Ukraine – К-990-22546-25
EXECUTIVE SUMMARY
This report analyses the judgment of the Supreme Court of Ukraine (Cassation Administrative Court) dated 11 September 2025 in case №120/8569/24 (administrative proceeding К/990/22546/25). The case concerned a cassation appeal by the Southern Interregional Office of the State Tax Service for work with large taxpayers against the decision of the Seventh Administrative Court of Appeal dated 23 April 2025.
This case concerns transfer pricing matters, specifically the application of transfer pricing methodology to controlled transactions involving the export of agricultural products (sunflower oil and rapeseed oil) by a Ukrainian company to a non-resident related party.
PARTIES TO THE PROCEEDINGS
Claimant/Taxpayer: Private Joint Stock Company “Vinnytsia Oil and Fat Plant” (PJSC “Vinnytsia Oil and Fat Plant”, the Company)
Defendant/Tax Authority: Southern Interregional Office of the State Tax Service for work with large taxpayers (Southern IRO STS for LTP, the controlling authority)
FACTUAL BACKGROUND
The Company and Its Operations
PJSC “Vinnytsia Oil and Fat Plant” was registered on 12 March 1996 (EDRPOU code 00373758). The main type of economic activity of the claimant is 10.41 “Production of oils and animal fats”.
Controlled Transactions
During the period from 1 January 2015 to 31 December 2017, the claimant carried out controlled transactions with a non-resident counterparty VILAVI UNION ENTERPRISES LIMITED (British Virgin Islands, code 1022576) for the export of agricultural products (refined deodorised frozen sunflower oil, crude sunflower oil, crude rapeseed oil, crude high-oleic sunflower oil) totalling UAH 4,233,444,634.
2015 Transactions: During 2015, the Company sold 62,759.118 tonnes of products totalling UAH 1,020,889,844, namely: crude sunflower oil in the quantity of 58,934.618 tonnes for UAH 956,850,533 (delivery terms FOB Illichivsk seaport and FOB Odessa seaport); crude rapeseed oil in the quantity of 3,604.15 tonnes for UAH 59,415,398 (including delivery terms FOB Illichivsk seaport 3,236.7 tonnes and DAP Udrytsk 367.45 tonnes); crude high-oleic sunflower oil in the quantity of 220.35 tonnes for UAH 4,623,913 on FCA Vinnytsia delivery terms.
2016 Transactions: During 2016, the claimant sold 88,393.33 tonnes of products totalling UAH 1,665,059,206, namely: crude sunflower oil in the quantity of 82,125.59 tonnes for UAH 1,550,109,485; refined deodorised frozen sunflower oil in the quantity of 171.44 tonnes for UAH 3,791,952 on FCA Vinnytsia delivery terms; crude rapeseed oil and crude rapeseed oil of higher grade in the quantity of 5,764.85 tonnes for UAH 104,337,093; crude high-oleic sunflower oil in the quantity of 331.45 tonnes for UAH 6,820,676.
2017 Transactions: During 2017, the Company sold crude sunflower oil in the quantity of 81,811.93 tonnes for UAH 1,547,495,584.
Tax Audit and Assessment
The Southern IRO STS for LTP conducted a documentary unscheduled on-site inspection of the claimant for the period from 1 January 2015 to 31 December 2017 on compliance with the arm’s length principle in transactions for the export of agricultural products, following which an Audit Report №24/34-00-23/00373758 was drawn up on 19 January 2024.
According to the circumstances set out in the Audit Report, the controlling authority concluded that PJSC “Vinnytsia Oil and Fat Plant” violated provisions of the Tax Code of Ukraine, as a result of which corporate income tax was understated by a total of UAH 37,642,394.50, including for 2015 in the amount of UAH 9,325,578.50, for 2016 in the amount of UAH 18,159,906.60, and for 2017 in the amount of UAH 10,156,909.30.
