What is Transfer Pricing in Ukraine

Transfer pricing (TP) is a system for determining the fair price of goods and services in controlled transactions between related parties. The mechanism is regulated by Article 39 of the Tax Code of Ukraine and is aimed at preventing tax evasion.

Basic principles of transfer pricing

According to paragraph 39.1 of the Tax Code, the taxpayer must determine the amount of taxable profit according to the principle of “arm’s length principle”. To apply it, a comparison of the commercial and financial terms of transactions is carried out taking into account the characteristics of the goods or services, the functional analysis of the parties and the economic conditions of the activity.

Methods for determining transfer prices

When considering what transfer pricing is in practice, it is important to understand the methods of setting prices. The Tax Code establishes five methods:

  1. Comparable Uncontrolled Price (CUP) method. Priority for raw materials.
  2. Resale price method. For gross margin analysis.
  3. Cost-plus method. Based on cost-benefit comparison.
  4. Net profit method. Compares profitability ratios in different operations.
  5. Profit Split Method (PSM). Distributes income among participants.

The law requires the use of the method of comparative uncontrolled price if possible.

Who is subject to transfer pricing rules?

The rules of the TP apply to taxpayers who carry out controlled transactions with:

  • related non-resident persons;
  • non-residents from jurisdictions included in a special list;
  • non-residents of special organizational and legal forms;
  • permanent representative offices of non-residents in Ukraine.

Transactions are considered controlled if two criteria are met simultaneously: the payer’s annual income exceeds UAH 150 million, and the volume of transactions with one counterparty exceeds UAH 10 million.

Transfer Pricing Documentation Requirements

The following requirements apply.

Three-level documentation

Since 2021, a three-tier system has been in effect in Ukraine:

  1. Local file – for everyone with controlled transactions.
  2. Master file – for groups with income over 50 million euros.
  3. Report by country – with group income of over €750 million.

Due to the complexity of preparation, transfer pricing services are becoming increasingly popular among businesses.

Example of documentation

TP documentation for the export of goods of a related company may include the following key sections.

General information:

  • description of the Ukrprom group of companies – ownership structure, organizational chart;
  • data on the counterparty “UkrTrade GmbH” (Germany) – size of participation (70%), financial indicators.

Characteristics of the controlled transaction:

  • export of metal products – 5000 tons, total value is 3.2 million euros;
  • delivery terms – FCA-Mariupol, payment within 60 days.

Functional analysis:

  • Ukrainian side – production, quality control, primary packaging;
  • German side – marketing, distribution, customer service;
  • distribution of risks – production risks in the Ukrainian company, market risks in the German one.

Economic analysis:

  • The chosen method is “net profit method” with the sales profitability indicator;
  • the range of market profitability is 3.2–5.8% (the median is 4.5%);
  • the factual profitability of the transaction is 4.1%.

Conclusion: conditions of controlled operations correspond to the principle of “arm’s length principle”, since the actual profitability is in the market range.

How is a transfer pricing report generated?

According to subparagraph 39.4.2 of paragraph 39.4 of Article 39 of the Tax Code on transfer pricing, the report on controlled transactions shall be submitted before October 1 of the year following the reporting year, in electronic form, indicating all controlled transactions and methods applied.

Features of control and inspection of transfer pricing

The following features are highlighted.

Risks and problems during inspections

The main problems include the inconsistency of the terms of the transactions with the “arm’s length principle” and insufficient documentary evidence. Inspections can last up to 18 months with the possibility of extension.

Proportion adjustment

If discrepancies are detected, tax authorities may make adjustments. Taxpayers have the right to independently correct the price if this does not reduce the amount of tax.

Fines and sanctions for violation of TP in Ukraine

Failure to comply with legal requirements entails significant fines:

  • failure to submit a report – 300 living wage minimums;
  • failure to submit documentation – 3% of the transaction amount;
  • late submission – 5 living wage minimums per day of delay.

As of 1 January 2025, amendments became effective increasing certain fines, in particular for failure to file a notification of participation in an international group of companies.

Current changes in legislation and rules for 2024-2025

The following rules apply.

Rules during martial law

Since the beginning of martial law, the obligation to submit documentation remains in force, but fines are not applied provided that the obligations are fulfilled within 6 months after its end.

List of countries for TP

The list of countries for TP control is regularly updated by the Cabinet of Ministers of Ukraine, the latest one came into force in 2025.

OECD recommendations and international standards in the field of TP

Ukrainian legislation follows the OECD recommendations under the BEPS Plan, including the three-tier approach to documentation and the application of pricing methods.

Practical tips for businesses on transfer pricing

It is recommended to implement a control system of transfer prices, regularly update documentation and involve specialists to minimize the risks of audits.