Securities, deferred settlement and derivatives transactions
Transactions involving securities and derivatives traded
on the organised securities market are not required to be reported in TP documentation. A taxpayer may submit TP documentation for such transactions on a voluntary basis.
As noted above, the Uzbek Tax Code provides that where the Special Part of the Code establishes different rules for determining the price of a transaction, the rules of the Special Part of the Code will apply. In particular, it is on the basis of those rules that the prices of controlled transactions involving over-the-counter ("OTC") securities
(such as shares, bonds, promissory notes, etc.) and derivatives
(such as OTC options, swaps, forwards, and others) must be analysed.
According to Articles 327 and 328 of the Uzbek Tax Code, transactions involving OTC securities and derivatives are deemed to be priced at arm’s length if the transaction price is no more than 20% above or below the reference price
of a security and the reference value
of a derivative.
The procedure for determining the reference prices and values of OTC securities and derivatives is in turn established by the authorised body for the securities market in consultation with the Ministry of Finance of the Republic of Uzbekistan.
In practice, reference prices and values of derivatives can normally be determined using standard calculation models devised by the price reporting agencies Refinitiv Eikon or Bloomberg.
Reference prices of securities may also be determined in one of the following ways — for example, as prices calculated:
- Based on the prices of a security prevailing on the securities market, for example as a composite purchase price for an OTC security (Refinitiv Eikon Composite bid) or as the average closing price (Bloomberg generic Mid/last);
- According to the rules laid down in national legislation, for example with the aid of formulae for determining the reference price of a bond or promissory note;
- As appraised values of securities determined by an independent appraiser.
Deferred settlement transactions (such as FX TOD, TOM and Spot and FX swaps), on the other hand, may be analyzed using standard TP methods such as the CUP method since such transactions are not governed by the provisions of the Special Part of the Uzbek Tax Code.
To establish whether deferred settlement transactions are priced at arm’s length, it is possible to use publicly accessible data published by the Currency Exchange
of the Republic of Uzbekistan or, if this is not available, quotes of participants in over-the-countertrading. For example, such data may include information on quotes for TOD or TOM exchange transactions for various currency pairs and FX swaps.The banking sector
Participants in the banking sector typically engage in transactions of the types described above and also transactions such as interbank credits and deposits, repos, and others.
As a rule, the arm’s length compliance of controlled transactions in which banking sector companies are involved is analysed by applying the standard TP rules and the provisions of the Special Part of the Uzbek Tax Code for transactions involving derivatives and securities. When analysing controlled derivatives and deferred settlement transactions, banks may in practice come up against the need to determine the market price level for transactions which may number in the hundreds of thousands, and in this case it is necessary to use automated solutions for determining market price ranges to save time on manually analysing each individual transaction.
For complex transactions that entail the highly integrated involvement and interaction of two or more related entities of banking groups in the provision of services and the sale of banking products to independent clients in Uzbekistan (such as mergers and acquisitions, brokerage services, transactions on equity and debt capital markets, trading in financial instruments), it may be most appropriate to use the Profit split method
. It is common for banks to conclude advance pricing agreements (APAs) with the tax authorities in relation to such transactions.The insurance market
The TP rules do not contain special provisions regarding controlled insurance and reinsurance transactions. It follows that the standard TP methods or a combination thereof may be used to analyse such transactions.
Insurance and reinsurance transactions may, for instance, be analysed using the CUP method or the Comparable profits method under the general provisions of the TP rules. For example, to determine whether the ceding commission is at arm’s length in reinsurance transactions, the cedent’s return on costs may be determined and then compared with the arm’s length range of of return on costs for companies that perform comparable functions.