According to Article 37 of the Uzbek Tax Code, related persons are generally defined as persons who, by virtue of the relationship between them, are able to influence:
- The conditions of transactions concluded
- The results of transactions and
- The economic results of activities.
The TP rules set out 11 formal criteria based on which companies and individuals may be considered as related persons.
The main criterion is ownership interest, where one legal entity directly and/or indirectly owns an interest in another legal entity and that interest amounts to more than 20%.
The TP rules also establish that, where there is evidence of influence on the economic activities of legal entities or individuals, a court may also declare them to be related persons without applying the 11 formal criteria.Controlled transactions
The TP rules specify the following two kinds of controlled transactions:
Cross-border controlled transactions
- Controlled transactions between related persons and
- Cross-border controlled transactions.
include transactions between:
- Related persons (without restrictions)
- Unrelated persons:
- Involved in foreign trade in globally traded commodities falling in one or more of the following commodity groups: Non-ferrous metals, Precious metals, Mineral fertilisers, Hydrocarbons and petroleum products and Cotton fibre and cotton yarn.
- One of which is located in an offshore jurisdiction.
Controlled transactions between related persons
that do not fall within the category of cross-border transactions include transactions between tax residents of Uzbekistan
where at one of the following conditions is met:
- Income from transactions (the sum of transaction prices) for the calendar year exceeds 5 billion soms; Income from transactions for the calendar year exceeds 500 million soms and one party to the transaction:
- applies a special tax regime or is a participant in a special economic zone, while the other parties to the transaction include a person that does not apply special tax regimes; or
- is exempt from paying profits tax or applies a reduced tax rate or other tax reliefs, while the other parties to the transactions include a person that is not exempt from paying that tax and does not apply reliefs; or
- has extracted a tradable item that is a mineral if an ad valorem rate of subsurface use tax is set for that mineral.
A chain or set of transactions involving the sale of goods/services that take place with the involvement (or mediation) of persons not related to the first seller or the last buyer of those goods/services will also be treated as a transaction between related persons if that seller and that buyer are related persons. In such cases, the existence of the third parties
with whose involvement (mediation) that chain or set of transactions takes place is disregarded.
The tax authorities may also apply to a court for a transaction to be declared controlled if there are reasonable grounds to believe that it forms part of a group of similar transactions concluded with the object of preventing the transaction from meeting the criteria of a controlled transaction.TP methods
The TP rules provide for the use of five TP methods which are widely used in international practice.
The TP rules set the following order for the use of TP methods (a combination of the methods is also admissible):
- The comparable uncontrolled price (CUP) method;
- The resale price method;
- The cost plus method;
- The comparable profits method; and
- The profit split method.
The CUP method has priority. If the CUP method cannot be used or using it would not enable a reasonable conclusion to be drawn about whether or not a controlled transaction is priced at market level, it is necessary to use whichever of the 5 methods best enables a reasonable conclusion to be drawn about whether or not the transaction price is consistent with market prices.Market price / profit margin range
The market price / profit margin range is calculated using a statistical approach similar to the approach used in most OECD countries.
At least one comparable transaction is needed when using the CUP method to determine the market price range, while there should ideally be at least four comparable organisations when using the resale price, cost plus and comparable profits methods to determine the market profit margin range.
Where fewer than four comparable organisations are available, it is permissible to widen the search boundaries for the identification of functionally comparable companies. In addition, the ownership interest threshold may be raised from 25% to 50% in order to facilitate the search for further comparable companies.
Where the price of a controlled transaction is below the lowest value or above the highest value of prices / profit margins, that price will be deemed not within the market range. In this case a price equal to the average value of the market price / profit market range
will be taken for taxation purposes.
It is also possible to make adjustments to profit margin figures to take account of differences in levels of receivables, payables and inventories between comparable companies and the taxpayer.
Taxpayers have the right to adjust their tax obligations independently where prices used in a controlled transaction differed from market prices. Making this adjustment must not cause the amount of tax payable to the budget to be reduced or the amount of losses to be increased.
However, the TP rules do not allow taxpayers to adjust prices or mark-ups themselves where the taxpayer’s profit margin is found to be outside the market profit margin range. This may prove a significant limitation for taxpayers that use the comparable profits or resale price methods and may result in double taxation for those multinational companies that would be forced to make such adjustments in other jurisdictions.Information sources
Both tax authorities and taxpayers must use only publicly accessible information sources in assessing whether transactions are priced at market level.
Information constituting tax secrets and other information that is restricted from disclosure in accordance with Uzbek law (other than information about the taxpayer being inspected) cannot be used in assessing whether prices are at market level.
The following information sources may be used for these purposes:
- Information on prices and quotations on exchanges of the Republic of Uzbekistan and foreign exchanges;
- Customs statistics relating to the foreign trade of the Republic of Uzbekistan which is published or presented upon request by the State Customs Committee of the Republic Uzbekistan;
- Information on prices and exchange quotations obtained from the following information sources: Authorised bodies, Official information sources of foreign states or international organisations or Published and/or publicly accessible information sources and information systems.
- Data published by price reporting agencies;
- Information on transactions concluded by the taxpayer.
If the above information is unavailable/insufficient, the following information may be used:
- Information on prices (price fluctuation limits) and quotations contained in published and/or publicly accessible information sources and information systems;
- Information obtained from financial and statistical reports of legal entities, including information published in publicly accessible information sources of the Republic of Uzbekistan or foreign states and/or contained in publicly accessible information systems and on official websites of legal entities of the Republic of Uzbekistan and/or foreign legal entities. Data of foreign organisations may be used only if it is not possible to use data of legal entities of the Republic of Uzbekistan.
- Information on the market value of appraised assets as determined as a result of an independent valuation;
- Other information that may be used to determine the market price and profit margin range in accordance with the permitted TP methods.