On 28 March 2024, based on the aforementioned Audit Report, the Southern IRO STS for LTP issued tax notice-decision №161/34-00-23/00373758, which increased the amount of the monetary obligation for corporate income tax by a total of UAH 40,052,993.11 (including the main obligation in the amount of UAH 37,642,394.50 and penalties (financial sanctions) – UAH 9,410,598.60).
KEY TRANSFER PRICING ISSUES
The Taxpayer’s Position
Taking into account the specifics of controlled transactions, the taxpayer’s position in the market, availability of information and other conditions, the claimant indicated in the reports on controlled transactions for 2015-2017 the use of the net profit method, with the profitability indicator being net cost profitability. This transfer pricing method was chosen deliberately, as it is the most appropriate and allows establishing compliance of the controlled transaction conditions with the arm’s length principle both at the time of the controlled transaction and at the time of filing the report.
The Tax Authority’s Position
In the opinion of the defendant, the claimant incorrectly chose the method for establishing compliance of the controlled transaction conditions with the arm’s length principle, namely applied the net profit method, because the taxpayer selected incomparable business entities for comparison, whilst prices in comparable uncontrolled transactions are available in open sources of information defined by the Tax Code of Ukraine, and were correctly applied by the controlling authority during the inspection. The defendant stated that the inspection established and proved that the method applied by the claimant does not allow the most reasonable establishment of compliance of the controlled transaction conditions with the arm’s length principle, in particular because the taxpayer did not analyse all available sources of information, unjustifiably did not use such a source of information as the monthly information bulletin “Review of Ukrainian and World Commodity Market Prices”, and also other publicly available sources.
COURT PROCEEDINGS
First Instance Court Decision
By decision of the Vinnytsia District Administrative Court dated 27 February 2025, the administrative claim was refused.
The first instance court, refusing to satisfy the claim, proceeded from the lawfulness of the defendant’s adoption of the contested tax notice-decision and agreed with the conclusions of the tax authority that the method applied by the taxpayer does not allow the most reasonable establishment of compliance of the controlled transaction conditions with the arm’s length principle.
Appeal Court Decision
By decision of the Seventh Administrative Court of Appeal dated 23 April 2025, the first instance court’s decision was cancelled and a new decision was adopted, whereby the claim was satisfied. The tax notice-decision dated 28 March 2024 №161/34-00-23/00373758 was declared unlawful and cancelled. Court fees in the amount of UAH 66,616 were recovered from the budget allocations of the Southern IRO STS for LTP in favour of the claimant.
Supreme Court Decision
Having reviewed the contested court decision within the limits of the cassation appeal arguments, having verified the completeness of the establishment of the factual circumstances of the case by the court and the correctness of its application of substantive and procedural law, the Supreme Court concluded that there were no grounds for satisfying the cassation appeal.
The decision of the Seventh Administrative Court of Appeal dated 23 April 2025 was left unchanged, and the cassation appeal of the Southern Interregional Office of the State Tax Service for work with large taxpayers was left without satisfaction. The decision enters into legal force from the date of its adoption, is final and not subject to appeal.
LEGAL ANALYSIS OF TRANSFER PRICING ISSUES
Applicable Legal Framework
According to the Tax Code of Ukraine (in the version in force during the disputed period), a taxpayer participating in a controlled transaction must determine the amount of its taxable profit in accordance with the arm’s length principle.
The amount of taxable profit received by a taxpayer participating in one or more controlled transactions is considered to comply with the arm’s length principle if the conditions of these transactions do not differ from the conditions applied between unrelated persons in comparable uncontrolled transactions.
If the conditions in one or more controlled transactions do not comply with the arm’s length principle, the profit that would have been accrued to the taxpayer under the conditions of a controlled transaction that complies with this principle is included in the taxable profit of the taxpayer.
Transfer Pricing Methods
According to the Tax Code of Ukraine, establishing compliance of controlled transaction conditions with the arm’s length principle is carried out by one of the following methods: 39.3.1.1. comparable uncontrolled price; 39.3.1.2. resale price; 39.3.1.3. “cost plus”; 39.3.1.4. net profit; 39.3.1.5. profit split.
