• Iryna Kalnytska

    Counsel, Head of Tax Practice,
    Attorney at law, GOLAW


Address: 19B Instytutska Street, Suite 29,
Kyiv, 01021, Ukraine
Tel.: +380 44 581 1220
Fax: +380 44 581 1222
E-mail: info@golaw.ua
Web-site: www.golaw.ua

GOLAW is an international full-service law firm was founded in 2003 and currently has offices in Kyiv, Odesa (Ukraine) and Berlin (Germany). The firm has been recognized by several prestigious international and Ukrainian rankings, such as The Legal 500, Chambers & Partners, IFLR 1000, Best Lawyers, Legal Awards and has ben ranked among TOP 10 Leading Law Firms in Ukraine.

The client portfolio of the firm includes large and medium-sized, national and foreign companies, banks and financial institutions, as well as private investors doing business in Ukraine or entering local markets.

GOLAW provides sophisticated legal advice and reliable legal assistance in all major sectors, including agribusiness, retail and FMCG, healthcare and pharmaceuticals, financial services, energy and natural resources, transportation and infrastructure, internet technology, and real estate.

Practice areas of the firm:

  • Business defence
  • Corporate and M&A
  • Litigation and dispute resolution
  • Taxation
  • Antitrust and competition
  • Banking and finance
  • Government relation (GR)
  • Environment protection
  • Intellectual property
  • Compliance, Corporate governance and risk management
  • Criminal Law and White Collar
  • International trade
  • Maritime Law
  • Real estate
  • Private clients
  • Anti-Corruption and Anti-Bribery
  • Insolvency and restructuring
  • Employment

GOLAW is an international full-service law firm that was founded in 2003 and currently has offices in Kyiv, Odesa and Berlin. The firm has been recognized by international and Ukrainian rankings: The Legal 500, Chambers& Partners, IFLR 1000, Best Lawyers, TOP-50 Law Firms in Ukraine. GOLAW’s team focuses on efficiently resolving issues facing clients, communicating effectively on their behalf, assisting them in navigating the nuances of Ukrainian law and avoiding costly legal traps.

The firm’s client portfolio includes large and medium-sized, national and foreign companies, banks and financial institutions, as well as private investors doing business in Ukraine or entering local markets. GOLAW provides sophisticated legal advice and reliable legal assistance in all major sectors, including agribusiness, retail and FMCG, healthcare and pharmaceuticals, financial services, energy and natural resources, transportation and infrastructure, Internet technology, and real estate.

GOLAW developed a top-tier tax practice which includes issues regarding tax functioning in Ukraine, strategic advice on tax planning, tax and fiscal controls, as well as professional contacts with the tax authorities at all levels.

The firm represents its clients in dispute resolution and litigation in general, economic and administrative courts of all levels, along with support for international commercial disputes. The deep expertise in white-collar defence and investigations enables GOLAW attorneys to successfully represent clients in criminal legal proceedings, advising them on the wider commercial, regulatory and image implications in the face of allegations of fraud or corruption.

GOLAW professionals advise clients across a broad spectrum of corporate work, including M&A, joint ventures and corporate restructuring, as well as general commercial, antitrust and corporate governance issues.

In banking and finance, the firm successfully represents clients regardless of whether it is a trade, export, finance deal, M&A, or any other financial project; it also provides advice on civil, banking and currency laws. The firm is a leader in representing financial services institutions in contentious insolvency and regulatory matters.

The firm’s team of lawyers utilizes unrivalled local knowledge of the demands of operating on increasingly international and volatile markets, with a deep understanding of the issues impacting the energy and natural resources sectors.

GOLAW covers the full range of labor and employment matters, including: whistleblower litigation, labor-management relations, benefits, collective agreements, and employment of foreign citizens.


Tax Challenges for Agriculture and Pharmaceutical Industries in 2018

Interactions between taxpayers and the tax authorities quite often result in litigations. For historic reasons, the disputes with the tax authorities are an inherent part of doing business in Ukraine. This situation arises due to the frequent changes in Ukrainian legislation, changes in judicial practice and opposite interpretation of legislation by taxpayers and tax authorities.

Misinterpretation of legislation provisions often happens because of ambiguousness of certain provision of the Tax Code. However, for this purpose there is a  presumption of legality of taxpayer decisions in the event that the legislation norm implies ambiguous (plural) interpretation.

Nevertheless, the tax authorities often ignore the abovementioned presumption that leads to the variety of the tax disputes in  different spheres of business.

In this article we will highlight only the most controversial categories of disputes in the agricultural and pharmaceutical industries, namely (i) transfer pricing (TP) disputes, (ii) disputes related to the additional charge of taxes and penalties in connection with allegedly sham transactions conducted by business entities and (iii) tax disputes arising from business operations related to marketing services and advertising.

TP rules are still one of the most complicated categories of disputes for taxpayers. First of all, the difficulty consists in the absence of stable legislation, which, as a rule, changes from year to year, removing previous regulatory shortcomings and being supplemented by new norms in accordance with some OECD recommendations and the BEPS Action Plan.

Such “dynamism” of TP norms could not but impact the development of judicial practice, which in most cases concerns formal matters, such as the recognition of a transaction as a controlled one, reporting, preparation of documentation, provision of information at the requests of the State Fiscal Service (SFS), etc. As regards specifically the content reports and documents, as well as the application of one or another TP method, most judicial decisions in such disputes appeared only last year; the most important of them will be considered below.

