The Ukrainian tax authorities quite often interpret transfer pricing control norms in a biased manner in their favor.
Tax legislation does not limit the taxpayer to using only one database to compare iron ore export prices. It is therefore a mistake for tax authorities to apply the Platts rules exclusively.
Alexander Yampolsky, director of the transfer pricing practice at Deloitte in Ukraine, wrote about this.
He noted that Ukrainian businesses often go to the courts to cancel such additional charges, and there are already many cases of successful appeals against decisions of tax authorities. The court's finding in these cases suggests that the Platts price comparison method should only be used when it is as reliable as the cost-effectiveness method.
At the same time, the courts note: the burden of proof lies with the tax authorities. Therefore, if a company has conducted a qualitative analysis, the tax authorities should first appeal its approach, and only then apply their own method.
“However, some courts support the position of the tax authorities, arguing that these aspects are not so important. One court took the position that only one database, namely Platts, should be used to compare iron ore export prices. Tax legislation does not limit the taxpayer to only one source of information, but allows a wide choice of sources,” reports Yampolsky.
He notes that this position is confirmed by international practice, namely the OECD Guidelines (the primary source of transfer pricing rules).
“The guidelines do not mention the need to use a single source of information or a single method for analysis. By the way, even Ukrainian tax authorities do not always use the same source of information during their audits,” the expert sums up.
