Transfer pricing in controlled transactions by taxpayers

This article is devoted to the study of certain aspects of control by the tax service over the implementation of controlled transactions by taxpayers. The author summarises the main criteria for transactions that fall under controlled transactions. The author emphasises that controlled transactions are under close scrutiny of the tax authorities. These are transactions involving non-residents and affecting the financial result of taxpayers and are carried out: with related non-residents; with non-residents registered in low-tax jurisdictions; with non-residents whose legal form is included in the relevant list; through non-resident commission agents; between a non-resident and its permanent establishment in Ukraine. Since cross-border pricing is one of the ways to minimise taxes, this increases the interest of the controlling authorities. Attention is drawn to both the type of controlled transaction and the income received by the taxpayer based on the results of the activity, which should be considered in the complex. It is emphasised that the main element of the controlled transaction audit is the correct pricing. In this case, the arm’s length principle is used for the audit. The Tax Code of Ukraine clearly defines the conditions under which transactions are recognised as not complying with this principle. The author emphasises that in case of violation of this principle, the financial result is adjusted, which entails additional taxation. In addition, attention is focused on the existence of a business purpose (reasonable economic reason) for the controlled transaction, which can only be present if the taxpayer intends to obtain an economic effect as a result of economic activity. The economic effect mainly implies an increase in the taxpayer’s assets and/or their value, as well as the creation of conditions for such an increase (preservation) in the future. Taxpayers should focus on the correct pricing not only as a basis for avoiding a tax offence, but also for proper tax planning.