Transfer Pricing 2026: Expanding Control Without Clear Rules of the Game

On February 24, 2026, the Ministry of Finance of Ukraine published a draft law “On Amendments to the Tax Code of Ukraine on Further Improvement of Transfer Pricing Rules,” which effectively proposes a comprehensive transformation of approaches to controlling compliance with the arm’s length principle, as set out in Article 39 of the Tax Code of Ukraine, alongside an expansion of its scope and further detailing of analytical tools.

The proposed changes cover both a revision of the value thresholds for recognizing transactions as controlled and an extension of the arm’s length principle to domestic transactions, particularly those involving loss-making entities or entities applying preferential tax regimes. In essence, this signals a shift of transfer pricing beyond its traditional role of regulating cross-border group transactions into the sphere of internal economic activity.

At the same time, the Ministry of Finance proposes simplifying transfer pricing documentation models, clarifying the stages of identifying transaction conditions, and refining approaches to DEMPE analysis, which collectively are intended to create a more structured toolkit for substantiating compliance with the arm’s length principle.

However, it is precisely at the level of these tools that a key issue arises—one that directly affects the stated objective of increasing tax certainty.

In parallel with these amendments, a separate draft law aimed at implementing anti-tax avoidance rules in line with EU Council Directive 2016/1164 (ATAD) is under consideration. This creates an additional regulatory layer in which the assessment of compliance with the arm’s length principle becomes even more complex and multi-dimensional, particularly in terms of balancing formal criteria with inherently evaluative risk-based judgments.

It is this element—subjectivity—that remains the core problem.

The proposed amendments do not eliminate but rather reproduce the existing model, under which the tax authority retains broad discretionary powers to determine the presence of transfer pricing risks. This directly influences decisions on initiating documentary unscheduled audits, as provided for, inter alia, in Article 78 of the Tax Code of Ukraine.

A notable example is the proposed amendment to paragraph 78.11, under which the tax authority would be entitled to cancel a decision to initiate an audit based on the review of explanations and transfer pricing documentation submitted by the taxpayer. While this may formally appear as a step toward reducing administrative pressure, it does not alter the fundamental nature of how such decisions are made.

This is evident from existing practice: decisions to conduct transfer pricing audits have historically been made precisely after reviewing taxpayer documentation, yet this has not reduced disputes—on the contrary, more than 60% of such decisions have been challenged in court.

Accordingly, the mere possibility of revoking an audit decision does not create a meaningful incentive for taxpayers and does not address the key issue—subjectivity in assessment.

A similar concern arises in relation to the proposed amendments to subparagraph 39.2.2.1 of the Tax Code of Ukraine, which defines the comparability criteria for controlled and uncontrolled transactions. The proposed framework effectively allows the tax authority not only to adjust transaction terms to arm’s length conditions but also to make broader conclusions regarding the economic substance of a transaction. This includes assumptions that independent parties, under comparable circumstances, would not have entered into such a transaction at all, or would have structured it differently.

In the absence of a clearly defined and transparent model for assessing transfer pricing risks, this approach inevitably preserves a high level of subjectivity, thereby maintaining the potential for conflict between taxpayers and tax authorities.

In this context, the declared objectives of increasing tax certainty, improving the investment climate, and enhancing the quality of transfer pricing administration appear debatable. Expanding the scope of the arm’s length principle without simultaneously limiting administrative discretion does not reduce legal uncertainty—it merely extends it to a broader range of transactions.

Therefore, the proposed amendments to transfer pricing rules are more likely to reshape the configuration of control rather than resolve the system’s fundamental issue, which lies not in the absence of analytical tools, but in the lack of clear and predictable criteria for their application. As a result, transfer pricing is likely to remain one of the most contentious areas of tax law.