On 27 November 2017 the country’s parliament adopted a new law on transfer pricing issues in Russia in connection with the implementation of international exchange of information and documentation on international groups of companies. It took effect on the day of its publication and applies to fiscal years starting in 2017.
Russian transfer pricing legislation is essentially based on OECD principles, with certain important deviations. The key deviations are as follows:
- Ownership criterion regarding the definition of subsidiaries: more than 25% (direct or indirect) in Russia and more than 50% according to OECD common requirements.
- Benchmarking studies: rules for the benchmarking analysis are similar to the OECD recommendations but have some differences (for example, loss-making companies and companies with negative net assets are not admissible for comparability purposes).
- Information Sources: in Russia two-tier hierarchy is provided. Official information sources of authorized state authorities – price agencies and Official publications.
- Intra-group services: there is no simplified approach such as, for example, a 5% mark-up for low value-added intra-group services. It is necessary to conduct a full analysis on these types of transactions.
- Transactions with intangible assets: there is no special guidance on these types of transactions.
- Safe harbours: according to Article 269 of the Russian Tax Code there is a price range for interest expenses for different currencies.
- Advance Pricing Agreements (APAs): available only to high taxpayers. Not available for permanent establishments.
- Downward adjustments: only valid if you increase the tax base.
Three-tier documentation: a new element of transfer pricing in Russia
On 27 November 2017, the Russian State Duma adopted a new law (Federal Law No. 340-FZ) that requires the provision of three-tier transfer pricing documentation and also introduces provisions on the automatic exchange of CbCRs. The law came in force on the day of its publication on the official website of legal information. The periods starting from 1 January 2017 are subject to the new law, but the previous tax law rules for preparation of reports on controlled transactions and transfer pricing documentation remain in force.
According to this law, organisations that are members of MNEs with a consolidated revenue of over 50 billion roubles (approx. EUR 700 million) should provide for three-tier reporting to tax authorities (Country-by-Country Reports (CbCR), global and national documentation). Tax authorities automatically exchange the CbC Reports of such MNEs.
In accordance with such requirements, the three-tier documentation is in line with the OECD approach. But the submission of such documentation does not exclude the obligation of the taxpayer to prepare national transfer pricing documentation in accordance with local requirements. In addition, taxpayers who are members of the MNE are required to submit the notification of participation in the MNE to the tax authority.
Automatic exchange of CbCRs
Also, the new law provides for the rules of participation of a foreign tax authority, if it is stipulated by an international Treaty of the Russian Federation, in exercising tax control in the Russian Federation (tax audit, tax monitoring), which can be carried out with the participation of such body upon its request in accordance with Russian tax code and the provisions of international treaties of the Russian Federation.
At the same time, the new law provides for the order of automatic exchange of financial information with foreign countries (territories) for tax purposes, specifically the automatic exchange of CbCRs. Terms such as “financial information”, “financial services”, “financial assets” are defined.
The new law on CbC Reporting in Russia also describes the limitations of the use of the information contained in the CbCRs.
If you would like to know more about the transfer pricing and CbC Reporting in Russia, please visit the homepage of Althaus Group, the exclusive representative of WTS Global in Russia.
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