New Russian tranfer rules - AllIURIS

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INTRODUCTION Starting from the January 01, 2012 after a long period of debates new transfer pricing rules shall finally come into force in Russia. Thus, a step forward will be taken to adjust the Russian tax legislation to the OECD Transfer Pricing Guidelines and international transfer pricing principles. Generally, Russian and foreign businesses are expected to gain more transparency and clarity. The key changes include a new definition of related parties which has been precised as well as new regulations on controlled transactions and pricing control by the Russian tax authorities based on comparison with the market level and profitability of related parties’ transactions. RELATED PARTIES The parties are deemed to be related: if one party directly or indirectly participates at least 25% in another (previously – 20%), or if one party to transaction is entitled to appoint more than 50% of the board of directors of another party, etc. The notion of related parties shall apply not only to the enterprises incorporated in accordance with the Corporate Law, though. Such relation may result, as earlier, from other circumstances i.e. family ties or kinship connections. From now on there will be eleven criteria for that instead of only three as previously. Such relation may also be established by court based on other grounds. Of novelty is that in the cases not specified by law enterprises may declare themselves as related under certain circumstances. CONTROLLED TRANSACTIONS According to the new transfer pricing rules the tax authorities’ control shall apply to the controlled transactions which are the transactions between the related parties and specific transactions between entities which are not considered as related. Specifically enumerated are the following transactions: cross-border transactions between related parties; cross-border transactions dealing with the exchange-traded goods on the condition that the transaction revenue with one entity 2
exceeds RUB 60 million annually; transactions with the entities based in the jurisdictions “blacklisted” by the Russian Ministry of Finance (offshores) if the revenue from the transactions with one entity exceeds RUB 60 million annually; transactions between related parties on the Russian domestic market inasmuch as their proceeds in 2012 exceed RUB 3 billion (as from 2013 RUB 2 billion, as from 2014 RUB 1 billion); transactions between related parties which are conducted through intermediates whereby the latter run no risks, assume no extra functions and use no property; other transactions between related parties on the Russian domestic market with annual revenue from such transactions from RUB 60 million, particularly, if one of the parties to the transaction is exempted from the profits tax. Excluded from this general rule, however, are particularly the transactions: whereby the contracting parties constitute the consolidated group of taxpayers, or which parties are Russian enterprises registered in the same federal subject of the Russian Federation having no separate subdivision in other federal subjects of Russia or outside Russia and having no losses for tax purposes. TRANSFER PRICING METHODS The TP methods have been extended up to five: comparable uncontrolled price method; resale minus method; cost plus method; transactional net margin method; and profit split method. Application of the comparable uncontrolled price method shall prevail. The tax authorities may also apply a combination of two or more methods. If the market level price with regard to a certain transaction on the basis of the above methods could not be determined then an independent appraisal may take place. There has been retained the presumption of the “arm-length” price 3
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Page 5 and 6: significant penalties may be impose

New Russian tranfer rules - AllIURIS

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