A certain number of key changes have been introduced to the Russian Tax Code (by Federal Law No. 227-FZ dated 18 July 2011 "On Amendments to Certain Legislative Acts of the Russian Federation in Connection with the Improvement of Pricing Principles for Tax Purposes", as amended on 5 April 2013). These changes affect the transfer pricing (“TP”) documentation requirement from 2014 onwards and can be characterised as follows:
- The scope of controlled domestic transactions has been extended.
- Lower thresholds now apply to trigger the TP notification and documentation requirements.
- The period during which the tax authorities can initiate a TP tax audit has been extended.
- Potential tax penalties have been increased.
Detailed information on the amendments becoming effective in the transitional period is provided in the table below:
Click here to view table.
Even if you have already documented and notified your controlled transactions in relation to fiscal year 2012 (and/or are in the process of doing so for 2013), you may have to update and revise your current records (including the economic analysis). You may also be subject to the new notification and documentation requirements for transactions concluded since the beginning of 2014.
If you have not yet established a transfer pricing policy and the respective supporting documentation (Country file), but will be engaged in TP controlled transactions for 2014, we recommend undertaking the following actions in the course of the year in order to have sufficient time to implement and anticipate potential key changes to be made to your operating model:
- analysing the potential scope of transactions subject to TP control and making a preliminary estimate of the additional related efforts and workload in terms of documentation requirements (checking if you have a Master file at group level, whether any benchmarking analysis has been performed within the group, etc.); and
- analysing the TP approaches and key contract terms of transactions that have or will be entered into with your foreign and/or domestic counterparts as controlled transactions to anticipate potential price adjustments that may be required and their consequences from business, tax (profits tax, VAT) and customs perspectives.
Practically speaking, since updated financial data on comparable transactions of a particular financial year is usually available in the course of the current year, it might be worth first performing a search of comparable transactions before the 2014 year-end (with a post-financial year closing search update) so that your company has sufficient time to introduce potential financial adjustments before the deadline for submission of financial statements (i.e. by 31 March 2015) and tax returns (by 28 March 2015 for the annual corporate income tax return).