Transfer pricing may be significantly expanded: transactions between Ukrainian companies may come under scrutiny

Transfer pricing in Ukraine may change substantially.

Government Bill No. 16035 has been registered with the Verkhovna Rada. It is intended to bring Ukrainian transfer-pricing rules closer to OECD and EU standards.

One of the proposed amendments is particularly important for Ukrainian groups of companies.

The proposal would extend transfer-pricing rules to certain transactions between related parties that are Ukrainian tax residents.

In particular, this concerns transactions with related companies that:

• reported annual losses exceeding EUR 3 million;
• benefit from preferential tax regimes.

In other words, transfer pricing may gradually cease to be an issue limited exclusively to international business.

For example, a group may include several Ukrainian companies: one manufactures products, another sells them, and a third owns assets or provides services to other group companies.

Today, an owner may view pricing between such companies as an internal group matter. Once the rules change, the tax authorities may scrutinise more closely the prices at which goods are sold, assets are transferred, or services are provided between them.

The state’s rationale is clear. If profit is shifted through intra-group pricing from a profitable company to a loss-making company or a company enjoying tax incentives, the budget may potentially receive less tax.

These are precisely the transactions proposed for additional scrutiny.

There is also another significant proposed change.

The bill provides for a revision of the existing value thresholds used to determine whether transactions are controlled, along with the introduction of a new risk-based approach.

For businesses, this means that the tax analysis of a group will need to be much broader, particularly where the structure includes:

• several related Ukrainian companies;
• loss-making entities;
• companies benefiting from tax incentives;
• transactions with non-residents;
• intra-group financing;
• royalties and intellectual property;
• substantial intra-group transactions involving goods, assets, or services.

It is important to note that the new rules are not yet in force.

Bill No. 16035 is only under consideration by the Verkhovna Rada, so its final wording may still change.

However, the direction of tax policy is already clear. The state wants to see not only transactions between Ukrainian businesses and foreign companies, but also how profit is allocated within a group of companies.

Owners of medium-sized and large businesses should therefore already examine their corporate structure from the tax authority’s perspective: where profit is generated, where losses arise, what prices related companies use, and whether each transaction has a sound economic rationale.

Once the rules change, the question “Why does one of my companies sell to another at this particular price?” may no longer be solely an internal question for the owner. It may become a question for the State Tax Service.

It is better to seek legal advice now than to require legal representation later.

If you have a group of related companies or work with non-residents, it is worth reviewing your structure in advance for future transfer-pricing risks.

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📧 Email: info@uk-winner.com

Author: Ihor Yasko, Managing Partner at WINNER Law Firm, PhD in Law.