Transfer Pricing – Legal Support for Business

Regulatory authorities in Ukraine and other countries closely monitor business operations potentially related to tax evasion or the transfer of income to low-tax jurisdictions. Primarily, this concerns transactions between structural units within international corporations, and, accordingly, transfer pricing (TPC) becomes an extremely important aspect of efficient business management.

AA Lawrange Law Firm offers transfer pricing consultations as part of its services, as well as support in case of tax audits related to TPC or disputes with the tax authorities following such audits. Our experience in the TPC field confirms that companies can combine favorable tax planning with full legal compliance to avoid sanctions from regulatory bodies. Moreover, if a company seeks our help after an issue has already arisen, we will assist in resolving it and later help establish a system to prevent similar risks in the future.

Transfer Pricing: Legal Aspects and Risks

A transfer price is the internal cost for goods, services, or other items used when concluding contracts between related parties (business units within multinational corporations). Transfer prices are involved in so-called controlled transactions.

Controlled transactions are foreign economic deals between related parties that may lead to inflated expenses, reduced profits, and tax obligations. Such transactions are subject to tax authority oversight.

Transfer pricing is a set of rules for determining the fair value of goods, services, or other items in transactions between related parties. Its foundation lies in the “arm’s length” principle, which extends the tax obligations of related parties to the level of unrelated ones.

Thus, TPC is one of the key aspects of international taxation, ensuring that transactions between international corporation divisions are carried out under conditions that can be compared to market conditions. This helps prevent issues such as: 1) price manipulation, 2) tax evasion, 3) income shifting to low-tax jurisdictions.

Note! The application of TPC rules is based on the principle of substance over form. As a result, there is a risk that regulatory authorities may disregard documents (contracts) and rely on their perception of the essence of the intra-group transaction.

Legislative Regulation of Transfer Pricing in Ukraine

In Ukraine, transfer pricing is regulated by Article 39 of the Tax Code and is aligned with the OECD recommendations. The law provides for five methods to determine the market value of controlled transactions: 1) the Comparable Uncontrolled Price (CUP) method, 2) the Resale Price method, 3) the Cost Plus method, 4) the Transactional Net Margin Method (TNMM), and 5) the Profit Split method. A business must choose the most appropriate method depending on the nature of the transaction.

It is important to take into account the thresholds for controlled transactions according to the current legislation. Transactions with non-residents/related parties are considered controlled if:

• the annual income of the taxpayer company exceeds UAH 150 million,
• the volume of transactions with the non-resident counterparty amounts to UAH 10 million.

Additionally, transactions with residents of low-tax jurisdictions or with certain legal forms also fall under control.

For your information! In 2025, the government of Ukraine updated the list of low-tax jurisdictions, reducing it from 78 to 46 countries and territories (Cabinet of Ministers Resolution No. 1505 dated December 27, 2024). Jurisdictions with which Ukraine has concluded international double taxation avoidance treaties have been excluded from the list.

Legal Consequences of TP Violations

Transfer pricing is associated with quite a few vulnerabilities for businesses. In the event the fiscal authority detects violations, rather substantial fines may follow:

• failure to submit a report on controlled transactions: 300 times the subsistence minimum for a working person as of January 1 of the tax (reporting) year – UAH 908,400;
• failure to submit global TP documentation (master file): 300 times the subsistence minimum – UAH 908,400;
• failure to submit notification of participation in a multinational enterprise group (MNE): 100 times the subsistence minimum – UAH 302,800;
• late submission of TP documentation: two times the subsistence minimum for each calendar day (UAH 6,056), but not more than 200 times the subsistence minimum (UAH 605,600);
• late submission of global TP documentation: three times the subsistence minimum for each calendar day (UAH 9,084), but not more than 300 times the subsistence minimum (UAH 908,400).

Please note! As of March 25, 2025, amendments to the Tax Code regarding the amount of certain fines for transfer pricing came into force. In particular, the fine for failure to submit notification of participation in an MNE group was increased from 50 to 100 times the subsistence minimum.

Our Legal Services in the Field of Transfer Pricing

The range of services provided by the Lawrange law association to clients covers several areas of work: consultations, legal audits for compliance with TP legislation in the company’s activities, preparation of TP documentation, and support in resolving disputes with the tax authorities.

In particular, among our services are:

• preparation of three-tier TP reporting (Local File, Master File, Country-by-Country Report);
• development of intra-group pricing methodology and regulations for monitoring compliance with TP legislation;
• audit of individual transactions with non-residents to identify controlled transactions.

TP Legislation Consultations

Thanks to expertise in international law, our team provides consultations on TP legislation not limited to the jurisdiction of Ukraine. Our tax lawyer can prepare answers regarding the specifics of applying TP legislation in other foreign states. If necessary, we involve not only lawyers but also auditors and professional appraisers to resolve issues.

Our consultations cover tax planning and structuring taking into account TP, criteria for recognizing transactions as controlled, determining related parties, and methods for determining compliance of controlled transactions with the arm’s length principle. Our specialists explain the regulatory features of certain types of controlled transactions, for example, transactions with raw materials, which have specific requirements for notifying tax authorities and determining market prices.

Preparation of a Legal Opinion on TP

Our experts conduct a comprehensive analysis and prepare professional legal opinions. This involves a formal assessment of the company’s business operations for compliance with Ukrainian TP legislation.

Such an opinion may be required in various situations:

• when planning large controlled transactions to assess potential tax risks;
• during tax audits to justify the chosen TP methodology;
• when preparing for possible disputes with tax authorities;
• for internal corporate governance and risk assessment purposes.

A TP legal opinion typically includes analysis of specific controlled transactions, evaluation of the chosen transfer pricing methods and their compliance with the arm’s length principle, review of available TP documentation, analysis of potential tax risks, and recommendations for their mitigation.

