PJSC Myronivsky Plant for the Production of Cereals and Mixed Feed was a Ukrainian exporter of unrefined sunflower oil. The controlled transactions were exports in 2015 and 2016 to a related non resident counterparty in the British Virgin Islands, which were subject to Ukraine’s transfer pricing rules. The company tested the controlled export prices using the net profit method because it said there was no reliable publicly available data for comparable uncontrolled transactions.
The tax authority initiated an unscheduled field audit and concluded that the company breached the arm’s length principle. It argued that the comparable uncontrolled price method should have been applied and relied on transactions involving the counterparty and a buyer in Malaysia as the main comparables, then issued assessments increasing corporate income tax, reducing the negative tax base, and applying penalties.
The company challenged the assessments primarily on procedure, arguing the audit was appointed and conducted in breach of the statutory quarantine moratorium on tax audits during the Covid19 lock-down and that this illegality invalidated both the audit report and the resulting assessments. It also challenged the CUP analysis, arguing there were no sufficiently comparable uncontrolled transactions and that the counterparty’s Malaysia dealings did not meet comparability requirements.
Judgment
The Supreme Court left the cancellation of the assessments in place because the moratorium breach was sufficient on its own. It held that the moratorium in the Tax Code could not be narrowed by a Cabinet resolution and that the audit ordered in March 2021 was therefore unlawful. It also treated evidence collected during the moratorium, including information obtained from a foreign competent authority, as inadmissible, which made the audit report inadmissible evidence and independently supported cancellation of the assessments. Because the illegality of the audit resolved the case, the court considered the CUP versus net profit method dispute unnecessary to decide on its merits.
The Supreme Court left the cancellation result unchanged, only adjusting parts of the reasoning.
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