Transfer Pricing in Third Year of War

In the context of the full-scale war with the Russian aggressor, Ukrainian business is striving to operate, thereby assisting the survival of the Ukrainian economy. It is widely understood that a functioning economy is crucial to victory in this war, and the resumption of import and export activities is among the key objectives for restoring economic potential. When taxpayers engage in transactions with non-residents, it is imperative to monitor transfer pricing risks.

In response, the necessity to replenish the budget served as the impetus for lifting the moratorium on transfer pricing (TP) audits and reinstating comprehensive tax oversight. Consequently, since November 2022, unscheduled documentary audits have resumed based on the following criteria:

  • receipt of documented information and data indicating that the terms of a controlled transaction do not comply with the arm’s length principle;
  • failure by taxpayers to submit, or submission in violation of the requirements of the Tax Code of Ukraine, a report on controlled transactions and/or TP documentation, or in cases of violations discovered during the monitoring of such reports or documentation;
  • receipt of a report on controlled transactions submitted by the taxpayer. In such instances, audits are exclusively focused on TP control issues.

In cases where violations of the law are detected during audits, taxpayers will be held accountable in accordance with the provisions of the Tax Code.

Additionally, the obligation of taxpayers to respond to requests from the State Tax Service regarding transfer pricing issues within 15 days has been reinstated under Article 73 of the Ukrainian Tax Code. The deadlines and scope of TP reporting remain unchanged.

The only means of avoiding fines for TP violations during martial law is to document the impossibility of fulfilling one’s tax obligations.

Consequently, until the termination or cancellation of martial law in Ukraine:

  • taxation and fees are collected as follows if a taxpayer is unable to fulfil its tax liability in a timely manner: it is exempt from liability but obliged to fulfil such liability within 6 months after the termination or cancellation of martial law;
  • if a taxpayer has regained the ability to fulfil its tax obligations, for which the deadline falls within the period from 24 February 2022 to the day of regained ability; it is exempt from liability for late reporting within 60 calendar days from the first month following the month of restoration of such capabilities.

The procedure defining how taxpayers confirm their ability or inability to fulfil their tax obligations in a timely manner before the termination or cancellation of martial law in Ukraine was established by the Ministry of Finance’s Order dated 29 July 2022 No. 225 (effective from 6 September 2022). According to this procedure, taxpayers who were unable to report for the year 2022 were required to submit a statement of their inability, along with a list of supporting documents confirming this, no later than 30 September 2022, to the supervisory authority. The list of supporting documents is approved separately by the same Ministry of Finance Order. If a taxpayer couldn’t submit such a statement and relevant documents (document copies) by 30 September 2022, they should be submitted along with the ability to submit reports, pay outstanding tax liabilities, etc., but no later than 60 calendar days from the first day of the month following the month in which the taxpayer’s ability to do so is restored.

Additionally, starting from 1 August 2023 until the termination or cancellation of martial law in Ukraine, taxpayers who independently correct errors leading to understated tax liabilities are exempt from penalties and fines.

Therefore, amidst the ongoing war conditions, Ukrainian taxpayers engaged in controlled transactions have already reported twice: for 2021 and 2022. Now, the deadline for submitting reports for 2023 is approaching.

Based on the analysis of business transactions conducted by EUCON clients during the military reporting periods, we can outline the following problematic aspects that may impact financial performance and TP analysis:

  • decreased production/trade volumes and overall business profitability (especially notable in 2022), leading to loss-making activities;
  • changes in business operations (such as relocation to other regions, increased online operations, and abandonment of office and warehouse rentals);
  • financial challenges, including layoffs and budget reductions;
  • supply chain restructuring;
  • impact of currency restrictions imposed by the National Bank of Ukraine;
  • influence of currency fluctuations;
  • reduced inventory levels and unpreparedness for long-term stock storage;
  • necessity for revising contract terms, extending payment timelines, and managing increased receivables and payables;
  • transition from long-term to short-term planning.

In turn, the presence of losses or significant operating expenses does not exempt the taxpayer from income tax and the need to comply with financial indicators at market level, as established during the economic analysis of controlled transactions.

However, each situation should be considered individually. For example, company losses may be associated with significant other operating expenses resulting from the destruction of assets during combat operations. Such expenses are documented within the framework of criminal proceedings initiated due to shelling or fire and are accounted for separately by the company. When segmenting financial statements to determine the financial indicator of controlled transactions at the net profit level, there is no need to consider them. According to Organisation for Economic Co-operation and Development (OECD) guidelines, exceptional and extraordinary non-recurring items should be excluded when determining the net profit indicator. Therefore, the impact of such losses on the result of controlled transactions can be reasonably mitigated.