Development of a Defense Strategy During Tax Audits

An effective defense strategy makes it possible to minimize the risks of additional tax assessments and penalties. Development of such a strategy includes analyzing tax authority requests, auditing available TP documentation for completeness and compliance with legislative requirements, and identifying potentially vulnerable areas.

We assist in preparing responses to tax service requests, a comprehensive documentation package, methodological justification of applied prices, and a system of arguments to counter unfounded claims by regulatory authorities.

Challenging Tax Authority Decisions on TP Issues

This process may involve several stages, starting with the preparation and submission of objections to tax notices-decisions through administrative procedures. At this stage, our tax dispute attorney collects and analyzes evidence supporting the client’s position and negotiates with the tax authorities in order to resolve the issue.

If necessary, we engage independent experts to obtain qualified opinions. Our experience in handling such disputes, supported by constant monitoring of high-profile cases involving our colleagues, allows us to effectively protect the interests of our clients. In a significant number of cases, taxpayers succeed in challenging tax authority decisions in the field of transfer pricing.

Court Representation in Disputes

If it is not possible to resolve the dispute with the tax authorities in the pre-trial procedure, our lawyers are ready to provide representation in court. We prepare and file lawsuits, develop a legal position based on the provisions of the Tax Code, other legislative acts, and judicial practice, collect and present evidence in court, and participate in court hearings.

Among the main categories of cases in this area that we work with are:

• recognition of business transactions as controlled;
• compliance with the arm’s length principle;
• submission of tax reporting;
• appeal of tax audit results.

Our goal is to ensure comprehensive protection of the client’s rights and legitimate interests in the judicial process, taking into account the specifics of tax litigation and the distribution of the burden of proof.

Legal Support for TP Audits

The tax inspection considers monitoring compliance with the arm’s length principle in controlled transactions to be one of the key areas of its work. For business representatives, transfer pricing audits are always a complex and critical element of tax administration.

Such audits may result in significant additional tax assessments and penalty sanctions, which sometimes become a very difficult challenge for a business. Therefore, it is advisable to initially undergo transfer pricing consultation with a good specialist and then cooperate closely with them until all issues with the tax authorities are fully resolved.

How Do Tax Authorities Verify Compliance With TP Requirements?

The procedure for verifying compliance with transfer pricing (TP) requirements is regulated by Section II of the Tax Code of Ukraine. Tax authorities have the right to conduct both scheduled and unscheduled documentary audits on TP matters.

An audit may be conducted on the following grounds:

• submission of a notification on controlled transactions,
• identification of risks of non-compliance of the terms of controlled transactions with the arm’s length principle based on analysis of reports and other information.

During the audit, tax authorities analyze the TP documentation submitted by the taxpayer, and may also request additional information and documents. Particular attention is given to the justification for the chosen TP method, comparability analysis of controlled and uncontrolled transactions, as well as the completeness and reliability of the submitted data.

Note! Tax authorities may use various sources of information, including public databases, information from foreign tax authorities, and results of their own market research.

Rights and Obligations of the Company During an Audit

The taxpayer must submit documents within 10 working days from the start of the audit. Additional documents confirming financial and economic operations must be submitted within 15 working days upon request. The maximum duration of the audit is 18 months, but in some cases it may be extended by another 12 months. Every six months, the taxpayer is provided with information on the progress of the audit.

For the controlling authority, there is a limit – no more than one audit of a controlled transaction of a single taxpayer within a calendar year. If, based on the results of the audit, the prices of a controlled transaction are found to comply with the arm’s length principle, then other participants of this transaction cannot be audited again for the same transaction.

Legal Protection in Case of TP Tax Assessments

If the result of an audit is the additional assessment of tax obligations related to TP, the company has the right to appeal such a decision. The appeal procedure may be administrative and/or judicial. The company may file a complaint with the higher tax authority. If the results of the administrative appeal are not satisfactory, the company has the right to go to court.

High-quality legal support is extremely important in this process, and the experts of AA Lawrange are ready to provide it. We ensure:

• analysis of audit materials and the tax notification-decision for legality and justification;
• preparation of a well-argued complaint in the administrative procedure;
• representation of the company’s interests before the tax authorities during complaint consideration;
• preparation of a claim and representation of the company’s interests in court;
• analysis of relevant court rulings to identify key trends and arguments that may be used to protect the taxpayer’s interests;
• collection and analysis of evidence confirming compliance of controlled transactions with the arm’s length principle;
• engagement of experts to conduct independent evaluation of price compliance. 

Why Choose Lawrange

By contacting us, you will receive qualified legal support on all issues of transfer pricing in Ukraine and abroad, based on deep knowledge of legislation and consideration of current judicial practice. We are ready to handle the most complex issues, as we are experts ourselves and ready to involve other specialists for more narrow matters.

In particular, our law firm cooperates with reputable international pricing agencies. We will help your business minimize tax risks and ensure full compliance with the requirements of the Tax Code.

Conclusions

Transfer pricing (TP) is one of the key elements of tax regulation for enterprises engaged in foreign economic activity. At the same time, there is a continuing trend towards tightening the requirements for documentary proof of price compliance with market levels, which increases the risks of additional tax assessments and penalties. However, court practice shows that taxpayers who conduct transaction analysis and prepare documentation in advance successfully contest the claims of the tax authorities.

Professional TP consultations allow businesses to minimize tax risks, optimize compliance costs, and avoid disputes with regulatory authorities. Moreover, a competent approach to transfer pricing is a tool of strategic financial flow management within a company. Considering the dynamics of legislative changes and enhanced control, timely consultation with experts becomes critically important for the sustainable development of a company under Ukrainian jurisdiction.

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