Priority of the Comparable Uncontrolled Price Method
The taxpayer, taking into account the specified criteria, uses any method that it considers most appropriate, however, if there is a possibility of applying both the comparable uncontrolled price method and any other method, the comparable uncontrolled price method is applied.
Thus, to apply a method different from the comparable uncontrolled price method, it is necessary, first of all, to analyse the possibility of applying the comparable uncontrolled price method to controlled transactions.
Burden of Proof on Tax Authority
If the taxpayer used a method that complies with the provisions of this article, or chose a transfer pricing method specified in the advance pricing agreement in controlled transactions, the controlling authority’s establishment of compliance of the taxpayer’s controlled transactions with the arm’s length principle is based on the transfer pricing method applied by the taxpayer, except in cases where the controlling authority substantiates that the method applied by the taxpayer is not the most appropriate. If the controlling authority proves that the method (combination of methods) applied by the taxpayer does not allow the most reasonable establishment of compliance of controlled transaction conditions with the arm’s length principle, it has the right to apply other methods (combination of methods) to establish compliance of controlled transaction conditions with the arm’s length principle.
KEY FINDINGS ON INFORMATION SOURCES
Monthly Information Bulletin “Review of Ukrainian and World Commodity Market Prices”
The Court of Appeal stated that during the consideration of the case, the Company proved that all of the listed sources of information could not be used for the purpose of applying the comparable uncontrolled price method because the information presented in these sources reflected only one or two criteria of all those that significantly affected the price of goods (product characteristics, delivery volumes, distribution of functions, conditions for risk distribution, contract execution terms, payment terms, amount of usual markups and discounts, characteristics of the goods market, business strategies of companies). None of the above sources provides complete information that would allow assessing the conditions of transactions as comparable. Moreover, none of the listed sources contained information about whether the statistical information included only data on uncontrolled transactions and whether statistical data included market offers for which agreements were not concluded and executed. That is, such circumstances did not make it possible to determine the reliability of information and the possibility of using this information as comparative.
Argus and Refinitiv Agriculture Research Databases
The courts identified several critical deficiencies with these databases:
First: Information from the above sources completely coincides with the comments concerning the monthly information bulletin “Review of Ukrainian and World Commodity Market Prices”. Prices for sunflower oil in the above sources were formed using other sources, with unknown methodology, included transactions that were not actually carried out and were not filtered by the criterion of controllability of transactions.
Second: The Refinitiv Agriculture Research information source provides users with price data on sunflower oil of Ukrainian origin from 2017. Given this, such a source could not have been used by the Company for analysis in 2015-2016.
Third: The court of appeal established that the controlling authority’s reference to the methodology for determining Refinitiv Agriculture Research prices (page 28 of the Audit Report) is not a working link and gives an error when trying to obtain information from it. Refinitiv Agriculture Research prices were formed according to the same methodology as the State Enterprise “Derzhzovnishinform”, which determines the unsuitability of such information for the purposes of the comparable uncontrolled price method.
Fourth: Information about the Argus methodology was obtained by the tax authority at their request and only in 2023, which makes it impossible to use such information to compare controlled transactions with the conditions of uncontrolled transactions.
Fifth: Information and analytical products of the Argus Media Ltd price agency and information and analytical products of Refinitiv Holdings Ltd were defined in the Recommended (non-exclusive) list of information sources for obtaining quotation prices according to the Tax Code of Ukraine, published on the website of the State Tax Service of Ukraine only as of 30 December 2020. Thus, in 2015-2017, the State Tax Service of Ukraine did not consult taxpayers on the availability of information sources “Refinitiv” and Argus, which indicates non-use until 2020-2021 of these databases. Therefore, the above indicates that in 2015-2017, the State Tax Service of Ukraine did not use such sources of information and did not have information about the methodology for forming prices of these agencies. The use of these sources and additional information obtained by the tax authority after the period of controlled transactions contradicts the requirements of the Tax Code of Ukraine.
