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Lawyer: Transfer Pricing Act to ease the paperwork burden on the Ministry of Internal Revenue and large taxpayers


Source: Interfax Ukraine

Transfer Pricing bill passed by Ukrainian Parliament on July 4 may ease the paperwork burden on the Ministry of Internal Revenue and large taxpayers, Andriy Sydorenko, an attorney at Ilyashev & Partners, told Interfax Ukraine.

According to the new version of the bill, large taxpayers will be required to submit detailed information on controlled transactions within two months from request rather than by May 1. This is likely to ease the paperwork burden both on the Ministry of Internal Revenue and on large and complex businesses, he said.

Mr. Sydorenko also noted that some provisions such as extension of controlled transactions to include all transactions with nonresident related parties regardless of the aggregate amount of transactions for the year concerned, as well as restricted criteria for qualified transactions with resident related parties will have a positive impact on business as well. However, a 50 million «floor limit» on annual transactions will apply to those nonresidents only in whose countries tax rates are 5% lower than in Ukraine. The list of such territories is yet to be approved by the Cabinet.

At the same time, he said, it is still unclear whether these 5% will be calculated based on the existing 19% rate or on the 16% rate to take effect from 2014.

Still, there is also some negative impact the new act would have on business, Mr. Sydorenko said. Notably, the deadline for submitting information on controlled transactions for the rest of taxpayers (other than large and complex businesses) has reduced from 2 months to four weeks. It is also unclear what dates should be used for the 2014 reporting under new rules: September 1 (date of enactment) to the year end or the entire calendar year 2013.

«It is certain that this new act will make things more complicated for both the financial controllers of taxpayers and the inspectors of taxes. And there is little time left to prepare», he admitted.

Previously it was reported that on July 4 the Parliament passed Cabinet bill No. 2515 amending the Internal Revenue Code of Ukraine as regards the transfer pricing. The bill was passed by 321 votes.

The Ministry of Internal Revenue initially expected that the bill, if passed, would bring additional UAH 20 billion to the budget in the 3 years run so it took effort to defend virtually all principal points of the bill by the second reading. In particular, the provision relating to control of internal transactions survived despite the strong criticism by the Parliament’s steering committee. The only thing the MPs could do about it was limiting the qualified taxpayers to companies operating at a loss and businesses enjoying tax benefits or tax relief. The act also introduced pricing control for all transactions where income tax rate in nonresident’s country is at least 5% lower than in Ukraine as opposed to transactions with the residents of offshore jurisdictions only as many MPs had suggested.

A 50-million «floor limit» on controlled transactions has also survived as well as the definition of «related party» which was criticized by many of the MPs for being loose and unclear.

If it receives assent from the President, the bill will take effect on September 1, 2013.

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