Ukraine

Market overview

On December 21 2016, Ukraine's parliament approved a series of amendments to tax law, which included changes to TP legislation. The changes mandate a higher threshold for controlled transactions and introduce of a principle for grouping transactions and new fines for violations of existing TP rules.

Although transfer pricing has not been a key focus of past Ukrainian governments, this began to change in 2013 when the government adopted new TP legislation. Two years later, the Ministry of Finance finalised steps towards implementing the new international requirements of country-by-country reporting (CbCR).

The new measures extend the list of types of controlled transactions and the information needed as part of TP documentation, such as the company's managerial structure, analysis of its market position and business strategy. This is a major shift for companies and law firms operating in Ukraine.

"We're now undergoing the shift towards European and worldwide standards," said Serhiy Verlanov, a partner at Sayenko Kharenko. "Ukraine signed up to the BEPS initiative last year and legislation is being developed more with regard to transparency."

The adjustment is still a gradual process rather than an immediate turn. "We're expecting new measures to be signed next year and then implemented in the year after next. This will be a game changer for Ukraine," said Verlanov.

Unlike some of its predecessors, the Poroshenko government is eager for Ukraine to meet the new OECD standard and to ensure compliance from business. But this is not just a matter of improving the TP system.

Over the past two years, Ukraine has undergone political and economic reforms so that the country can strengthen its ties with the European Union. Ukraine entered into an association agreement with the EU in 2014, which was later rolled into the Deep and Comprehensive Free Trade Agreement (DCFTA) in 2016.

Another factor is the state of the Ukrainian economy. Ukraine has to cut its deficit to secure a new loan, and closing loopholes for tax avoidance is one way to help achieve this. The 2016 budget included a raft of public spending cuts to bring down the deficit. Parliament approved the budget in December 2016.

Belt-tightening is the order of the day because the IMF made budget restraint the key condition for a $1 billion loan. The IMF signed off on the loan in April 2017. This is just the latest part of a $17.5 billion bailout programme. Access to these funds is conditional upon keeping inflation low, reducing the deficit and tackling corruption.

If the country can achieve economic stability, the new TP legislation will guarantee a lot of work for firms as companies seek out advice in compliance and other areas.


Tax authorities

State Tax Administration
Postal address: 8 Lvivska Square, 04655, Kiev – 53
Tel: +38 44 272 44 02; +38 44 272 51 59; +38 44 272 08 41
Fax: +38 44 272 08 41
Email: kabmin_doc@sta.gov.ua
Website: www.sta.gov.ua


Tax rates at a glance

(As of July 2017)

Corporate income tax 18% (a)
Capital gains tax 18%
Branch tax 18%
 
Withholding tax
Dividends 15%
Interest 15% (b)
Royalties 15%
Branch remittance tax n.a.
 
Net operating losses (years)
Carryback 0
Carryforward Unlimited

  1. Special tax rates exist for insurance companies.
  2. The following interest is exempt from withholding tax:
    • Interest and income (discounts) received by nonresidents from state securities, municipal bonds or debt securities if these instruments are secured by state or municipal guarantees and if they are sold or placed by non-residents outside Ukraine through non-resident authorised agents
    • Interest payments to nonresidents on loans received by the state or to a municipal budget if they are reflected in the state or municipal budget or in the budget of the National Bank of Ukraine
    • Interest on loans obtained by business entities if fulfillment of these loans is secured by state or municipal guarantees

Source: EY and Deloite


Firm contact details

WTS Tax Legal Consulting