In general, what can we advise in a situation where financial indicators of business activity require proper justification:

  • change approaches to data use for comparative analysis. This means abandoning historical data and weighted averages calculated over several reporting periods. We recommend using only wartime years for comparison;
  • change transfer pricing methods and take advantage of those based on gross profit indicators: resale prices and “cost plus”. This will help avoid the impact of operating expenses, particularly operating exchange rate differences, on profitability;
  • use multiple pricing methods if necessary;
  • comparative analysis based on the prevalence of geographical comparability for a sample of comparable juridical people. In other words, search for comparable companies operating in the same economic and market conditions (in Ukraine). Simultaneous relaxation of other comparability criteria:
  • separate periods of business interruption;
  • consider the possibility of redistributing risks and losses within the group of companies, review intra-group transfer pricing policies (in terms of profitability allocated to supply chain participants), intra-group agreements;
  • allocation/differentiation of operating and extraordinary expenses to exclude extraordinary (non-recurring) expenses from the financial indicator calculation if they do not relate to controlled transactions;
  • demonstrate the impact of force majeure;
  • review contract terms with related and unrelated parties (possibility of returning goods, postponement/extension of payment terms, price revision depending on currency fluctuations); Correlation of contract terms with related parties with contract terms with unrelated parties for possible subsequent recognition as comparable. This requires special attention as it is key to the application of methods based on the calculation of gross profit level;
  • for transactions involving intangible assets: analysis of changes and justification for using new bases for determining remuneration in license agreements (e.g., not a percentage of revenue, but a percentage of profit or a fixed payment);
  • for transactions involving intangible assets, also consider the possibility of transferring ownership to another group entity, depending on the availability of a new functional profile;
  • study the possibility of applying adjustments to the level of production capacity use, or considering the analysis of the impact of a decrease in sales revenue on a decrease in profit in other crisis periods causing business interruption (“Covid times”).

It is also recommended to extensively document in transfer pricing documentation all circumstances that influence the outcomes of operations.

In general terms, if a company conducts controlled transactions and experiences a decrease in the level of financial performance indicators, we still recommend involving experienced consultants to analyse transactions with non-residents. They will assist in properly justifying the terms and outcomes of transactions with non-residents.

  • Larysa Vrublevska

    Partner, Auditor, Head of transfer pricing practice, EUCON Legal Group

EUCON Legal Group


18/24 Dmytrivska Street,

Kyiv, 01054, Ukraine

Tel.: +380 44 238 0944



18 Jana Dantyszka,

Warsaw, 02-054, Poland

Tel.: +48 22 658 1025



EUCON Legal Group has been providing legal services in Ukraine and Poland since 2006.

Our advantage is that our professionals possess extensive practical knowledge and in-depth understanding of Ukrainian and Polish markets.

Our team has provided legal support to a number of Ukrainian investors when they were entering European markets, and we also have considerable experience of legal support to foreign investors during their market entry to Ukraine.

EUCON provides services on the most complex issues of taxation, transfer pricing, corporate, land and agricultural law, business structuring, dispute resolution, asset protection, combating financial fraud and corruption, compliance, project financing and tax planning with intangible assets.

The EUCON team is an association of professionals: lawyers, attorneys-at-law, auditors, tax advisers, transfer pricing professionals, accounting and tax consultants. Adherence to a synergistic approach is our competitive advantage, and it enables us to produce comprehensive and effective solutions to meet aims of our clients.

Our clients are top international and Ukrainian companies which are leaders in oil and gas, energy, food industry, agribusiness, agriculture, telecommunications, trade, transport, finance, metallurgy, chemistry, construction, hotel business, etc.

The performance of EUCON is highlighted by numerous recognitions and awards.

EUCON Legal Group is recognized by respected international legal guides such as Chambers Europe, The Legal 500 EMEA, European Tax Awards, World Tax, as a leading tax law firm in Ukraine.

In 2015 EUCON won the Ukraine Transfer Pricing Firm of the Year award at the annual European Tax Awards, International Tax Review.

Since 2010 EUCON has been included in the list of top 50 Leading Law Firms in Ukraine according to the annual ratings conducted by the Yuridicheskaya Practika Weekly. EUCON is recognized among the leading tax and corporate law firms according to the national legal directory Ukrainian Law Firms. A Handbook for Foreign Clients, Kyiv Post, Liga Zakon Awards.

According to the Ukrainian Legal Awards 2021, EUCON Legal Group was recognized as Law Firm of the Year in the field of land law. The firm was also named the Transfer Pricing Firm of the Year in 2016, 2018 and 2020 and The Best Tax Law Firm in 2014.