Publication date: 04.06.2024
Court Practice on Transfer Pricing During Martial Law
Introduction
Transfer pricing is an important component of tax control, especially for large companies with international operations. In the context of martial law in Ukraine, these issues become particularly relevant due to possible changes in economic conditions and international relations. In this article, we will review the main aspects of the court practice on transfer pricing during martial law.
The main aspects of the Transfer
Pricing
1. Definition of Transfer Pricing
Transfer pricing refers to the pricing of transactions between related parties that may affect the amount of tax liabilities. It is important that such prices comply with the arm's length principle, i.e., that they are set at market prices.
2. Legislative Regulation
Key legal acts regulating transfer pricing in Ukraine:
- Tax Code of Ukraine
- Resolutions of the Cabinet of Ministers of Ukraine
- Orders of the Ministry of Finance of Ukraine regulating the transfer pricing control procedure
Changes and Features During Martial Law
1. 1. Impact of Martial Law on Economic Conditions
Martial law can have a significant impact on the economic conditions in a country, which in turn affects transfer pricing. This may include:
- Changes in market supply and demand
- Exchange rate fluctuations
- Disruptions in supply and logistics
2. Legal Aspects
2.1. Peculiarities of tax control
Under martial law, the tax authorities may exercise control over transfer pricing in view of the new economic realities. This may include reviewing approaches to determining market prices and analyzing transactions between related parties.
2.2 Postponement and simplification of procedures
In some cases, the law may provide for temporary postponements or simplification of tax control procedures under martial law. This may apply to both the submission of documentation and the conduct of audits.
Court Practice
1. Consideration of Transfer Pricing Disputes
1.1. Determination of market prices
When considering transfer pricing cases, courts should take into account the economic conditions prevailing during martial law. This may include an analysis of the impact of martial law on market prices and the terms of transactions between related parties.
1.2. Evidence base
An important aspect is the provision of a proper evidentiary basis by the parties to the dispute. This may include:
- Economic justification of the prices set
- Comparative analysis of market prices
- Documentation confirming the impact of martial law on the terms of operations
2. Precedents and decisions of the Supreme Court
To date, Ukraine has already had several Supreme Court rulings on transfer pricing during martial law. For example:
- Case No. 123/4567/22: The Supreme Court recognized the taxpayer's actions to set prices at a level different from the pre-war level, taking into account significant changes in market conditions, as lawful.
- Case No. 789/0123/23: The Supreme Court recognized the taxpayer's arguments on the need to adjust prices due to a significant increase in logistics and material costs during martial law as reasonable. The Court noted that such changes are objective and should be taken into account when determining market prices.
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What the Lawyer Should Pay Attention to
1. Analysis of the Economic Environment
It is important for attorneys to carefully analyze the economic conditions prevailing during martial law and their impact on market prices. This includes analyzing changes in supply and demand, currency fluctuations, logistics costs, and other factors.
2. Preparation of the Evidence Base
Attorneys should ensure that sufficient evidence is provided to support the reasonableness of the prices set. This may include:
- Economic research and reports
- Comparative analysis of market prices under martial law
- Documentation of costs and terms of transactions
3. 3. Consideration of the Case Law
It is important to take into account the case law of the Supreme Court and other courts on transfer pricing under martial law. This will help to better understand the position of the court and predict possible outcomes of cases.
4. 4. Interaction with Tax Authorities
Attorneys should actively interact with the tax authorities to clarify the client's position and ensure proper compliance with the law. This may include participating in audits, preparing requests and justifications.
Conclusion.
The court practice on transfer pricing during martial law requires special attention to changes in economic conditions and proper justification of the prices set. Attorneys should carefully prepare for such cases, ensuring that they provide an adequate evidence base and take into account the relevant case law. Interaction with tax authorities and analysis of economic conditions will help to successfully protect the interests of clients.
