Asters, General Partner of the UBA, successfully represented the Ukrainian permanent establishment of one of Europe's largest pharmaceutical companies in a transfer pricing dispute with the tax authorities.

The tax authority conducted an unscheduled on-site documentary audit to examine compliance with the "arm’s length principle" (transfer pricing) in relation to financing provided by the parent company to its permanent establishment in Ukraine in 2018.

As a result of the audit, the tax authority challenged the comparable companies list used by the client to determine the range of net cost profitability indicators within the Transactional Net Margin Method applied (confrimed as correct by the tax authority). Out of the seven companies selected by the client in its transfer pricing documentation, the tax authority retained one and added another company to the list. This adjustment significantly altered the profitability range and, consequently, the median indicator calculation, forming the basis for the conclusion that the corporate income tax base had been understated.

Asters lawyers emphasised that the tax audit conclusions were inconsistent with the requirements of Article 39 of the Tax Code of Ukraine and provided supporting evidence to challenge the fiscal approach. In addition, they argued procedural violations in the appointment and conduct of the audit during the COVID-related moratorium period.

The tax authority has also attempted to dismiss the claim based on arguments regarding the absence of administrative legal capacity of the permanent establishment. Asters successfully rebutted this argument, referring to the principle of access to justice. The court assessed the parties’ arguments and held that there were no legal grounds to dismiss the claim. It confirmed that the client had administrative and procedural legal capacity, as it qualified as a Ukrainian tax resident, was a taxpayer under the Ukrainian law, and was duly authorised to represent the interests of the parent company.

Ultimately, the courts not only annulled the disputed tax notifications-decisions, but also contributed to the development of national legal doctrine by affirming the procedural capacity of permanent establishments in Ukraine.

The Supreme Court refused to open cassation proceedings and upheld the lower courts' rulings in favour of the client.

The case was handled by Asters’ Tax Disputes Resolution team, led by Counsel Larysa Antoshchuk.

Asters is the largest full-service law firm in Ukraine with offices in Kyiv, Brussels, London, and Washington, D.C. The firm has access to over 125 jurisdictions through a well-developed network of partner law firms.