2013 IFA CIS Conference - Controlled Transactions and Related Parties EN

Speaker: Roman Blazhko, Senior Associate,Law Firm «Lavrynovych and Partners»

Controlled Transactions and Related Parties

under New Ukrainian Transfer Pricing Rules

2013 IFA CIS International Tax Conference

Content

1. Controlled Transactions

• 1.1. Essence, History and Global Experience

• 1.2. Ukrainian Realities

2. Related Parties in Ukraine before and after the Law of Ukraine on Transfer Pricing


Controlled Transactions:Essence, History, Global Experience 1/1

• Controlled Transactions (CT) – transactions on purchase/sale of goods/services which come within the provisions of transfer pricing rules

• Price formation in CT– transfer pricing

• Goals of transfer pricing: (а) tax planning and tax avoidance, (b) redistribution of profit within the group of companies, (c) adjustment of the pricing policy in the group of companies

• USA – the first country which has introduced transfer pricing regulation on the statutory level

• European experience – the legislation developed on the basis of the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations introduced by the Organization for Economic Co-operation and Development (OECD) in 1995 (OECD Guidelines)


Controlled Transactions:Ukrainian Realities 1/7


* - The effective date of the Law on Transfer Pricing** - The categories of these parties are shown on the next slide*** - Approximately USD 6.25 million


Non-related Non-residents Participants of CT

• Preliminary Draft Law – control over the jurisdictions where the rate of CIT is lower by 5 percentage points than that in Ukraine => lower than 14% (19%-5% - for 2013) or 11% (16%-5% - for 2014)

• Enacted Law – control over the jurisdictions where the corporate income tax is lower by 5% than that in Ukraine => lower than 18,05% (19%- 5% of 19% - for 2013) or 15,2% (16%-5% of 16% - for 2014)





Control over jurisdictions where:

• the rate of the CIT is lower by 5% or more than that in Ukraine

and also where:

• residents pay CIT at the rate which is lower by 5% or more than that in Ukraine

Statutory rate

The effective rate (including all possible

reliefs, exemptions and refunds)



The draft list of jurisdictions having the rate of the CIT which by 5 or more % lower than the basic rate of the CIT in Ukraine:

• 92 jurisdictions, 29 of which are true tax havens* (Belize, British Virgin Islands, the Isle of Man, etc.)

• Some «decent» jurisdictions are in the draft list: Germany, Switzerland, Cyprus, Latvia

• Malta with its 35% CIT is in the draft list (most likely, given its generous CIT refund triggered at stage of the distribution of dividends)


* - according to the List of the Offshore Zones (Tax Havens) approved by the instruction of the Cabinet of Ministers of Ukraine No. 143-p as of 23 February 2011.


Rates of the CIT in Certain Jurisdictions



Comparison with Russian Federation (RF), United Kingdom (UK) and OECD Guidelines


*- for certain categories of taxpayers (for example, for the payers of mineral extraction tax) this threshold is much lower than RUB 2 billion.

Related Parties in Ukraine before and after the Law of Ukraine on Transfer Pricing 1/2

Particulars of “Ukrainian” Related Parties


The definitions of related parties according to the Tax Code of Ukraine (after the enactment of the Transfer Pricing Law) and according to the Tax Code of RF are almost identical

Related Parties in Ukraine before and after the Law of Ukraine on Transfer Pricing 2/2

Changes with respect to Related Parties

• Related Parties are divided based on subjects (for example, legal entities, individuals, etc.) and criteria of relativeness (shareholdings, control, etc.)

• Clarified that in the course of the determination of relativeness the possible rather than actual influence of one party on another should be taken into account


Questions

Thank you for your attention!



The information contained in this presentation does not constitute legal advice. The aforementioned information bears informative and not an

advisory nature. In order to obtain legal assistance on the matters considered in this presentation, you may refer to your advisers.

2013 IFA CIS Conference - Controlled Transactions and Related Parties EN

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