Service 04

Transfer Pricing

Documentation, analysis, and position defense on controlled transactions in accordance with Article 39 of the Tax Code of Ukraine and OECD guidelines — for companies with intragroup transactions, related party transactions, and other transactions that may be recognized as controlled under the Tax Code.

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About Transfer Pricing

Transfer pricing refers to the rules governing transactions between related parties, non-residents from low-tax jurisdictions, and other counterparties defined by the Tax Code of Ukraine. The key question for a company is not just "do we have controlled transactions?" — but whether related parties are correctly identified, thresholds are properly applied, the TP method is appropriate, the market range is calculated, and the evidentiary basis for the STS position is sufficient.

What it is	Transfer pricing is a set of rules that verifies whether the terms of controlled transactions comply with the arm's length principle.
Who it applies to	Companies with transactions involving related non-residents, counterparties from low-tax jurisdictions, non-residents with specific legal forms, or other parties defined by the Tax Code of Ukraine.
What is reviewed	Prices, margins, functions of the parties, risks, assets, contract terms, economic substance of transactions, comparable companies or transactions, and compliance of the chosen TP method.
Methods available	The Tax Code provides five main TP methods: comparable uncontrolled price, resale price, cost plus, transactional net margin, and profit split. The method is selected based on transaction type, availability of comparable data, functions of the parties, risks, and economic substance.
What to prepare	Controlled transactions report, MNE group participation notification, TP documentation, functional analysis and benchmark study — depending on taxpayer status and Tax Code requirements.
Key risk	The most common mistakes: overlooking a related party, incorrectly identifying a controlled transaction, missing value thresholds, choosing a weak TP method, or preparing documentation without sufficient evidentiary support.
Result	Correctly identified controlled transactions, a selected and justified TP method, prepared reporting and documentation, a calculated market range, and a position that can be defended during an STS request or audit.

Documentation quality is determined by the strength of functional analysis, correctness of method selection, and evidentiary value of benchmark analysis.

Transfer pricing in Ukraine is regulated by Article 39 of the Tax Code and is based on the arm's length principle in accordance with OECD/BEPS guidelines. Non-compliance may result in additional assessments and penalties following an STS audit.

Identification · Art. 39 Tax Code

Controlled Transactions Register

The first step is identifying the circle of related parties, identifying controlled transactions, and verifying compliance with the criteria for recognizing transactions as controlled under the current requirements of the Tax Code of Ukraine.

LUCAS prepares the controlled transactions register — the basis for subsequent documentation and reporting.

Identification of related parties
Identification of controlled transactions
Verification of criteria for recognizing transactions as controlled
Preparation of controlled transactions register

OECD · MNE Group · Three-tier structure

Master File and Local File

For participants of multinational enterprise (MNE) groups that meet Tax Code criteria, documentation is prepared in accordance with the OECD three-tier structure. It includes the MNE group participation notification, master file (description of the group's global business), and local file.

The local file contains functional analysis, risk analysis, and TP analysis of controlled transactions with justification of the chosen pricing method.

MNE group participation notification
Master file — description of group's global business
Local file — functional analysis and TP analysis
Justification of transfer pricing method

Reporting · STS

Controlled Transactions Report

Preparation and filing of the annual controlled transactions report with the State Tax Service in accordance with the forms and deadlines established by Article 39.4 of the Tax Code. LUCAS helps verify the completeness and accuracy of controlled transaction disclosure based on information provided by the client and analysis results.

Preparation of annual controlled transactions report
Filing the report with the STS within established deadlines
Control of transaction disclosure completeness

Benchmark · Arm's Length Principle

Comparative Analysis and Market Range

Benchmark analysis is one of the key elements of TP documentation. LUCAS searches for comparable companies in commercial databases, performs statistical analysis of the market range (P25–P75), and documents the justification of controlled transaction terms' compliance with the arm's length principle under the Tax Code and OECD guidelines.

Quality benchmark analysis significantly strengthens the evidentiary value of documentation during an audit.

Search for comparable companies in commercial databases
Statistical analysis of market range (P25–P75)
Arm's length principle justification
Documentation of analysis methodology

TP Policies · APA

Intragroup Policies and Advance Pricing Agreements

A proactive TP policy is typically cheaper and more effective than reacting to an STS request or audit. LUCAS develops TP policies for the group: pricing methodology, contractual framework, allocation of functions and risks among group participants.

For large taxpayers seeking greater certainty on regular controlled transactions, we support the advance pricing agreement procedure with the STS.

