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Business purpose and its features

Dear Clients and Partners!

We continue to inform you about the important points that you need to know and take into account in your business.

On May 23, 2020, the concept of reasonable business purpose (hereinafter - business purpose) was expanded in the Tax Code of Ukraine (hereinafter - TCU). According to Art. 14.1.231, business purpose is a reason that exists only if the taxpayer intends to obtain an economic effect as a result of business activities, which, in particular, but not exclusively, involves the growth (preservation) of taxpayer’s assets and / or their value, as well as creates conditions for such growth (preservation) in the future.

A business transaction is deemed to have no reasonable economic purpose (business purpose) if:

• The main goal or one of the main goals of the transaction is non-payment (incomplete payment) of the amount of taxes and / or reduction of the taxable income;

• Under comparable conditions, the legal entity would not be willing to buy (sell) such goods, works (services), intangible assets, other items of business, other than goods, from unrelated parties.

The types of transactions which must have a valid business purpose according to the TCU have changed over the years:


Transactions with non-residents


Controlled transactions


Controlled transactions and uncontrolled transactions carried out with "risky" non-residents (according to special lists of the Cabinet of Ministers) and TM expenditures in favor of non-residents

However, our tax authorities had been actively referring to the concept of “business purpose” before, during tax audits and in written inquiries, and it often led to withdrawal of costs from the companies’ expenses if, in their opinion, a certain transaction had no valid business purpose. Transactions with non-residents are potentially under scrutiny, and tax authorities pay great attention to them. Case law has repeatedly shown that a reasonable business purpose is required to reflect any business transactions in tax accounting, and that documents (contracts, acts, sales invoices, payment-related documentation etc.) are not enough, since, according to the Law on Accounting, they do not prove the fact of the transaction and may be questioned. Therefore, it is crucial to substantiate that the operation did have a business purpose. Intragroup transactions, consulting, marketing, agency services etc., loans and intangible asset rights are usually under the greatest scrutiny.

Business Purpose Evidence:

To prove the circumstances confirming the business purpose, it is necessary to research and disclose the subjective component of the taxpayer's business activities, i.e..: goals, intentions and expectations.

The following is a list of measures that taxpayers must take to substantiate the business purpose:

  • analyzing the contracts, collateral agreements and specifications, checking their availability;
  • preparing supporting documents: both the planned ones (business plan, market overview, market analysis etc.) and the ones for day-to-day operations (protocols, reports, conclusions, etc.)
  • analyzing unprofitable transactions;
  • preparing annual transfer pricing documentation to substantiate the business purpose of controlled transactions for the purchase (sale) of goods, works (services), or the report on business purpose as part of transfer pricing documentation without submitting the report on controlled transactions.

Accountor Ukraine strongly recommends ensuring that your company has enough evidence of the business purpose.