolidated profit of less than EUR 750 million will be an exception. 

It should be mentioned that the Draft Act On Amendments to the Tax Code of Ukraine developed by the Ministry of Finance in Autumn 2015 provided for the fulfillment of amendments to the requirements to the documentation on controlled transactions. It provided for the submission of the In-depth (Master File) Reporting by parent companies and Local (Local File) Reporting by the companies of the group. Nevertheless, this Draft Act was, for a variety of reasons, rejected. However, the amendments to BEPS cannot be ignored, and Ukraine will adopt them later.

We discussed the above-mentioned issues and other ones with Olena Makeyeva, the Deputy Minister of Finance of Ukraine, and the senior management of the State Fiscal Service of Ukraine on 24 March 2016 at the International Forum Transfer Pricing — 2016. The Forum was organized by the International Legal Center EUCON.