Asters, General Partner of the UBA, acted as a legal adviser to one of the largest agricultural traders in a transfer pricing tax dispute, successfully appealing additional corporate income tax charges exceeding UAH 11 million.

The tax authority conducted an unscheduled external documentary tax audit regarding the arm's length principle (transfer pricing) in connection with controlled transactions involving non-resident entities for the period 2015-2017.

As a result of the audit, the tax authority challenged the company's information sources applied under the Comparable Uncontrolled Price (CUP) method, arguing that the sources did not allow for an objective assessment of whether the terms of the controlled transactions comply with the arm’s length principle.

The tax authority did not utilize in the calculation in the contested tax notification-decision the adjustment of the corporate income tax base voluntarily reported by the company, based on the results of an analysis of the compliance of controlled transactions with the arm's length principle.

During the court proceedings, Asters’ lawyers argued that the findings of the tax audit report did not comply with the requirements of Article 39 of the Tax Code of Ukraine. In particular, regarding the use by the tax authority of information sources that were not publicly available and to which the company had no access at the time of conducting or following the controlled transactions.

The tax authority made an unjustified comparison of prices as of a date different from the one used by the company. A debatable issue was the choice between the date of contract execution and the date of transfer of ownership rights of the goods.

Asters’ team also referred to procedural violations, including the scheduling and conduct of the audit during the COVID-related moratorium.

The courts of the first and appellate instances upheld the company’s position, annulled and invalidated the tax notice-decision, and reaffirmed the established judicial approach on the illegality of tax audits (including those related to transfer pricing) initiated and conducted during the quarantine moratorium.

The Supreme Court refused to initiate cassation proceedings, thus finally affirming the rulings of the lower courts. The company has taken steps to recover its legal costs.

The case was handled by Asters’ tax disputes team led by Counsel Larysa Antoshchuk and included Associate Oleksandr Matokhniuk and Junior Associate Bohdan Trokhymets.

Asters is the largest full-service law firm in Ukraine with offices in Kyiv, Brussels, London, and Washington, D.C. The firm has access to over 125 jurisdictions through a well-developed network of partner law firms.