Forward Contract Prices Must Be Compared as of the Contract Date, Not the Delivery Date
⚖️ Ukraine | Commercial Disputes | Forward Contracts | Taxation | Transfer Pricing
Case Details
Case No.: 120/8569/24
Administrative Proceedings No.: К/990/22546/25
Court: Supreme Court, Administrative Cassation Court
Decision Date: 11 September 2025
Case Category: Tax Law / Transfer Pricing
Subject Matter: Transfer Pricing Adjustment / Arm’s Length Principle
Sub-Subject: Comparable Uncontrolled Price Method / Transactional Net Margin Method / Forward Contracts / Comparable Information
Claimant: Vinnytsia Oil and Fat Plant PJSC
Defendant: Southern Interregional Department of the State Tax Service for Large Taxpayers
Controlled Transactions: Export of sunflower and rapeseed oils
Counterparty: VILAVI UNION ENTERPRISES LIMITED, British Virgin Islands
Period Examined: 2015–2017
Total Controlled Transactions: UAH 4,233,444,634
Tax Assessment Challenged: UAH 40,052,993.11
Key Issue: Whether the tax authority could replace the taxpayer’s transactional net margin method with the comparable uncontrolled price method where reliable comparable information was unavailable, and whether prices under forward contracts should be compared as of the date of contracting or the date of actual delivery
Outcome: The Supreme Court upheld the cancellation of the tax assessment. It agreed that the information relied upon by the tax authority was insufficiently comparable for the CUP method and that, for forward contracts, price comparison had to be made by reference to prices at the date the forward contract was concluded rather than the subsequent date of delivery.
Background of the Dispute
Vinnytsia Oil and Fat Plant carried out substantial controlled transactions involving exports of agricultural products to VILAVI UNION ENTERPRISES LIMITED, a non-resident company incorporated in the British Virgin Islands.
During 2015–2017, the company exported refined and unrefined sunflower oil, rapeseed oil and high-oleic sunflower oil under various delivery terms. The aggregate value of the controlled transactions exceeded UAH 4.23 billion.
For transfer pricing purposes, the taxpayer applied the transactional net margin method (TNMM) using the net cost-plus profitability indicator. It considered this method the most appropriate for determining whether the controlled transactions complied with the arm’s length principle.
The tax authority disagreed.
Following a transfer pricing audit, it concluded that the taxpayer should instead have applied the comparable uncontrolled price method (CUP). The authority relied on price information contained in the monthly bulletin Review of Prices of Ukrainian and World Commodity Markets and databases including Argus and Refinitiv Agriculture Research.
The audit resulted in an alleged corporate income tax understatement of approximately UAH 37.64 million. The subsequent tax assessment increased the taxpayer’s monetary liability to approximately UAH 40.05 million, including penalties.
The first-instance court rejected the taxpayer’s claim. The Seventh Administrative Court of Appeal reversed that judgment, cancelled the tax assessment and ruled in favour of the taxpayer.
The tax authority appealed to the Supreme Court.
The CUP Method Has Priority — But Only Where It Can Reliably Be Applied
Article 39 of the Tax Code of Ukraine establishes several methods for determining whether controlled transactions comply with the arm’s length principle.
These include:
comparable uncontrolled price;
resale price;
cost plus;
transactional net margin; and
profit split.
The taxpayer must select the method that is most appropriate to the particular facts and circumstances of the controlled transaction.
The selection depends, among other matters, on the nature of the transaction, the availability of complete and reliable information and the degree of comparability between controlled and uncontrolled transactions.
The Supreme Court confirmed an important hierarchy within those rules.
Where both the CUP method and another transfer pricing method can reliably be applied, the CUP method has priority.
That priority, however, does not mean that CUP must be used regardless of the quality of the available comparable information.
Before rejecting another method in favour of CUP, it must first be established that the CUP method can actually be applied reliably to the transactions under examination.
Comparable Information Must Reflect Comparable Transactions
The CUP method compares the price applied in a controlled transaction with the price or range of prices applied in comparable uncontrolled transactions.
This requires more than simply identifying published market prices for the same general category of commodity.
For CUP purposes, the goods, contractual conditions, market strategies and other economically significant characteristics of the uncontrolled transactions must not differ materially from those of the controlled transaction.
The Supreme Court agreed that the relevant assessment must therefore address the actual comparability of the transactions, rather than merely the availability of price quotations.
