With the support ofTax Regulation

In 2013, the vast majority of taxpayers with controlled transactions anticipated changes of the reporting deadlines virtually till the last day. They expected the deadline to be moved from May 1 to a later date. However, when everybody who was able to file a report did so, the Act of Ukraine on Changes to the Tax Code of Ukraine No.4527 was approved on 13 May 2014.

The new legislation introduced the following changes:

1. The reports on controlled transactions for the period from 1 September till 31 December 2013 should be filed before

1 October, 2014;

2. The penalties under Article 120.3 of the Tax Code have been lowered, and namely:

— the failure to file a report shall entail a fine of 100 minimum wages as set as of 1 January of the relevant tax year;

— the failure to submit the documentation shall entail a fine of 10 minimum wages.

Before, the fines were much higher.

For example, the failure to file a report would mean a fine of 5% of the total amount of controlled transactions.

3. The penalties for independent adjustments of tax liabilities have been lifted till the end of 2014;

4. The penalty in the amount of UAH 1 for each violation of Article 39 of the Tax Code shall not apply for the violations that took place in the period from 1 September till 31 December 2014. Earlier, the period was effective till 1 September 2014.

Now that the changes have been approved, those taxpayers who were late in filing their reports on controlled transactions are still able to do it on time. Yaroslav Romanchuk, managing partner of International Legal Center EUCON,

is sure that the vast majority of companies did file their reports.

Many people are curious and want to know how tax control will work in the future.

The tax control of setting prices in controlled transactions will be carried out according to the Tax Code by monitoring prices in such transactions and auditing taxpayers concerning completeness of their calculations and payment of tax liabilities.

Prices will be monitored by:

— tracking the prices that are used by parties to transactions;

— examination and analysis of the documentation on controlled transactions that is submitted by taxpayers.

According to Mr. Romanchuk, monitoring can also include standard audits by local tax authorities with the purpose of identifying unreported controlled transactions. In such cases, the local tax authorities would send a special notice to the national tax authority on the detected transactions, of which they will also inform the relevant taxpayer.

The monitoring of prices has been going on for a long time already. A controlling authority monitors the prices of goods when they are imported or exported and the customs value is presented. However, it should be admitted that these actions are only an observation.

The next stage of monitoring is examination of the documentation that is submitted by taxpayers as requested by the controlling authority.

The controlling authority may request the documentation no earlier than 1 May of the year following the year of the report. According to Mr. Romanchuk, no changes were made in the relevant Article of the Tax Code. Even though the deadline has been moved to 1 October, such request may be sent already after 1 May. Of course, the Act originally implied that requests can be only made after the reports are filed. However, taxpayers can theoretically expect such requests from the national tax authority. The documentation should be submitted by major taxpayers within two months from the date of such request, and all other taxpayers should prepare and submit the documentation within one month.

The expert explained that if the submitted documentation does not contain sufficient information for analysis, the tax authority may send an additional request. The taxpayers should respond within 30 calendar days.

In order to examine controlled transactions, unscheduled documentary audits may be conducted. The grounds for such audits include:

— a notice to a taxpayer on identified controlled transactions;

— the failure to file a report on controlled transactions;

— detected deviation of prices according to the monitoring;

— the failure to submit documentation or submission of documentation with violations.

Thus, taxpayers should be prepared for ongoing control by the tax authorities.