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Grave Amendments To Russian Transfer Pricing Rules
There have been recent amendments to the Russian Tax Code with regard to transfer pricing rules. Such amendments are due to come into force on 1 January 2012. The Russian Federal Tax Authority has already created a new department of transfer pricing and international cooperation. Staff of this department will be drawn not only from public officials, but also from private businesses. Taxand Russia looks at the impact the new tax rules will have on companies doing business in Russia.
After the Law comes into force, the Russian tax authority should control:
- transactions between affiliated entities
- foreign trade transactions involving commodities traded on a global exchange markets
- transactions between entities, if one of these entities lives or is registered in countries (territories) mentioned in "black list" of Russian Financial Ministry (off-shore territories, which can be used unlawfully to optimise a party's tax position)
- transactions involving specific entities or facilities which can be used unlawfully to optimise a party's tax position (for example, transactions involving entities which benefit from special tax treatment; those involving off-shore companies, etc.).
After 1 January 2012, the Russian tax authority will not control:
- barter transactions
- transactions with a price differing from the market price by more than 20% (this provision has been a significant issue for many taxpayers doing business in Russia).
At the same time, the transactions of domestic affiliated entities are controlled when their volume exceeds: 3 billion RUB a year in 2012; 2 billion RUB a year in 2013; and 1 billion RUB a year in 2014 and in subsequent years.
The Law provides new methods for determining market price. From 2013 the Russian tax authority will be able to use 3 old methods and 2 new methods:
- identical or similar goods method
- re-sale price method
- ?ost-plus method
- comparable profitability method (new)
- distribution of profits method (new).
The procedure for exchanging information is also going to change. Taxpayers should inform the tax authority about every transaction that is subject to control. Documents relating to such transactions should be given after 20 May in the year after the year of the transaction. These documents will be used in a desk tax audit, which can last for 6 months (usually a desk tax audit in Russia lasts for 3 months, though this can be extended). In case of disclosing some violations of the law the tax authority draws up an act and the taxpayer has 20 workdays to reply (usually a taxpayer has only 10 workdays to reply to an tax audit act).
According to the Law, so-called major taxpayers (ie those which have been recognised as such under the relevant legislation) may conclude an agreement with the tax authorities laying down the conditions for assessing prices and selecting the methods to be used in transfer pricing.
Where one party to a transaction is assessed to additional tax, the Law requires the tax authority to make the corresponding correction in relation to the other party to the transaction. Such correction should be made under the notification of the tax office, without correcting tax records and accounting source documents.
The Law also sets out new principles in relation to the tax authority obtaining information for market prices determination.
Such amendments are very important for every taxpayer doing business in Russia. The Law is very complex, so we expect many issues to arise in practice regarding price formation. For now, our advice to every taxpayer is to check its pricing policy and make any necessary changes to ensure that it complies with the new rules.
Your Taxand contacts for further queries are:
T. +7 495 967 00 07
T. +7 495 967 00 07
T. +7 495 967 00 07