LAW OF UKRAINE

of December 28, 2014 No. 72-VIII

About introduction of amendments to the Tax Code of Ukraine concerning enhancement of tax control behind transfer pricing

The Verkhovna Rada of Ukraine decides:

I. Bring in the Tax code of Ukraine (Sheets of the Verkhovna Rada of Ukraine, 2011, Art. No. No. 13-17, 112) the following changes:

1. In Item 14.1 of Article 14:

Paragraph one of subitem 14.1.71 to add 1) with the offer of the following content:

"This determination does not extend to transactions which are recognized controlled according to article 39 of this Code";

Subitem 14.1.159 to state 2) in the following edition:

"14.1.159. The connected persons - legal entities and/or physical persons, the relations between which can exert impact on conditions or economic results of their activities or activities of persons whom they represent, taking into account the following criteria:

a) for legal entities:

one legal entity directly and/or indirectly (through the connected persons) owns corporate laws of other legal entity in the amount of 20 and more percent;

the same legal entity or physical person directly and/or indirectly owns corporate laws in each such legal entity in the amount of 20 and more percent;

the same legal entity or physical person makes the decision on appointment (election) of sole executive bodies of each such legal entity;

the same legal entity or physical person makes the decision on purpose (election) of 50 and more percent of structure of collegiate executive body or the supervisory board of each such legal entity;

at least 50 percent of structure of collegiate executive body and/or the supervisory board of each such legal entity make the same physical persons;

sole executive bodies of such legal entities are appointed elected) according to the solution of the same face (the owner or the body authorized by it);

the legal entity has powers on appointment (election) of sole executive body of such legal entity or to purpose (election) of 50 and more percent of structure of its collegiate executive body or the supervisory board;

the amount of all credits (loans), returnable financial aid from one legal entity and/or the credits (loans), returnable financial aid from other legal entities guaranteed by one legal entity concerning other legal entity exceeds the equity amount more than in time 3,5 (for the financial institutions and the companies making exclusively leasing activities - more than by 10 times);

b) for physical person and the legal entity:

the physical person directly and/or indirectly (through the connected persons) owns corporate laws of the legal entity in the amount of 20 and more percent;

the physical person has the right to appoint (to elect) sole executive body of such legal entity or to appoint (to elect) at least 50 percent of structure of its collegiate executive body or the supervisory board;

the physical person performs powers of sole executive body in such legal entity;

the physical person has powers on appointment (election) of sole executive body of such legal entity or to purpose (election) of 50 and more percent of structure of its collegiate executive body or the supervisory board;

the amount of all credits (loans), returnable financial aid from physical person provided to the legal entity and/or any credits (loans), returnable financial aid from other physical persons presented to the legal entity, presented under guarantees of this physical person, exceeding the equity amount more than in time 3,5 (for the financial institutions and the companies making exclusively leasing activities - more than by 10 times);

c) for physical persons - the husband (wife), parents (including adoptive parents), children (full age/minor, including adopted), full and not full brothers and sisters, the guardian, the custodian, the child over whom guardianship or custody is established.

All corporate laws which belong (directly and/or indirectly) to the legal entity in other legal entity, is the amount of shares of corporate laws which:

directly belong to such person in other legal entity;

belong to any of the related parties of such legal entity in other legal entity.

For the purposes of determination whether the physical person directly and/or indirectly corporate laws in the amount of 20 and more percent in the legal entity has, all corporate laws which belong (directly and/or indirectly) to physical person, is the amount of shares of corporate laws which:

directly belonging to such physical person in the legal entity;

belong to any connected persons of such physical person in the specified legal entity.

The size of share of ownership of corporate laws is calculated in case:

the mediated ownership (in one chain) - by multiplication of shares of ownership of corporate laws;

ownerships through several chains - by summing of shares of ownership of corporate laws in each chain.

If the share of ownership of corporate laws of each person in the following legal entity in chain exceeds 20 percent, all persons of such chain are connected (irrespective of results of multiplication).

The direct or mediated participation of the state in legal entities is not the basis for recognition of such legal entities connected. Such taxpayers can be acknowledged connected on other bases provided by this subitem.

In the presence of the circumstances specified in subitems "an" - "in" this the subitem, the legal entities and/or physical persons which are the parties of economic activity have the right to independently recognize themselves for the purposes of the taxation as the connected persons on the bases which are not provided in this subitem.

The central executive body realizing the state tax and customs policy judicially can prove on the basis of the facts and circumstances that one legal entity or physical person exercised practical control of business solutions of other legal entity and/or the physical person or legal entity exercised practical control of business solutions of each legal entity";

Subitem 14.1.251-1 to exclude 3).

2. To add Item 20.1 of Article 20 with subitem 20.1.40-1 - the following content:

"20.1.40-1. take a legal action about recognition of persons connected on the basis of the facts and circumstances that one person exercised practical control of business solutions of other legal entity and/or the physical person or legal entity exercised practical control of business solutions of each legal entity".

3. State Article 39 in the following edition:

"Article 39. Transfer pricing

39.1. Principle of "outstretched arm"

39.1.1. The taxpayer who participates in controlled transaction shall determine amount of its taxable profit according to the principle of "outstretched arm".

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