1. KPMG IN UKRAINE
Advance Pricing
Arrangements in Ukraine
Pre-Packaged Transfer Pricing
tp.kpmg.ua
Tax and Legal
2. * On 25 May 2014 the Resolution of the Cabinet of Ministers of Ukraine “On Establishment of the State Fiscal Service” No.160 was released. According to this Resolution the Ministry of Revenues
and Duties of Ukraine is subject to reorganization to the State Fiscal Service by way of conversion.
** Provided there is an effective double taxation treaty between Ukraine and the country in which the counterparty is registered.
TO DATE,
NEGOTIATING AN APA IS
FREE OF CHARGE
WHAT KPMG DOES TO HELP
YOUR COMPANY GET AN APA:
KPMG specialists will develop an effective
transfer pricing (TP) methodology to be applied
in controlled transactions or, if needed, suggest
available options to improve the company’s
existing TP policies.
We will perform the groundwork for the
application to the SFS and manage the process
through to completion.
KPMG specialists will participate in the APA
negotiation process on behalf of the taxpayer.
We will provide all necessary clarifications and
additional explanations regarding the TP
methodology subject to negotiation.
KPMG TP and legal professionals will draft
the text of the Agreement to accommodate
the client’s interests.
Successful completion of the APA process results in
signing an Agreement between the Head of SFS (or
Deputy Head of SFS) and the CEO of a taxpayer (or its
authorized representative).
If an APA refers to a taxpayer`s international controlled
transaction, the competent authority of the country of the
counterparty could also be involved in the negotiation
process**
.
IMPORTANT: THE APA PROCESS IS NOT A TAX AUDIT AND DOES NOT
REQUIRE A TAX AUDIT PROCEDURE
AN APA IS A “WIN-WIN”
FOR TAXPAYERS AND THE SFS
WHAT IS AN “APA”?
AN ADVANCE PRICING ARRANGEMENT (APA) is an arrangement between a large taxpayer and the State Fiscal
Service of Ukraine*
(hereinafter – the “SFS”) that defines in advance the specific procedure and criteria for
determining prices in controlled transactions to be carried out by a taxpayer in the future.
!
3. POTENTIAL
COSTS AND RISKS
IN DEFENDING
AGAINST TP AUDITS
AND RESOLVING
DISPUTES OVER
MULTIPLE YEARS
TIME
AND EFFORT
NEEDED TO
NEGOTIATE
AN APA
Certainty as to the Tax Authority’s Position
Pursuing an APA provides a guarantee to a taxpayer
that the tax authorities will accept the selected transfer
pricing methodology for controlled transactions. Thus, a
taxpayer obtains predictability as to future tax authority
actions and eliminates of the risk of future disputes with
the tax authorities.
Double Taxation
If an international controlled transaction is under
consideration, the taxpayer as well as the Ukrainian and
international tax authorities will agree on the methodolo-
gy for setting prices and future tax treatment of such
transaction. This substantially reduces the risk of double
taxation.
Reputational and Competitive Advantages
A company/group may reduce its reputational risks and
improve competitive advantage through signing an
Agreement. Moreover, such company receives more
control and greater ability to manage resources through
a proactive APA application versus a reactive response
to a potential TP audit.
Tax Audits and Respective Time/Cost Savings
Taxpayers with an APA can be exempt from TP tax
audits***
and benefit from the time savings (minimum
audit term - 6 months) as well cost saving for legal fees
which could otherwise arise in the event of a tax audit or
litigation (Note: The Supreme Court of Canada has yet
to release its judgment on a transfer pricing case
covering the tax years 1990-1993).
Non-Adversarial Nature of the APA Negotiation Process
During the negotiation process, both tax authorities
and the taxpayer cooperate so as to eliminate
the adversarial nature of the litigation process. Moreover,
the negotiation process allows a taxpayer to establish
a positive business relationship with the tax authorities.
Time Required to Negotiate an APA
Negotiating an APA could require substantial time
and costs, although the time and costs are likely less
than those which could arise without an APA
(for development of TP documentation, undergoing
a tax audit and litigation procedure, etc.).
Risk of Not Obtaining an Agreement
During the APA negotiation process, a taxpayer and the
tax authority may not reach agreement as to the TP
procedure and/or criteria for determining prices in future
controlled transactions and may not sign an Agreement.
Regardless of this risk, a taxpayer would benefit from
understanding the tax authority’s position, which would
allow the company to take the necessary measures to
reduce the risk of additional tax liabilities in the future.
Disclosure of Confidential Information
A company may fear disclosure of information related to
its activities which could be used by the tax authorities
in the course of a later tax audit.
BENEFITS OF AN APA DRAWBACKS OF AN APA
*** Within the Ministry of Finance of Ukraine there is an expert group aimed at improving Ukraine`s transfer pricing legislation. The group members are actively lobbying to grant an exemption from
tax audit to any taxpayer wich has signed an Agreement with the SFS.
