Entities and transactions affected
Determining market price
Exchange of information

On July 22 2011 Federal Law 27-FZ was officially published, setting out extensive amendments to the Tax Code with regard to transfer pricing. The amendments are due to come into force on January 1 2012 and the Federal Tax Authority has already created a new Department of Transfer Pricing and International Cooperation. The department's staff will not be drawn only from the civil service, but also from the private sector.

Entities and transactions affected

Once the law comes into force, the tax authorities will monitor and control transactions between affiliated entities if:

  • the sum of their transactions is greater than Rb1 billion a year;
  • one of the affiliated entities is involved in the extractive industries;
  • one of the affiliated entities benefits from a form of special tax treatment (eg, unified tax on imputed income, unified agricultural tax or residency in a Russian special economic zone), but the other does not; or
  • at least one of the affiliated entities does not pay corporate income tax or applies a 0% corporate income tax rate.

The definition of 'affiliate' has also been significantly extended.

The authorities will additionally monitor and control:

  • foreign trade transactions involving commodities traded on global exchange markets;
  • transactions involving an entity that is resident or registered in a country or territory on the Finance Ministry's blacklist (ie, an offshore jurisdiction that allows a party unlawfully to optimise its tax position); and
  • transactions involving specific entities or facilities which can be used unlawfully to optimise a party's tax position (eg, transactions involving offshore companies or entities which benefit from special tax treatment).

After January 1 2012, the authorities will not control barter transactions or transactions for a price that differs by more than 20% from the market price. The latter provision addresses a significant issue for many taxpayers doing business in Russia.

The transactions of domestic affiliated entities will be subject to monitoring and control if their value exceeds Rb3 billion a year in 2012, Rb2 billion in 2013 or Rb1 billion a year in 2014 and in subsequent years.

Determining market price

The law provides for new methods of determining market price. As well as the three existing methods - the 'identical or similar goods' method, the resale price method and the сost-plus method - from 2013 the authorities will be able to use two new methods: the comparable profitability method and the distribution of profits method.

Exchange of information

The procedure for exchanging information will also change. Taxpayers will be required to inform the authorities about every transaction that is subject to control. Documents relating to such transactions must be submitted after May 20 of the year following that of the transaction. These documents will be used for a desk tax audit that may take up to six months - usually, a desk tax audit takes three months, although this can be extended. If violations are disclosed, the tax authority will draw up an act to which the taxpayer will have 20 working days to reply (instead of the usual 10 working days).

Taxpayers which have been identified as 'major taxpayers' for the purposes of the relevant legislation may conclude an agreement with the tax authorities that sets out the conditions for assessing prices and choosing the methods to be applied to transfer pricing.

Where a party to a transaction is assessed for additional tax, the law requires the authorities to make the corresponding amendment in relation to the other party. This must be done pursuant to notification of the tax office, without correcting tax records or accounting source documents.

The law also sets out new principles to determine how the authorities may obtain information for market price determinations.


The amendments are likely to prove crucial to every taxpayer that does business in Russia. The law is complex and many specific issues may arise in practice. For now, taxpayers would be well advised to check their pricing policy and make necessary changes to ensure that it complies with the new rules.

For further information on this topic please contact Andrey Tereschenko, Valentina Akimova or Ivan Zelenin at Pepeliaev Group by telephone (+7 495 967 0007), fax (+7 495 967 0008) or email ([email protected], [email protected] or [email protected]).