Conclusion on Information Sources
Thus, taking into account the above, the court of appeal reached a reasonable conclusion that since no source of information used by the defendant to apply the comparable uncontrolled price method meets the criteria defined by the Tax Code of Ukraine, the application of such a method is not possible in the period that was inspected.
FORWARD CONTRACTS ISSUE
According to the Tax Code of Ukraine, if the supply of goods (works, services) is carried out on the basis of a forward or futures contract, the ordinary price is the price that corresponds to the forward or futures price on the date of conclusion of such a contract. The court of appeal established that at the time of controlled transactions in 2015-2016, there were no other norms that would regulate the possibility of applying to forward contracts prices at the time of actual supply of products. From 2017, the relevant provision was supplemented, but the form of notification and the procedure for its submission were approved only in 2018, i.e. later than the period in which controlled transactions were carried out. Thus, for the purposes of applying the comparable uncontrolled price method, the moment of a controlled transaction for delivery under a forward contract can only be the date of conclusion of the forward contract, and not the date of actual delivery of goods. It follows that the comparable uncontrolled price that could have been analysed by the tax authority should correspond to prices for products under forward contracts on the date of conclusion of the forward contract, and not on the date of delivery in the controlled transaction.
The court of appeal stated that it was unlawful for the defendant to make calculations comparing prices at the time of delivery of goods, and not at the time of conclusion of the forward contract, as this contradicts the provisions of the Tax Code of Ukraine (which was in force during 2015-2016), because in this way incomparable transactions were involved in the comparative analysis.
DOCUMENTATION REQUIREMENTS
The court of appeal noted that according to the Tax Code of Ukraine, the central executive authority implementing state tax policy has the right to send the taxpayer a request requiring additional submission within 30 calendar days from the date of its receipt of information and/or justification of compliance of controlled transaction conditions with the arm’s length principle in case of establishing certain circumstances. The controlling authority did not send requests for additional justification or provision of additional information regarding transfer pricing documentation for 2015-2017 to the claimant. Given the absence within 30 calendar days from the moment of receipt of transfer pricing documentation of a requirement from the tax authority, it is considered that the transfer pricing documentation contains the necessary information in full and contains proper justification of compliance of controlled transaction conditions with the arm’s length principle.
SIGNIFICANCE AND IMPLICATIONS
This judgment is significant for several reasons:
- Burden of Proof: The Supreme Court confirmed that the tax authority bears the burden of proving that the taxpayer’s chosen transfer pricing method is not the most appropriate before it can apply an alternative method.
- Information Source Requirements: The judgment establishes strict requirements for information sources used in applying the comparable uncontrolled price method, including:
- Information must be publicly available at the time of the transaction or report filing
- Sources must provide complete information on all factors affecting price comparability
- Transactions must be demonstrably uncontrolled
- Methodology must be transparent and known to taxpayers
- Retrospective Application: The courts rejected the tax authority’s use of information sources and methodologies that were not publicly available or recommended during the period of the controlled transactions (2015-2017), even though they became available later.
- Forward Contracts: The judgment clarifies that for forward contracts, the relevant date for price comparison is the date of contract conclusion, not the date of actual delivery.
- Documentation Presumption: If the tax authority does not request additional information within 30 days of receiving transfer pricing documentation, the documentation is presumed to contain necessary information in full and proper justification.
CONCLUSION
Under the circumstances, the panel of judges of the cassation instance agreed with the conclusion of the court of appeal that the contested tax notice-decision dated 28 March 2024 №161/34-00-23/00373758 is unlawful and subject to cancellation.
This judgment represents a taxpayer-friendly decision that reinforces procedural safeguards and evidentiary requirements in transfer pricing disputes. It emphasises that tax authorities cannot rely on information sources that were not publicly available or recommended during the period under review, and must prove that the taxpayer’s chosen method is inappropriate before applying an alternative methodology.