On 7 and 8
July, a bill setting new transfer pricing rules in
Since the first reading on 19 February 2010, the bill has been updated by the Russian Ministry of Finance and the State Duma Committee on Budget and Taxes after adopting certain proposed amendments.
Key points
Compared to the current Russian transfer pricing rules, the new ones appear to be more technically elaborate and, to a certain extent, better aligned with the international transfer pricing principles developed by the Organisation for Economic Cooperation and Development (OECD).
The main changes are as follows:
- Significant reduction of the list of transactions where the Russian tax authorities may control prices for tax purposes;
- Expansion of the list of related parties;
- Burden of proof that prices of controlled transactions do not correspond to the market will rest with the Russian tax authorities;
- Introduction of the arm's length principle as the fundamental principle of Russian transfer pricing rules;
- Abolishment of the "safe harbour" provision (the 20% fluctuation of controlled transaction prices from market prices that is currently allowed);
- Expansion of the list of sources of information for determining market prices;
- Formally introducing a functional analysis as one of the comparability factors;
- Introduction of new methods for determining market prices, i.e. transactional net margin and profit split methods;
- Introduction of reporting and transfer pricing documentation requirements;
- Introduction of special transfer pricing audits to be performed by the Federal Tax Service;
- Introduction of penalties for non-compliance with reporting and transfer pricing documentation requirements. However, for the transitional period of 2012-2013, no penalties can be assessed in case of transfer pricing adjustments; and
- Introduction of unilateral and multilateral Advance Pricing Agreements (APAs) for Russian companies registered as "largest" taxpayers.
According to the bill, it is due to come into effect on 1 January 2012. The introduction of new transfer pricing rules will require that companies doing business in Russia analyse and tailor their tranfer pricing policies to comply with the new rules. Since preparing for new legislation is likely to be time-consuming, we recommend that taxpayers begin doing so well before 1 January 2012.
This article has been prepared by specialists of ABLV Corporate Services based on mass media publications. Specialists of ABLV Corporate Services provide legal and tax advise, including advise on international tax planning, establishment of holdings, trade, investment, and protection structures, purchase of real estate and other assets, as well as advise on change of residence and acquirement of residence permits. More detailed information on services provided by ABLV Corporate Services can be found at http://www.ablv.com/ru/services/advisory