NEWS (May 21, 2019)

KPMG Law Ukraine defended an international pharmaceutical company

KPMG Law Ukraine’s lawyers  defended the interests of the Representative Office of one of the world's largest pharmaceutical companies (RO) in the tax dispute over the re-qualification of the activities of the representative office in the so-called "permanent establishment".

The control authority argued that the activities of RO for promotion of pharmaceuticals and registration of pharmaceuticals produced by other non-resident companies were of the commercial nature, therefore, the RO was in fact a permanent establishment in the territory of Ukraine and received income from a source of origin from Ukraine. As a result, the tax authority has assessed extra tax on profits of foreign legal entities for the three years covered by the tax audit.

KPMG Law Ukraine have proved the legality of the RO’s position with the following arguments, supported by the court of first instance:

The activities of RO did not duplicate the types of statutory activities of the Parent Company, in particular, it was not producing, procuring or distributing pharmaceuticals manufactured or purchased by the Parent Company. The activities of RO were purely of non-commercial nature and were restricted to auxiliary and preparatory actions on behalf of the Parent Company.

RO did not provide services to the third parties. In particular, RO did not enter into service agreements with third parties and did not receive any other income, except financing from the Parent Company.

-Registration of the pharmaceuticals could not be considered as activity resulting in deriving of income in the territory of Ukraine. Non-commercial activities of preparatory or auxiliary nature cannot be the basis for recognizing RO as permanentestablishment in the meaning of the Tax Code of Ukraine.

The fact of the manufacturing of pharmaceuticals by a third party does not indicate that the RO is acting in the interests of that third party.

 The tax authority provided no supportive documents evidencing the facts of conclusion by RO the business contracts with the legal entities residents / individual entrepreneurs / individuals for the purpose of obtaining income by RO.

The decision of the court is based on the conclusions of the Supreme Court, decisions of the European Court of Human Rights.

During the follow-up of this administrative case, the KPMG Law Ukraine team acted proactively to close a criminal proceeding against officials of the RO opened under Part 3 of Art. 212 of the Criminal Code of Ukraine "Evasion of Taxes".

The project was led by Oksana Olekhova, partner, and Larysa Antoshchuk, head of Tax Dispute Resolution Practice. Other experts attracted to the project are Kateryna Hamretska, Nataliia Musiienko, Yurii Oliinyk, Iryna Khyliak and Yana Bazia, who represented the KPMG Law Ukraine team. 



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