On 28 August 2012, the Ministry of Finance of the Russian Federation (the “Ministry”) indicated that, when related parties enter into debt instruments, the interest on such instruments must be calculated based on market rates which are determined by application of article 105.3 the Tax Code of the Russian Federation (the “Code”).

It is worth reiterating that under article 105.3, amounts received by a taxpayer may be considered taxable even though they were not obtained on commercial or financial terms, which differ from those applicable to a transaction between non-related parties. The Ministry has thereby clarified that the Code (article 269) does not stipulate the rules for determining the price of goods (works and services) for taxation purposes, the price must be calculated based on market rates.

Accordingly, the Ministry has once again indicated that it believes that excessively low interest rates

(or lack thereof) between related parties may be challenged under the regulations on transfer pricing. In addition, article 269 still stipulates the maximum interest rate that may be considered an expense.

[Letter No. 03−01−18/6−111 of the Ministry of Finance of the Russian Federation, dated 28 August 2012]