Recognition of a transaction as a controlled one by a non-resident from a low-tax jurisdiction

It often happens that based on the list determined by the CMU the jurisdiction is either considered or not considered to be low-tax starting from the specific date of the period falling within the accounting period. In this case, two questions arise: how the volume of transactions should be calculated and whether the transaction will be regarded as controlled. Despite the fact that the courts of the first and appellate instances either recognised such transactions as controlled, or rescinded fines imposed by the SFS, the High Administrative Court of Ukraine (in its decision in case
No. 821/1345/16) concluded that transactions would be regarded as controlled for the period preceding the moment of excluding such a state from the list and, accordingly, the volume of transactions would be taken into account also for the period preceding the moment of excluding such a state from the list.

There are cases in judicial practice when a taxpayer has to prove that the jurisdiction of their counterparty to the transaction cannot be defined as low-tax, although it is included in the CMU’s list. Such a dispute was considered by the Kyiv Administrative Court of Appeal in case No. 823/2039/16. The SFS invoked the fact that Georgia, which was the state of the counterparty’s registration, was included in the CMU’s orders as a state where the income tax was 5 and more percent lower than in Ukraine. On their part, the payer provided the court with a letter of the Embassy of Georgia to Ukraine stating that according to the Tax Code of Georgia the income tax rate was 15% and the difference between the rates of both states was three, but not five percent.

Recognition of a transaction as a controlled one through a resident commissioner. In the case No. 816/1528/16, the Kharkiv Court of Appeal considered a situation in which a transaction was found to be controlled between the Ukrainian company that concluded a product supply agreement with the resident of Switzerland. Herewith, the delivery and payment were made under the commission agreement through a Ukrainian commission agent.

The court of appeal concluded that since the ownership of the product did not pass from UkrKo to the commission agent, but immediately passed to the resident of Switzerland (the buyer), and the transaction was not reflected in the commission agent’s accounting records and did not impact its object of taxation, such an economic transaction was conducted with a non-resident, despite the existence of a resident intermediary.

Disputes with the SFS about methods, prices, and indicators in TP documentation and reports. In case No. 815/3424/17, the Administrative Court found that the SFS used the inaccurate way of comparing prices of the exported goods in controlled and uncontrolled transactions by applying the following method: firstly, it used only one source of prices (i.e., the data from the agricultural exchange) while taking into account the highest indices; secondly, it disregarded the terms of delivery, as well as the existing bonuses and discounts stipulated by the marketing policy of the enterprise. The Court noted that provided the tax authority used several sources of information to compare prices, it would receive objective data about fair market prices. Moreover, when using a specific source of information that is different from that of a taxpayer, the SFS needed to justify why this data was to be used to compare prices. The tax authority also failed to provide such substantiations in the inspection act. The tax authority filed an appeal, but the court of appeal also took the side of the taxpayer. At the moment, the SFS is lodging an appeal with the Supreme Court to initiate the cassation proceedings.

In case No. 816/515/17, the High Administrative Court also found the SFS actions in part of checking, compliance based on the arm’s length principle illegitimate. The regulatory authority used data on prices that did not ensure comparability of transactions by such indicators as functions performed by parties to the transaction and their business strategies, economic conditions of transaction, terms of delivery, and the established practice of their conducting. Also, this data did not correspond to the date of concluding the agreement, which also violates Paragraph of Article 39 of the TCU.

Such a conclusion is primarily useful for representatives of the agricultural industry, because according to Paragraph of Article 39 of the TCU, when comparing prices of transactions with goods with stock-exchange quotations one should use data from the commodity exchange. At the same time, the official list of such exchanges, as defined by the CMU, includes the largest world exchanges, where the market differs significantly from the Ukrainian conditions of trade in agricultural products.

As for the evidence used in judicial disputes, as practice shows, the information provided by the authorities of the counterparty’s country is important for the courts. These can be official letters in response to inquiries about tax rates or, for example, the tax status of a non-resident acting as a party to the transaction. Internal orders, statutory documents, corporate correspondence with a non-resident counterparty are also strong arguments. n.

The number of tax disputes arising from business operations related to marketing services and advertising does not decrease either.

Based on analysis of judicial practice, we can conclude that the most important in such disputes is the quality of evidence base, namely accounting documents and agreements. Thus, for marketing operations we suggest to carefully describe in the agreement the purpose of signing of the agreement. In addition, business transactions under agreements related to marketing services / advertising of products must be carefully documented, namely it is necessary to prepare transfer-acceptance acts of provided services with detailed description of the services received. It is also necessary to ensure that the primary documentation includes all requisites specified in the Law of Ukraine “On Accounting and Financial Reporting “.

To prove the reality of business transactions under marketing agreements, it is also recommended to get from the counterparty a report on the provided services which should reflect the results of the provided services, such as photos, video of events, etc.


As we see, judicial practice demonstrates the potential “points of collision” between the tax authorities and taxpayers in matters related to controlled transactions, TP reporting, allegedly sham transactions and business operations related to marketing services / advertising conducted by business entities.

As for TP disputes, the higher the quality of reasoning for using indicators in the compared transactions and their sources and methods in controlled transactions, the greater the chances of successful completion of the process will be.

As for tax disputes regarding allegedly sham transaction and tax disputes related to marketing services / advertising conducted by business entities, it is always necessary to start with a careful selection of contractors and their monitoring in the course of business transactions as well as the correct documentary registration of contractual relationships.