BUSINESS PURPOSE IN CONTROLLED TRANSACTIONS AS A PRIORITY FOR INCREASING THE LEVEL OF FINANCIAL SECURITY OF THE ENTERPRISE IN THE CONTEXT OF TRANSFER PRICING

Abstract

The article focuses on substantiating the business purpose of controlled transactions conducted by taxpayers. The relevance of this topic is underscored by the increased scrutiny from the State Tax Service of Ukraine, which places significant importance on the presence of a legitimate business purpose for transactions, especially within the framework of transfer pricing. The goal of this study is to explore the concept of business purpose in detail, emphasizing its critical role in ensuring the financial security of enterprises. The methodology used involves a thorough analysis of the economic substance of transactions, assessing whether these transactions result in a genuine increase in the value of assets or provide other economic benefits to the taxpayer. The findings indicate that the absence of a clear business purpose in controlled transactions can expose enterprises to substantial financial risks and penalties. This risk is particularly pronounced when dealing with non-residents, where the State Tax Service is keen on identifying transactions that may be structured primarily for the purpose of tax avoidance. The analysis highlights the necessity for enterprises to meticulously document and justify the economic rationale behind each transaction to ensure compliance with tax regulations and to mitigate associated risks effectively. The practical value of this article lies in its provision of detailed guidelines for enterprises on how to ensure that their transactions are underpinned by a clear business purpose. It advises businesses to avoid transactions that do not conform to their statutory documents, involve pricing below cost, or include non-resident nominal owners or companies registered at mass registration addresses. By preparing comprehensive documentation that substantiates the economic rationale of their transactions, enterprises can significantly enhance their financial security. This proactive stance not only diminishes the probability of tax disputes but also fosters a more constructive relationship between taxpayers and tax authorities. In conclusion, the article asserts that the detailed analysis and thorough documentation of the business purpose of controlled transactions are imperative for enterprises to protect themselves against financial penalties and risks. It encourages businesses to adopt a forward-looking approach in documenting and justifying their transactions to align with regulatory expectations.