ASSESSMENT OF THE PRE-CONDITIONS FOR THE IMPLEMENTATION OF MODERN TECHNOLOGIES OF TAX CONTROL ON BASE EROSION AND PROFIT SHIFTING
Abstract
The purpose of the study is to assess the possibility of combining the concepts of transfer pricing, beneficial owner of income and valid business purpose in a model of three-component tax risk assessment for countering BEPS. To achieve this purpose, the author set priority tasks, namely conducting an isolated analysis of the concepts of transfer pricing, beneficial owner of income and valid business purpose with further identification of intersections and interconnections of such concepts, as well as the formation of conclusions regarding the possibility of combining these concepts into a single model for identification of BEPS risks. Under the study, the author analyzed the three-level transfer pricing reporting system introduced into the tax system of Ukraine by Law of Ukraine No. 466-IX “On Amending the Tax Code of Ukraine on Improving Tax Administration, Eliminating Technical and Logical Inconsistencies in Tax Legislation”. In particular, the study found grounds for moving the essence of transfer pricing analysis from the formal determination of compliance of the prices established within the controlled transactions with the “arm's length” principle to the analysis of value chains, distribution of functions, assets and risks within a multinational group of companies, as well as to the examination of the value allocation process between jurisdictions and the fairness of such allocation. The study established that the information disclosed under transfer pricing reporting process can become part of the analysis of the legality of applying of the provisions of international treaties on the avoidance of double taxation through the concept of “beneficial owner of income”. The draft model of three-component tax risk assessment for countering BEPS is proposed as a finding of the study. Such model corresponds with international trends of abandoning the formal study of transfer prices in separate controlled transactions in favor of a comprehensive study of the essence of the value allocation process within multinational groups of companies. The author concluded that the isolated assessment of the elements of the model of three-component tax risk assessment for countering BEPS, during tax audits, reduces the effectiveness of ensuring the sovereignty of national tax revenues. At the same time, the author saw the legislative limitation of the transfer pricing audit exclusively on issues of compliance with the “arm's length” principle as a key challenge to the implementation of the model of three-component tax risk assessment for countering BEPS. Such limitation of the control body's tools contradicts the global tendency to countering BEPS as a whole, and not as separate (independent) mechanisms of aggressive tax planning.
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