Published Market Prices Were Not Automatically Reliable Comparables
The tax authority relied heavily on several external sources, including the monthly bulletin Review of Prices of Ukrainian and World Commodity Markets, Argus and Refinitiv Agriculture Research.
The appellate court found — and the Supreme Court agreed — that these sources did not provide sufficiently complete information to establish comparability.
The available data reflected only one or two of the factors potentially affecting price, while other economically relevant characteristics were missing.
These included:
characteristics of the goods;
volumes supplied;
allocation of functions;
allocation of risks;
contractual performance periods;
payment conditions;
ordinary discounts and premiums;
characteristics of the relevant market; and
business strategies of the parties.
The sources therefore did not provide the full information required to determine whether the transactions underlying the quoted prices were genuinely comparable to the taxpayer’s controlled transactions.
Actual Transactions Matter Under the CUP Method
Another problem concerned the nature of the information underlying the published prices.
Under Article 39.3.3.2 of the Tax Code, application of the CUP method involves comparing the controlled transaction with prices in comparable uncontrolled transactions actually carried out by the taxpayer or other persons.
The courts found that the information relied upon by the tax authority did not establish whether the datasets consisted exclusively of actual uncontrolled transactions.
Some of the pricing information could include market offers rather than transactions that had actually been concluded and performed.
Nor was it established that controlled transactions had been excluded from the datasets.
Without that information, the reliability of the data as a basis for CUP analysis could not be established.
Later-Obtained Information Cannot Retroactively Create a Comparable
The timing of the information was also important.
Refinitiv Agriculture Research provided users with pricing information concerning Ukrainian sunflower oil only from 2017. It therefore could not have been used by the taxpayer to analyse transactions undertaken in 2015 and 2016.
The tax authority obtained information concerning the methodology used by Argus only in 2023.
Furthermore, Argus and Refinitiv products were included in the State Tax Service’s recommended, non-exclusive list of sources for quoted prices only as of 30 December 2020.
The courts therefore concluded that information obtained or becoming available years after the controlled transactions could not retrospectively be treated as information available for the relevant transfer pricing analysis in 2015–2017.
The Absence of Reliable Comparables Made CUP Inapplicable
The Supreme Court ultimately agreed with the appellate court that none of the information sources relied upon by the tax authority satisfied the statutory requirements necessary for application of the CUP method during the period under examination.
The taxpayer did not have access, at the time of the transactions or when preparing its transfer pricing documentation, to comparable price information satisfying the requirements of Article 39 of the Tax Code.
Accordingly, the mere theoretical priority of CUP could not justify replacing the taxpayer’s selected method with CUP.
The tax authority also failed to establish that the taxpayer was not entitled to use the transactional net margin method based on net cost profitability for its vegetable oil export transactions.
Forward Contracts Require a Different Temporal Comparison
The case also raised a separate and particularly important issue concerning forward contracts.
The tax authority compared prices by reference to the date on which the goods were actually delivered.
The courts rejected that approach.
A forward contract fixes the contractual conditions for a transaction that will be performed in the future. The price agreed when the forward contract is entered into therefore reflects market expectations and commercial circumstances existing at that earlier date.
Comparing that price with spot or other market prices existing only when the goods are subsequently delivered can distort the analysis.
For transfer pricing purposes, the relevant comparison must preserve the temporal characteristics of the transaction being tested.
The Relevant Date Is the Date the Forward Contract Is Concluded
The Tax Code provided that where goods, works or services were supplied under a forward or futures contract, the ordinary price corresponded to the forward or futures price as of the date on which the contract was concluded.
The conditions of a forward transaction are determined by the parties when they enter into the contract.
For the controlled transactions carried out in 2015–2016, the appellate court found that there were no other provisions permitting the use of prices existing at the later date of actual delivery.
The Supreme Court agreed with that reasoning.
Consequently, for CUP purposes, the controlled transaction under a forward contract had to be compared with relevant forward prices at the date of conclusion of the forward contract, rather than with prices prevailing when the goods were physically delivered.
Using delivery-date prices introduced transactions that were not temporally comparable and therefore distorted the CUP analysis.
A Later Market Price Cannot Rewrite the Economics of a Forward Contract
This aspect of the judgment is commercially significant.
The economic purpose of a forward contract is precisely to determine today the terms on which an asset will be transferred in the future.
Market prices may rise or fall substantially between the contracting date and the delivery date.
