1. Newsletter Transfer pricing in Ukraine from 01.01.2015 2015Issue #4 Laws of Ukraine “On Amendments to the Tax Code of Ukraine concerning improvement of tax control over transfer pricing” dated December 28, 2014 № 72-VIII and “On Amendments to the Tax Code of Ukraine (concerning transfer pricing)” dated 15.07.2015 № 609-VIII implemented substantial changes to the Tax Code of Ukraine regarding the determination of related parties and controlled transactions to which the transfer pricing applies. Preparation of the transfer pricing report and supporting documentation concerning business transactions for 2015 year should comply with the supplemented/changed provisions of the aforementioned laws. Since January 1, 2015, an overwhelming majority of companies in Ukraine, which deal with non-resident companies, face the necessity to pay more attention to the substantiation of price formation in transactions with their foreign counterparties. New transfer pricing provisions apply to pricing when dealing with both non-residents that are related parties* and those that are not related parties - in particular, registered in the “low tax” countries which are listed** and approved by the Cabinet of Ministers of Ukraine (hereinafter - CMU List ). According to the latest changes in the Tax Code of Ukraine, transfer pricing applies when the following criteria are satisfied simultaneously: Total income from any activity of the taxpayer (excluding indirect taxes) determined according to accounting standards during the tax (reporting) year exceeds UAH 50 million; * Definition of related parties is set forth in subparagraph 14.1.159 of the Tax Code of Ukraine. ** While compiling such list, Cabinet of Ministers of Ukraine take account of the following criteria: -states (territories) in which profit tax rate (corporate tax) is by 5 or more than 5 percentage points lower than that in Ukraine; -states with which Ukraine do not sign international agreements with provisions on information exchange.

2. Eligible business transactions with non-resident companies that meet one the following criteria: – or related parties; – or non-related parties included in the CMU List; – or non-resident commissioners; Total amount of the taxpayer's transactions with each counterparty (excluding indirect taxes) determined according to accounting standards during the tax (reporting) year exceeds UAH 5 million. For instance, if the total revenues of the company in the current year is UAH 51 million and the total amount of transactions with a non-resident counterparty is UAH 5.1 million, the company must apply the requirements of Art. 39 “Transfer Pricing” of the Tax Code of Ukraine, namely: - to determine taxable income based on the arm's length principle; - to prove the compliance of controlled transactions based on the arm's length principle using methods set forth in paragraph 39.3 of the Tax Code of Ukraine; - to have all the necessary supporting documentation regarding the compliance of prices with the arm's length principle which should at least contain information on the matters listed in subparagraph 39.4.6 of the Tax Code of Ukraine; - before the 1 st of May of the year following the reporting one to submit a report on controlled transactions (if the total transactions with a single counterparty exceeds UAH 5 million). Moreover, to avoid restrictions on deductibility of royalty payments and newly introduced limit of 70% on deductibility of expenses (see subparagraph 140.5.4 of the Tax Code of Ukraine) incurred in connection with the acquisition of goods, works and services from non-residents registered in the countries on the CMU List, the taxpayer must have all the necessary supporting documentation regarding the compliance of prices with the arm's length principle irrespective of their income and the amount of their transactions.

3. Moreover, subparagraph 14.1.159 of the Tax Code of Ukraine supplemented by an entirely new criterion for determining of related parties starting from January 1, 2015. In particular, parties are recognized as related if the amount of all credits (loans), repayable financial assistance from one legal entity and/or the amount of all credits (loans), repayable financial assistance from other legal entities guaranteed by one legal entity in respect of another legal entity are more than 3.5 times greater than their equity (more than 10 times greater for financial institutions and leasing companies). The amount of credits (loans), repayable financial assistance and equity is calculated as the arithmetic mean (at the beginning and at the end of the reporting period). Along with the changes in the cost criteria of recognition of business transactions as controlled, following key points of new edition of Art. 39 “Transfer pricing” of the Total Code of Ukraine can be identified: transfer pricing applies only when dealing with non-residents; increased the number of criteria for recognition parties as related; excluded provisions that allow applying transfer pricing rules for VAT taxation; approved the list of financial indicators that can be used to determine the profitability of controlled transactions; excluded subparagraph 39.2.2.8 of the Tax Code of Ukraine concerning an influence of deviations of products’ chemical composition at profitability more than 5%; approved the list of goods subject to the stock exchange quotation; excluded obligation to submit information about controlled transactions in an annex to the corporate income tax return; excluded subparagraph 39.5.5 of the Tax Code of Ukraine concerning proportional adjustments of tax liabilities.

