Transfer pricing

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Transfer pricing is determination of compliance of pricing in transactions between related parties that are typically part of the same holding company (group of companies) or with counterparties registered in low-tax jurisdictions or counterparties that do not pay income tax in their jurisdiction.

Thus, transfer price means the price set in business transactions between different members of a single group of companies and corresponds to the “Arm’s length” principle.

Setting a price in transactions between such companies, taking into account the “Arm’s length” principle is called transfer pricing.

What is the purpose of using transfer pricing

Building of complex economic relations and involving counterparties from other jurisdictions allow, through the regulation of internal price, redistributing total profit of a group of persons in favour of the ones in countries (territories) with lower taxes.

This is the easiest and most common tax minimization scheme, which certainly attracts particular attention from any state.

Transfer pricing and fiscal authorities

The main objective of control by fiscal authorities over transfer pricing is to establish new standards for taxation on international principles. For this reason, this line not only remains relevant today, but also demonstrates active development, convergence of the State Fiscal Service of Ukraine with tax authorities of other states, implementation at the state level of standards for the exchange of tax information, etc.

Tax services around the world are expanding their staff engaging in the issues of transfer pricing. Moreover, the requirements to the reporting documentation became stricter.

Realizing that the size of the tax base may be influenced by setting special prices for goods and services, the regulatory authorities, are intended to prevent this practice and fully control it.

Transfer pricing is one of the key trends of activity of the ID Legal Group.

The experts of ID Legal Group render services in the field of transfer pricing in full. They include consulting and support at the stage of business transactions that are recognized as controlled, assistance in identifying controlled transactions, preparation of reports and documentation on controlled transactions for the fiscal authorities, risk analysis, drafting recommendations, etc.

Neglect of the transfer pricing issues leads to major consequences. The fiscal authority will make its own calculations and make claims in relation to incorrectly set prices and unpaid taxes. It is followed by penalty charging. You can prevent it by applying to the ID Legal Group. Our specialists will help to prevent penalties by means of professional support of transfer pricing Documentation.

Why we?

There is a group on transfer pricing working at the ID Legal Group, which has a comprehensive approach to solving the existing issues. The group includes experienced lawyers, auditors, and tax consultants. We provide a full range of services in transfer pricing. Since the start of our activity, we have completed about 50 projects for Ukrainian and international companies.

Our main objective is the positive ultimate result, no matter at what stage we join the project.

The experience of the Team of ID Legal Group tells that there exist no no-win situations or losing cases – there is a positive way out of any situation subject to properly elaborated strategy.

What to do?

First of all, it is necessary to create an internal system of transfer pricing control, which can reduce risks on the part of fiscal authorities and ensure readiness for possible inspections. To achieve it, ID Legal Group takes the following steps:

Step 1

Determine which companies are related and which deals are classified as controlled transactions;
Conduct a comparative analysis of pricing in controlled transactions with the price formed in compliance with the “Arm’s length” principle, using appropriate techniques;
If necessary, adjust certain tax liabilities.

Step 2

Update accounting software and accounting procedures to ensure timely preparation of reporting on controlled transactions.

Step 3

Preparation of transfer pricing Documentation, which confirms the proper level of the prices set in controlled transactions and, if necessary, adjustments to be made to tax liabilities;
Make changes and updates to the transfer pricing Documentation on an ongoing basis during the 7-year limitation period;
Updating of such Documentation taking into account the period of conduct of controlled transactions.

IMPORTANT:

Since implementation of these procedures requires time and specific knowledge, it is advisable to start this work as soon as possible. This will minimize possible risks from the fiscal authorities.

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Reporting on controlled transactions

We emphasize that the support of auditors even before the preparation and submission of the Report on controlled transactions will allow to correctly identify the entire scope of controlled transactions, to determine the appropriate method of justifying compliance with the “Arm’s length” principle of pricing, which in turn can prevent the application of penalties (financial sanctions) provided for by the Tax Code of Ukraine.

Professional consulting on the issues of transfer pricing

Quite often, a taxpayer needs to clearly understand all the risks of its controlled transactions at the stage of their implementation in order to be able to create an effective and reliable basis for further ensuring the proper justification of its pricing (for example, the presence of internal comparable transactions or monitoring of external prices) and to minimize tax risks when dealing with fiscal authorities.

Analytical work on the choice of method and justifying compliance with the “Arm’s length” principle of pricing of the taxpayer

We have experience not only in working with primary documents created by the payer, but also with various analytical information bases, which are recognized by regulatory authorities as independent information sources. We conduct analytical work on obtaining and processing the information accumulated in the stock and commodity markets and collect a significant array of data from other publicly available sources of information, which is further systematized, analysed and applied for the purpose of justifying pricing in controlled transactions of the Client.

Preparation of transfer pricing documentation

Our Team has gained quite a considerable experience in justifying various types of controlled transactions and we can say for sure that it is impossible to find exactly the same taxpayers, just like it is impossible to fit different controlled transactions in one typical template of documentation. Each set of documents prepared by us is a thorough study combining at least two methods of justification, which in turn makes it possible to use the maximum number of arguments in favour of the taxpayer.

Support of the prepared documentation during the inspection by a regulatory authority and protection of the Client’s interests in case of disputes with a fiscal authority

This is the final, but no less important stage of cooperation with the Client, who as a result of cooperation with us gets confidence that in case of inspection by a regulatory authority, its interests will be protected, the position proved, and financial resources saved.

ID Legal Group is not only preparation of reporting and draft documentation, but also its comprehensive support for 7 years, updating of documentation and support of inspections by fiscal authorities.

Within the legal framework, knowing the sequence of actions of regulatory authorities, the Team of the ID Legal Group will ensure the safety of your business - We provide for possible risks and behaviour of fiscal authorities.

Remember that the most effective result is achieved when we take care of the enterprise from the very beginning! If you are interested in Transfer pricing service, perhaps you may be interested in the others:

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