Ministry of Finance Publishes Draft Amendments to the Controlled Transactions Report

The Ministry of Finance of Ukraine has published a draft order proposing amendments to the Procedure for Preparing the Controlled Transactions Report, approved by Order No. 8 dated January 18, 2016. The proposed changes are intended to clarify disclosure requirements and align reporting obligations with the updated provisions of tax legislation. The draft includes both technical and substantive amendments.

The key innovation is the introduction of new disclosure requirements relating to related-party relationship codes 525 and 526, which apply in cases of so-called “economic affiliation.

”In particular, related-party relationship code 525 will apply where:

• revenue from transactions with a single non-resident accounts for 75% or more of the revenue from transactions with all non-residents;
• andsuch revenue simultaneously represents 50% or more of the taxpayer’s total revenue from the sale of goods, works, or services.

For this code, taxpayers will be required to disclose:

• the total amount of revenue generated from transactions with all non-residents;
• the taxpayer’s total revenue according to accounting records;
• and the revenue generated from transactions with the specific non-resident,

with mandatory disclosure both in monetary terms and as percentages (rounded to two decimal places) of:

• the total revenue of the legal entity from the sale of goods, works, or services (net of indirect taxes) determined in accordance with accounting standards;
• and the total revenue of the resident legal entity from sales of goods, works, or services to all non-residents.

A similar approach applies to related-party relationship code 526, which will be used where:

• purchases from a single non-resident account for 75% or more of all purchases from non-residents;
• and such transactions represent 50% or more of the taxpayer’s total purchase value.

In this case, taxpayers will be required to disclose:

• the total value of purchases from all non-residents;
• the total annual value of purchases; and the value of transactions with the specific non-resident,
• also indicating the relevant amounts in Ukrainian hryvnias and as percentages.

The introduction of these criteria is aimed at identifying transactions that demonstrate a high degree of concentration with particular non-residents and that may qualify as controlled transactions for transfer pricing purposes. The amendments are also intended to enhance the transparency of such transactions and improve the quality of information disclosed in the Controlled Transactions Report.