What should you do if Controlled Transactions Report has errors? Is there a way to correct them?
Controlled Transactions Report shall be submitted in electronic form by October 1 of the year following the reporting year using means of electronic communication in compliance with legislation concerning electronic document flow and e-signature.
Amendments and modifications introduced to the Procedure for Controlled Transactions Report Preparation are outlined in Decree No.8 "On Adoption of the Form and Procedure for Controlled Transactions Report Preparation" passed by the Ministry of Finance of Ukraine on January 18, 2016. Pursuant thereto, if a taxpayer detects that the information contained in the previously submitted report has not been provided to the fullest extent, includes errors or shortcomings, the said taxpayer shall have the right to submit:
⇒ new report (report marked "reporting new") within the deadline for report submission for the same reporting period;
⇒ clarifying report (report marked “clarifying”) following the deadline for report submission for the same reporting period.
Both the new and clarifying reports shall include complete information on controlled transactions for the reporting year as provided for when preparing the principal report (the one marked "reporting").
In cases where following submission deadline (October 1, 2018) errors have been made or the report does not contain complete information regarding all transactions made during the reporting period pursuant to Articles 120.3 and 120.4 of the Tax Code of Ukraine, the taxpayer will have to pay the following penalties:
1% of the amount of controlled transactions which have not been reported in Controlled Transactions Report, but shall not exceed 300 minimum living wages for an able-bodied person established by law as of January 1 of the tax (reporting) year for all non-reported controlled transactions;
3% of the amount of controlled transactions, for which documentation has not been submitted, is stipulated by Subclauses 39.4.6 and 39.4.8, Clause 39.4, Article 39 of the aforementioned Code, but shall not exceed 200 minimum living wages for an able-bodied person established by law as of January 1, tax (reporting) year for all controlled transactions made in the relevant reporting year.
However, settlement of these penalties (fines) shall not release the taxpayer from the obligation to submit Controlled Transactions Report and/or transfer pricing documentation.
Which steps should be taken if the underestimation of the tax liability amount has been detected in the income tax return?
If particular controlled transactions are not in line with the Arm’s Length Principle, the taxpayer may personally make corrections to the income tax return. Pursuant to Sub-clause A 50.1 of the Tax Code of Ukraine as revised on August 15, 2018, the penalties shall not be imposed if the clarifying calculation is submitted by October 1 of the year following the reporting year.
How can you avoid errors in Controlled Transactions Report?
According to Artem Gorchynskyi, Transfer Pricing Project Manager at AIM, what you need in order to avoid mistakes when preparing the Transfer Pricing Report is accuracy and attention to details, since there are plenty of hidden pitfalls and unexpected nuances. Artem recommends to pay close attention to the following aspects when preparing reports:
⇒ make sure that controlled transactions amounts coincide with the accounting figures.
⇒ total volume of controlled transactions corresponds to reality. Under no circumstances should you leave out any controlled transaction, since this may lead to huge penalties.
⇒ factor in all changes in the procedure for preparation of Control Transactions Report. For instance, in Column 18 of the Annex to the report, the code of transaction item’s measurement unit is indicated in accordance with the DK 011-96 Classifier of the System of Designation of Units of Measurement and Accounting. Pursuant to this classifier, units of measurement have a digital value.
⇒ choose the correct contract type. In Column 2 of the Annex to the report, transaction name code is indicated in accordance with Annex 3 to the Procedure for Control Transactions Report Preparation.
This list can go on. So, better let professionals who have successfully implemented projects in this field to tackle report preparation for you.
The experts at the Agency of Industrial Marketing (AIM) will be happy to answer all of your questions and provide a charge-free consultation regarding controlled transactions report and transfer pricing documentation.
May your business flourish and grow, and reports always remain accurate!
