Should Transactions Under Agency Agreements Be Included in TP Reporting?
Context:
A Ukrainian company performs agency functions for a related non-resident (principal) — assisting in the sale of goods, without acquiring ownership of the goods. The agent receives only a commission fee for its services. However, the payment for the goods is first received into the agent’s bank account and then transferred to the non-resident.
🧾 What Does the Tax Authority Say?
(According to an Individual Tax Consultation from the Ukrainian Tax Service)
- A mediator without ownership rights is still considered to be participating in a controlled transaction.
- Even if the agent receives only a commission and no profit from the resale of goods, the mere fact that customer payments pass through the agent’s bank account qualifies the transaction as a business operation.
- If the foreign company is a related party, the transaction between the agent and such a company is subject to analysis under the arm’s length principle.
🔍 What Does This Mean for Businesses?
Companies acting as agents or intermediaries for related non-residents:
- Must analyze such transactions for potential TP reporting obligations.
- Are required to include these transactions in their transfer pricing documentation and justify the arm’s length nature of the agent’s commission.
- Face significant penalties for non-compliance (e.g., fines up to 300 times the minimum wage for failure to submit the TP report and up to 5% of the transaction value for lack of documentation).
🎯 GLS Conclusions
Even if you are “just an agent,” do not ignore the transfer pricing implications of working with related non-residents. The tax authority’s position is clear: the transfer of funds through your bank account constitutes a business transaction that falls under TP control.
