LETTER OF THE STATE TAX SERVICE OF UKRAINE

of August 17, 2012 No. 1043/0/71-12/15-1417

About the taxation of transactions with the connected persons and transactions with raw materials supplied by the customer

The State Tax Service of Ukraine for the purpose of the proper organization of administration of the income tax reports about the taxation of transactions with the connected persons.

According to subitem 14.1.159 of item 14.1 of Art. 14 of the Tax code legal entities and/or physical persons between which relations can influence conditions or economic results of their activities or activities of persons whom they represent and who answer any of the below-stated signs are considered as the connected faces:

the legal entity who exercises control of economic activity of the taxpayer or is controlled by such taxpayer or is under joint control with such taxpayer;

the physical person or members of his family who exercise control of the taxpayer;

the official of the taxpayer, authorized to perform on behalf of the taxpayer the legal acts directed to establishment, change or the termination of legal relations and also members of his family;

taxpayers are participants of merging of the companies irrespective of its type and form of business which perform the economic activity by formation of such consolidation.

The procedure for the taxation of transactions with the connected persons is determined by item 153.2 of Art. 153 of the Tax code.

In particular by subitem 153.2.6 of item 153.2 of Art. 153 of the Tax code it is determined that the expenses incurred in connection with sale/exchange of goods, performance of works, provision of services to the faces tied with such taxpayer or on transactions with raw materials supplied by the customer are recognized in the amount of which does not exceed income gained from such sale / exchange.

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