4. Controlled transactions. Implications Reporting The Tax Code of Ukraine provides the following submitting deadlines for controlled transactions and all the necessary supporting documentation starting from January 1, 2015: -Report on controlled transactions should be submitted by the 1 st May of the year following the reporting one (the form of the Report is approved by the Order of the Ministry of Incomes and Fees of Ukraine dated November 11, 2013 #669); -Documentation is provided upon a written request of the tax authorities (should be submitted after 1 st May of the year following the reporting one); In the case of insufficient information or improper justification of compliance of conditions of controlled transactions to the principle of “arm's length” in documentation submitted by the taxpayer, additional information should be submitted within 30 days from the receiving of request from the central authorities responsible for implementation of the State tax and customs policies. Penalties and sanctions Taxpayer’s failure to submit report and/or documentation on controlled transactions carried out during the year or omission of information about all controlled transactions in such report during the reporting period to be submitted in accordance with the requirements of paragraph 39.4 of the Tax Code of Ukraine entails the following fines: 300 minimum wages (approx. UAH 365,400.00 for 2015) established by the law as of the 1 st January of the tax (reporting) year - in case of failure to submit report on controlled transactions or late submission; 1% of the amount of controlled transactions that are not declared in the report but not more than 300 minimum wages established by the law as of the 1 st January of the tax (reporting) year for all undeclared controlled transactions; 3% of the controlled transactions for which the supporting documentation defined in subparagraph 39.4.6 of the TCU had not been submitted, but not more than 200 minimum wages established by the law as of the 1 st January of the tax (reporting) year for all undeclared controlled transactions in the relevant year. * As per provisions of the Tax Code of Ukraine, documentation on transfer pricing must contain the information, mentioned at the subparagraph 39.4.6, including: data concerning related persons, global description of group activities, description of the transaction and the conditions of its implementation, description of factors that have influenced the formation and establishment of the price.

5. Grant Thornton Services Grant Thornton is one of the global leaders in providing a wide range of services in the area of transfer pricing. Our services are aimed to develop practical solutions for companies which will help ensure compliance with new regulations and minimize tax risks. We offer the following services that will be the most useful at this stage: Diagnostics of controlled transactions and analysis of possible methods As part of the diagnostics, we will help you identify and analyze transactions of your business that are eligible for new rules. Together with you we shall define the key methods that may be applied to specific transactions in order to prevent and reduce possible tax risks. Preparation of transfer pricing documentation We will help you develop all the necessary documentation that will contain all the information required in terms of Ukrainian legislation on transfer pricing, including: functional analysis; selection of transfer pricing method and justification for its use; rationale behind the choice of information sources; comparative study. Assistance in preparing report on controlled transactions Systematization and standardization of established corporate pricing practice by developing business processes, policies, procedures and internal control procedures Available transparent and effective processes for implementation of new legislative provisions including appropriate monitoring system ensure successful implementation of the requirements of new legislation and risks avoidance. Transfer pricing solutions offered by Grant Thornton Pricing policy for business group or individual companies Marketing policy (use of transfer pricing in controlled transactions) Pricing regulations for transactions of organizations Other transfer pricing advice For more information, please, contact Mr. Maxim Shutiy, Head, Tax Advisory and Transfer Pricing Department, Grant Thornton Ukraine at: +38(044)4619721 or +38(067)409 3426.