That subsequent movement does not, by itself, demonstrate that the original forward price failed to satisfy the arm’s length principle.
Accordingly, a transfer pricing analysis cannot simply compare the contract price with the market price existing months later when the goods are delivered.
The appropriate comparison must relate to comparable forward transactions and pricing conditions existing when the contractual price was fixed.
The Tax Authority Could Not Replace the Taxpayer’s Method on the Evidence Available
The Tax Code provides that where a taxpayer has used a method complying with Article 39, the tax authority should ordinarily base its examination on that method.
The authority may substitute another method where it demonstrates that the taxpayer’s method does not provide the most reasonable determination of whether the controlled transaction complies with the arm’s length principle.
In this case, the tax authority failed to establish the necessary basis for substituting CUP.
Its proposed comparables lacked sufficient information concerning the economic characteristics of the underlying transactions, some information was unavailable during the relevant periods, and its analysis of forward transactions relied on prices at the wrong point in time.
The resulting CUP analysis therefore could not displace the taxpayer’s TNMM analysis.
The Supreme Court’s Decision
The Supreme Court dismissed the tax authority’s cassation appeal and upheld the judgment of the Seventh Administrative Court of Appeal dated 23 April 2025.
The tax assessment dated 28 March 2024, No. 161/34-00-23/00373758, consequently remained cancelled.
The judgment establishes two closely connected principles for transfer pricing disputes.
First, although the CUP method has statutory priority where it and another method can both reliably be applied, that priority does not dispense with the requirement for complete, reliable and genuinely comparable information.
Second, where the controlled transaction is performed under a forward contract, the relevant price comparison must be made by reference to the date when the forward contract was concluded rather than the later date of actual delivery.
Why This Decision Matters
The judgment provides important guidance for Ukrainian businesses engaged in commodity exports and other controlled cross-border transactions.
It demonstrates that the statutory preference for CUP is conditional on reliable comparability, rather than an automatic entitlement for the tax authority to substitute published commodity quotations for the taxpayer’s selected transfer pricing method.
The decision is particularly relevant where:
a taxpayer applies the transactional net margin method rather than CUP;
the tax authority seeks to replace the taxpayer’s selected transfer pricing method;
external price databases do not disclose the full characteristics of underlying transactions;
published quotations may include offers rather than actually completed transactions;
it is unclear whether controlled transactions have been filtered from a pricing dataset;
the tax authority relies on information or methodologies that were unavailable during the relevant reporting period;
controlled transactions involve commodity exports;
prices were fixed under forward contracts well before delivery;
market prices changed substantially between contracting and delivery; or
the tax authority compares a forward contract price with market prices prevailing on the delivery date.
Lions Lawyers’ Analysis
The central practical point is that priority of method and reliability of method are separate questions.
The CUP method occupies a preferred position under Article 39 where it can be applied alongside another method with sufficient reliability. But its formal priority does not cure defective comparability.
A published commodity price is not necessarily a comparable uncontrolled price.
Before such information can support a transfer pricing adjustment, it is necessary to understand what transactions produced the quoted price, whether those transactions were actually performed, whether they were uncontrolled, and whether their economically significant conditions are sufficiently comparable with the tested transaction.
The judgment is also important for transfer pricing audits that use databases retrospectively. A database, methodology or dataset becoming available several years after a controlled transaction cannot automatically be projected backwards and treated as information that the taxpayer should have used when preparing its contemporaneous transfer pricing analysis.
For forward contracts, the Supreme Court’s approach reflects the commercial substance of the transaction. A forward price represents an agreement made at a particular moment under the market conditions existing at that moment. Comparing it with a later delivery-date price effectively introduces hindsight into the arm’s length analysis.
For businesses trading agricultural commodities, energy products, metals and other goods subject to substantial price fluctuations, documenting the date of price formation, contractual pricing mechanism, market conditions and available contemporaneous comparables may therefore be as important as documenting the eventual delivery itself.
Lions Lawyers advises Ukrainian and international clients on tax disputes and transfer pricing matters in Ukraine, including controlled transactions, selection of transfer pricing methods, CUP and transactional net margin analyses, commodity pricing, forward contracts, transfer pricing documentation and challenges to tax assessments. We provide full-service legal representation as well as standalone legal opinions, enabling clients to assess their existing strategy and, where appropriate, identify alternative legal approaches.
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