Amending the deadline for notifications to be filed and audits to be conducted
Article 4 (transitional provisions) of Federal Law No. 227-FZ dated 18 July 2011 “On amending specific items of the legislation of the Russian Federation in connection with improving the principles of determining prices for tax purposes” has been supplemented with a clause 8.1 which reads as follows: “8.1. A taxpayer shall submit a notification of controlled transactions, income and/or expenses in relation to which is booked in accordance with article 25 of the Tax Code in 2012, to the tax authority where such taxpayer is located (resident) no later than 20 November 2013.”
Thus, taxpayers should file notifications in accordance with article 105.16 of the Tax Code not by 20 May but by 20 November 2013.
The date from which tax authorities will be entitled to request supporting documents under article 105.515 of the Tax Code has also been put back by 6 months, to 1 December 2013.
Accordingly, the deadline by which the tax authority must take a decision to conduct a tax audit has been put back to 30 June 2014.
Putting back the deadlines in this way is to the advantage of both taxpayers and the tax agency, since it allows them to be better prepared to supply and to process what in principle is new information.
There is currently a heated discussion regarding the fact that the notification form and the requirements for completing it do not comply with the provisions of article 105.16 of the Tax Code. The tax authority has significantly broadened the scope of the information that a taxpayer must state in its notification. This causes objective difficulties when the notification is filled in. Among the options being examined for improving the procedure for completing the notification is to make it possible for non-material transactions to be notified in aggregate.
Exempting a range of transactions from pricing control
Article 4 (transitional provisions) of Federal Law No. 227-FZ dated 18 July 2011 has been supplemented with a clause 5.1 which reads as follows: “5.1. The provisions of the first and second parts of the Tax Code of the Russian Federation (as amended by this Federal Law) shall not apply to transactions entered into before the date of this Federal Law if such transactions involve a loan, credit (including trade and commercial credits), sureties or bank guarantees being granted, income and/or expenses in relation to which is/are booked in accordance with article 25 of the Tax Code after this Federal Law comes into force, with the exception of transactions whose terms and conditions have been amended after this Federal Law came into force.”
This provision has effect in relation to legal relationships that arise after 1 January 2012.
Thus, transactions entered into before 1 January 2012 which involved the grant of a loan (including for zero interest or low interest), credit, surety or bank guarantee are exempted from tax control over transfer pricing as long as the terms and conditions of such transactions have not been amended after 1 January 2012.
Other amendments in control over transfer pricing
On 11 March 2013, the Russian Justice Ministry registered the Russian Federal Tax Service’s Order No. MMV-7-13/907@ dated 26 November 2012. This has approved the form of documents to be applied when the an audit is carried out and when the results of an audit are documented in relation to whether taxes have been calculated and paid in full for transactions completed between related parties. It has also set out requirements for compiling the audit report and extending the deadline for an audit to be held.
Under article 105.17(4) of the Tax Code, an audit must be held within six months at the most. In exceptional circumstances, that period may be extended to twelve months. The order provides that the grounds for extending to twelve months the deadline for an audit to be held are:
- the audit is conducted in relation to a company that has been placed in the category of major taxpayers in accordance with article 83 of the Tax Code;
- force majeure circumstances have occurred at the place where the audit is being conducted (flooding, fire and so on);
- the taxpayer has not, within the timeframe set in article 105.17(6) of the Tax Code, supplied the documents that are necessary for the audit to be conducted.
A decision to extend the deadline for an audit to be held is to be taken by the head (or deputy head) of the Federal Tax Service.
Under article 105.17(4) of the Tax Code, the grounds and procedure for extending the deadline for an audit to be held are set by the Federal Tax Service. Thus, companies need to take note of the grounds for an extension that are laid down in the Order. These mean that for practically all major taxpayers, a transfer pricing audit may last for up to a year and more.
It should be borne in mind that the Order is not in line with the provisions of article 105.17(6) of the Tax Code, which sets a timeframe for supplying documentation of 30 days from the day when the relevant demand is received. It does not refer to documents necessary for the audit to be carried out.
It is also worth noting that article 83 of the Tax Code establishes that the Russian Finance Ministry may determine the specifics according to which the tax authority performs accounting in relation to major taxpayers. However, this provision is silent as to which organisations should be placed in the category of major taxpayers.