Automated Summary
Key Facts
The case involves a dispute between Public Joint Stock Company 'Azot' and the Office of Major Taxpayers of the State Fiscal Service over tax notices issued in 2017. The Office claimed the company violated tax code provisions (e.g., articles 135, 138, 39 of the Tax Code) related to controlled transactions, leading to an underreported income tax by 43,633,392 UAH in 2013 and an overestimated negative tax base by 192,374,851 UAH in 2014. The appellate court overturned the first instance decision, ruling the tax notices valid.
Tax Type
Adjustment of corporate income tax based on transfer pricing violations in controlled transactions with affiliated entities.
Issues
- The court examined the taxpayer's selection of NF Trading AG (Switzerland) as the studied party for applying the 'clean profit' method to controlled export operations of mineral fertilizers. The court ruled that the taxpayer erred in this selection, as the necessary data from NF Trading AG was unavailable, and the correct approach required analysis of the taxpayer's own operations under Ukrainian law.
- The court addressed the proper application of transfer pricing methods under Article 39 of the Ukrainian Tax Code. Specifically, it evaluated if the taxpayer (PAТ 'Azot') used the 'clean profit' method appropriately for import operations with Ostchem Holding Limited (Cyprus) from 2013-2014, or if the 'comparable uncontrolled price' method should have been prioritized. The court found the taxpayer's method choice incorrect for gas import transactions.
Tax Years
- 2014
- 2013
Holdings
- The appellate court determined that the first instance court did not fully establish the facts of the case and incorrectly applied the law. It overturned the first instance's decision, finding that the taxpayer's use of the 'clean profit' method for pricing controlled operations was improper. The court upheld the tax authority's application of the arm's length principle and its correction of the taxpayer's tax obligations based on market price ranges for comparable transactions.
- The court confirmed that the tax authority correctly applied the arm's length principle and selected appropriate pricing methods (e.g., comparable uncontrolled price) to adjust the taxpayer's obligations. It found that the taxpayer failed to provide sufficient evidence to justify its pricing methods and that the tax authority's recalculations were legally sound.
Remedies
- The first-instance court decision was cancelled and replaced with a new ruling denying the plaintiff's claim to invalidate the tax notices-rulings dated 16.08.2017 № 0005971403 and № 0005981403. The appellate court found the original decision flawed in its application of tax law and factual findings.
- The appellate court satisfied the appeal of the State Fiscal Service's Office of Major Taxpayers, ordering the cancellation of the first-instance court decision and the adoption of a new decision denying the plaintiff's claim to invalidate the tax notices-rulings dated 16.08.2017 № 0005971403 and № 0005981403.
Tax Issue Category
Transfer Pricing
Legal Principles
The court applied the arm's length principle under the Tax Code, which requires that prices in controlled transactions between related parties (including non-residents) align with those in comparable transactions between independent parties. This principle was used to assess the pricing of natural gas imports and mineral fertilizer exports by ПАТ «Азот» with Ostchem Holding Limited and NF Trading AG, respectively.
Disputed Tax Amount
43633392.00
Precedent Name
- Висновок № 11 (2008) Консультативної ради європейських суддів
- Ruiz Torija v. Spain
- Hirvisaari v. Finland
Cited Statute
Tax Code of Ukraine
Penalty Amount
1.00
Judge Name
- Сорочка Є.О.
- Мезенцев Є.І.
- Кузьмишина О.М.
Passage Text
- Оскільки висновки суду не відповідають обставинам справи, судом неправильно застосовано норми матеріального права, то скаржуване судове рішення підлягає скасуванню, а позов залишено без задоволення.
- З огляду на це, колегія суддів підтримує висновок відповідача про можливість застосування у даному випадку методу порівняльної неконтрольованої ціни (аналогів продажу), а тому застосування позивачем у цих спірних операціях методу «чистого прибутку» є необґрунтованим.
- Проведеним розрахунком відхилення рентабельності контролюваної операції з імпорту природного газу у пов'язаної особи «Ostchem Holding Limited» від ринкового діапазону чистої рентабельності зіставних компаній в періоді з 01.09.2013 по 21.12.2013 встановлено порушення ПАТ «Азот» вимог п. 138.4, п. 138.5, п. 138.6-138.9, пп. 138.10.2-138.10.4 пп. 138.10.5, 138.10.6 п. 138.10, п. 138.11, 138.12 ст. 138, п. 140.1 ст. 140, ст. 141, п. 140.2 і 143, пп. 39.3.3.8, пп. 39.3.6.6 п. 39.3 ст. 39 ПК (в редакції, що діяла на час здійснення контролюваних операцій), що призвело до завищення витрат платника податків, що враховуються при визначенні об'єкта оподаткування податком на прибуток підприємств на суму 326 386 177,67 грн...