Muzychuk M. Accounting of controlled transactions in transfer pricing of trade enterprises

The thesis is a scientific research of the theoretical base and practice of accounting for controlled transactions (CT) in the transfer pricing (TP) of trade enterprises. Multinational companies and use tax loopholes to minimize their tax payments. Governments around the world and leading international organizations have consolidated their efforts to develop effective rules and mechanisms to increase tax transparency and prevent profit shifting, in particular, by developing and improving of TP rules. The research highlights the historical and logical stages of the emergence and development of TP in the international economy and summarizes the rules applied at the international and domestic level. The developments of international and domestic scholars on understanding of TP essence, its role in ensuring the effectiveness of the state tax policy and enterprise management has been summarized. The list of EU legal acts in the field of TP, which Ukraine needs to implement on its way to full membership of the EU, has been prepared. The work analyses the peculiarities of the procedure for automatic exchange of tax information according to the CbCR Standard and develops practical recommendations on the use of information obtained under the exchange procedure. The author develops proposals for improving the TP rules in Ukraine: inclusion of business transactions with related parties that are tax residents of Ukraine in the list of CT; revision of the value criteria for CT by applying the arm’s length principle for business transactions of taxpayers whose annual income exceeds UAH 40 million; submission of simplified reporting on CT (Annex to the CPT Declaration («Annex CT»- for companies with annual revenues between UAH 40 and 150 million) and simplified TP documentation (for СT of up to UAH 15 million); introduction of the concept of intragroup services with low added value. The implementation of the developed recommendations will help to limit the use of tax evasion schemes and broaden the tax base, reduce the costs of companies for the preparation of TP documentation and reporting, and apply a rational approach to the requirements for its submission. The proposed amendments are in line with the principles of the OECD Guidelines and EU practices. TP management of an enterprise is a complex multilevel process involving various divisions of an enterprise. It is found that when an enterprise is a member of a Multinational Enterprise (MNE) Group, it is necessary to plan CT, develop approaches to reporting and TP risk management at the Group level. To build an integral approach to the establishment of an accounting framework TP management, a matrix of the transfer TP management of the MNE Group and the enterprise has been developed. A methodology for the accounting of CT has been elaborated, which provides for the introduction of additional subaccounts and analytical sections to them, which will allow for a comprehensive analysis of all business transactions of the enterprise in terms of compliance with the criteria for CT and identification of CT to a certain volume. To ensure the completeness of information on CT, unification and automation of processing, a system of reference dictionaries has been developed. The methodology for determining the status of a non-resident counterparty has been suggested aiming at strengthening of an accounting framework for CT at the stage of their planning, as well as a methodology for identifying CT at the enterprise has been developed. The work suggests that the accounting policy of a trade enterprise should include a separate section on the TP policy and defines a list of necessary provisions that it should contain. To improve the TP documentation methodology, an appropriate approach to assessing the functions, risks and assets involved in CT, as well as algorithms for finding comparable persons and allocating financial reporting indicators, have been developed. The author has examined that the effectiveness of regulation of TP directly depends on the properly structured TP tax control, and the effectiveness of enterprise TP management is measured during tax control activities. To improve the risk-based TP control, the author has developed proposals that include the TP risk assessment algorithm and the system of indicators for calculating risk criteria and making a TP risk matrix for taxpayer’s risk assessment. Modern tax administration involves the application of progressive practices aimed at increasing the level of voluntary compliance with tax legislation (tax compliance), the author proposes a number of measures that will help to increase the level of tax compliance with TP in Ukraine. Based on the results of the study, the author formulates recommendations for preparing an enterprise for a TP tax audit and proposals for a strategy for supporting a TP tax audit.