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New Russian transfer pricing law passed in first reading


On 19 February 2010 the Russian parliament passed the first reading of a new law on transfer pricing. It is expected that the draft law will be passed in the second and third (final) readings without principal changes in June to enter in force as of 2011.

As a result, the two articles containing rules on the current transfer pricing will be replaced with a new chapter on transfer pricing. This chapter will provide much more detail on the rules and procedures.

The fundamental amendment is the effective shifting of burden of proof of justification of prices in transactions from tax authorities to taxpayers. The other important amendments are changes in definitions of related parties and transactions, introduction of profit based transfer pricing methods (e.g. comparable profitability method) and the possibility of concluding advance pricing agreements. Taxand Russia reviews the new Russian transfer pricing law and elements which have changed.

Disclosure requirements
The new laws establishes a requirement to notify tax authorities on all controlled transactions if the volume of transactions exceeds RUR 100,000 million a year, which is approximately equivalent of USD 3 million. As of 2016 this threshold is going to be lowered to RUR 10,000.

Controlled transactions
Intra-Russian transactions fall under transfer pricing control rules if the volume of transactions between related parties exceeds RUR 1 billion a year.

Foreign trade transactions will be regarded as controlled transactions if they involve trade in crude oil, metals and/or transactions with companies resident in blacklisted jurisdictions.

Advance pricing agreement
The draft law contains a set of rules related to concluding Advance Pricing Agreements. At present the Russian law does not offer the opportunity to conclude such agreements.

Corresponding adjustments
The draft law contains rules on corresponding adjustments in transactions between resident taxpayers. It must be noted that there are no specific rules on corresponding adjustments in cross-border cases.

Fiscal unity
Although the transfer pricing draft law does not contain rules on fiscal unity, it is expected that a draft law on fiscal unity will be passed before 2011. Transfer pricing rules regarding controlled transactions and documentation requirements will not apply to transactions within the fiscal unity. At present many operational enterprises held directly by foreign holdings do not qualify for fiscal consolidation rules. To qualify for fiscal unity means these operational assets may need to be structured through a Russian sub-holding.

Taxand's Take

Taxand recommends for businesses that currently have trading and holding structures in Russia to analyse how the new law will affect structures and transactions as soon as the new law would be introduced in June 2010.

Your Taxand contacts for further queries are:
Andrey Tereschenko
T. +7 495 967 00 07

Roustam Vakhitov
T. +7 495 967 00 07

Reviewing TP? Get your Taxand / IBFD Global Guide to Transfer Pricing here.

Taxand's Take Author