Tax authorities in Ukraine mistakenly apply Platts rules for transfer pricing – Deloitte

In Ukraine, the tax legislation does not limit a taxpayer to using only one database to compare prices for iron ore exports. Therefore, it is a mistake for the tax authorities to apply the Platts rules exclusively.

Oleksandr Yampolsky, Director of Deloitte’s Transfer Pricing practice in Ukraine, writes about this in a blog post for Forbes.

He emphasizes that Ukrainian businesses often apply to the courts to cancel such additional charges, and there have been many cases of successful appeals against tax authorities’ decisions with the following conclusion: the price comparison method should be applied only when it is as reliable as the profitability method.

The courts emphasize that the burden of proof lies with the tax authorities. Therefore, if a company has conducted a qualitative analysis, the tax authorities must first challenge its approach and only then apply their own method.

«However, some courts support the position of the tax authorities, arguing that these aspects are not so important. One of the courts expressed the position that only one database, namely Platts, should be used to compare prices for iron ore exports. The tax legislation does not limit the taxpayer to only one source of information, but allows a wide range of sources,» Yampolsky said.

He notes that this position is confirmed by international practice, namely the OECD Guidelines (the primary source of transfer pricing rules).

“The Guidelines do not mention the need to use either a single source of information or a single method for analysis. By the way, even the Ukrainian tax authorities do not always use the same source of information during their audits,” the expert summarizes.

At the end of May, GMK Center organized a roundtable discussion in Kyiv on the main challenges facing exporters during the war. The discussion touched upon transfer pricing in Ukraine and the problematic cases faced by exporters.

In particular, Ivan Shynkarenko, Partner at KM Partners, emphasized that the Ukrainian tax authorities often biasedly interpret transfer pricing control rules in their favor. Although transfer pricing can hardly be called a clearly defined mechanism with clear quantitative approaches, business wants to see less bias in the actions of regulatory authorities.