TP policy development for group companies
Pricing methodology and contractual framework
Allocation of functions and risks among participants
APA negotiation support

Tax Defense · STS Audits

Position Defense During Tax Audits

LUCAS supports the client at key stages of interaction with the STS on transfer pricing: TP risk assessment before an audit begins, preparation of substantiated responses to requests, support during the audit.

In case of additional assessments — preparation of the economic and methodological position for objections to the audit report.

TP risk assessment before audit commencement
Substantiated responses to STS requests
Support during tax audit
Objections to audit report in case of additional assessments

FAQ

What you should know.

Related party status for TP purposes is defined by the criteria of the Tax Code of Ukraine: participation in capital, control of management bodies, common beneficial control, debt or economic dependence, family relationships, and other indicators of influence over transaction terms. It is important to analyze not only the formal ownership structure but also actual control: who makes key decisions, finances activities, approves prices, or can influence commercial terms between the parties.

The cost depends on the number of controlled transactions, transaction types, complexity of functional analysis, number of transaction parties, presence of a multinational enterprise group, and the need for benchmark analysis. An indicative cost can be determined after a brief diagnostic: which transactions are controlled, what documents and data are available, whether a separate benchmark, financial transaction analysis, or additional position justification is needed. Timely documentation preparation typically reduces the risk of penalties, additional assessments, and disputes with the STS.

The arm's length principle means that a taxpayer participating in a controlled transaction must determine its taxable profit as if the terms of such transaction did not differ from terms applied between unrelated parties in comparable uncontrolled transactions. If the terms of a controlled transaction do not comply with this principle, the profit that would have accrued under market conditions may be included in the taxpayer's taxable income under Article 39 of the Tax Code.

Benchmark analysis is conducted to identify comparable transactions or companies and calculate the market range according to the chosen transfer pricing method. It typically includes selecting information sources, searching for potentially comparable companies or transactions, applying selection criteria, analyzing functions, risks and assets, excluding irrelevant comparables, and calculating the profitability or price range. For documentation to have evidentiary value, selection criteria must be logical, consistent, and properly documented.

During an audit, the STS analyzes whether the terms of controlled transactions comply with the arm's length principle: it reviews documentation, the chosen TP method, functional analysis, benchmark analysis, data sources, and the market range calculation. If the terms of a controlled transaction do not comply with the arm's length principle and this resulted in understated taxes, the STS may assess additional tax liabilities, penalties, and interest. LUCAS supports the client at key stages: preparing responses to requests, explanations to documentation, the economic position, and arguments during the audit.

The controlled transactions report is filed once a year — by October 1 of the year following the reporting year. If the taxpayer belongs to a multinational enterprise group, an MNE group participation notification is filed along with it. Transfer pricing documentation (the local file) is not filed automatically each year. It is submitted upon STS request within 30 calendar days of receiving the request.

Yes. Financial transactions are analyzed differently from goods transactions, as what matters is not only the price or rate but also the financing terms. For loans, guarantees, cash pooling, and other financial transactions, the creditworthiness of the borrower, currency, term, collateral, subordination, contract terms, market rates, and actual behavior of the parties are all analyzed. A credit rating can be an important element of the analysis, but it is not the only factor.

An APA is an advance pricing agreement procedure for controlled transactions between a large taxpayer and the STS. It allows prior agreement on the approach to determining whether the terms of specific controlled transactions comply with the arm's length principle. If the taxpayer complies with the terms of the advance pricing agreement, the STS may not assess additional tax liabilities, penalties, and interest with respect to controlled transactions that are the subject of such agreement. An APA is appropriate for large taxpayers with regular, significant, or methodologically complex controlled transactions.

The controlled transactions report is an annual TP reporting form in which the taxpayer discloses information about controlled transactions for the reporting year. The local file is the transfer pricing documentation. It contains justification for the compliance of controlled transaction terms with the arm's length principle: a description of the group and transactions, functional analysis, method selection, information sources, benchmark analysis, and conclusions. Unlike the controlled transactions report, the local file is not submitted automatically each year but upon STS request.

Best to start during the reporting year itself, in parallel with conducting controlled transactions. This allows early assessment of TP risks, verification of pricing, benchmark analysis preparation, and if needed, adjusting the approach to transactions before year-end. If documentation is only prepared after an STS request, there will be significantly less time for analysis, data collection, and correcting weaknesses.

Need TP documentation, report or position defense?

Tell us about your controlled transactions — we will assess the documentation scope and propose terms.

Submit a request