Determination of the ordinary price in 2013

Profit tax

Subp. 135.5.4

In the case of determining the value (amount) of taxable income of a profit tax payer in the form of works, goods, services received free of charge during the reporting period.

P. 137.19

In the case of valuation of fixed assets received by the taxpayer in accordance with the Law of Ukraine “On the peculiarities of transferring to lease or concession objects of centralized heat, water supply and wastewater disposal that are owned by municipal enterprises”

Subp. 140.1.6

When valuing the costs of insuring risks of crop destruction, civil liability, transportation of products related to the operation of vehicles that are recorded as fixed assets of the profit tax payer, and other types of insurance.

P. 146.7 – 146.10, p. 147.3

When assessing depreciation (amortization) of an asset, if the fixed asset is real estate that was acquired together with land or was received as a result of an exchange agreement, or as a contribution to the authorized capital, if they were acquired together and the price for individual items is not specified in the contract.

P. 146.14, p. 147.5

When determining income from the sale or other disposal of intangible assets, a fixed asset, or land.

Subp. 153.2.1 – 153.2.2, 153.2.4 – 153.2.6

In cases of calculating the amount of expenses and income on transactions related to other persons.

Subp. 153.2.3

In cases of determining the volume of expenses and income in transactions with taxpayers to whom special tax regimes are applied or tax rates different from the basic profit tax rate apply, or who are not taxpayers at all.

Subp. 153.3.2

In cases of determining the advance payment for profit tax when dividend payments were made in non-monetary form.

P. 153.7

When determining income from providing an object under financial leasing whose acquisition cost exceeds the contractual cost.

P. 153.10

When calculating the cost (amount) of expenses and income on barter (goods-exchange) transactions involving works, goods
and services.

P. 149.15

When valuing the cost of a taxable object, as well as operations related to the sale of works, goods and services by non-profit organizations.

VAT

The VAT tax base is established at no less than the ordinary price:

P. 188.1

For operations related to the supply of goods and services.

P. 190.2

For services received free of charge from a non-resident.

P. 184.7

When canceling the VAT payer’s registration, as well as for conditional supply of goods and non-current assets in the last tax period.

P. 189.9

When transferring fixed assets from production to non-production at the taxpayer’s own decision, as well as in cases of free transfer and liquidation of the taxpayer.

P. 198.5

In the case of use of goods and non-current assets for which VAT previously paid was attributed to tax credit, in operations that are not subject to VAT or are exempt from VAT or are used for non-production purposes.

Based on ordinary prices the following is determined:

P. 198.3

The VAT input tax which is determined based on the cost of goods and services.

PIT

p. “e” subp. 164.2.17

When calculating taxable income from receiving free works, goods, services or in the form of a discount for receiving works, goods and services.

p. “b” subp. 165.1.27

For valuing the insured property at the date of conclusion of the insurance contract, and when calculating the amount of insurance compensation which is not subject to PIT.

P. 164.5

When receiving income in non-monetary form.

p. “v” subp. 165.1.27

For determining the amount of insurance compensation not subject to PIT and when calculating the amount of damage actually caused to the beneficiary (insured) on the date of insurance payment according to civil liability insurance contracts.

Comparable uncontrolled price method (comparable sales method)

The price is considered ordinary if determined on the basis of identical goods (or, if unavailable, homogeneous goods), works, goods and services sold to a person unrelated to the seller or purchased from such a person under ordinary business conditions.

Information about identical contracts that were concluded at the time of the sale of works, goods or services. Comparison of conditions in the relevant goods market (works, services). For example, take into account the quantity (volume) of goods (shipment); the allocation of risks and benefits between the parties to the contract; the extent of functions performed by the parties to the contract; the market characteristics of the goods in the market where the operations occur and the business strategy of the enterprise; timing of performance of obligations and terms of making payments standard for such operations; price discounts or any markups that may affect the objective price when concluding contracts between unrelated persons. Regarding publicly offered works, goods and services or prices set on an organized securities market or those that have an exchange price, which are identical or homogeneous.

Resale price method

The contractual price for works, goods and services is considered ordinary when resold to a third party by the buyer, less selling expenses and markup.

According to the method’s recommendations, information on the level of markup and selling expenses can be obtained from other taxpayers (including through official information sources).

Cost-plus method

The ordinary price is considered to consist of the cost of finished works, products (goods, services) determined by the seller and a markup usual for such type of activity under comparable conditions ****

Profit split method

The ordinary price can be calculated on the basis of profit from operations distributed between participants.

Profit allocation based on economically justified principles approximates such distribution to what it would be if the participants were unrelated. This method is one of the most obscure in the established list. It is difficult even to imagine to which transactions it should be applied. Perhaps only to determine taxable income for profit tax payers in the form of property returned under a joint activity agreement exceeding the value of the contribution (subp. 136.1.14 of the Tax Code). For which one can create an economically justified basis for profit allocation if the initial order of its distribution is established by the joint activity agreement, and where to obtain information about identical (homogeneous) transactions with unrelated parties to derive such a “basis”, since each such agreement is individual and has its own features, the legislators remain silent for now.

Net profit method

The determination of the ordinary price is carried out on the basis of profitability indicators of comparable transactions between unrelated parties in comparable economic conditions in accordance with p. 39.2 of the Tax Code of Ukraine.

Profitability is the ratio of profit obtained by the taxpayer to the chosen base (such as expenses, sales volume, assets). In our view, this method is not fully specified, because it provides that there is a certain indicator — profitability. It is specified how to calculate it. It is specified that this indicator should be compared across different transactions. But it is not specified what taxpayers should do with the results of these comparisons to determine the ordinary price. We hope the legislators will soon correct this shortcoming.

Method for determining the ordinary price of an insurance tariff

Established by the order of the State Financial Services of Ukraine dated 30.12.2004 No. 3259