Pursuant to title V.1 of the Tax Code of the Russian Federation (the “Tax Code”) the monitoring of whether prices applied in controlled transactions comply with market prices should not be the subject of field and office audits.

At the same time the Ministry of Finance of the Russian Federation (the “Ministry”) clarified in a letter dated 27 December 2012 that, if during a field or office tax audit of interdependent persons, tax authorities discover an under statement of the tax base due to the manipulation of prices in transactions which are not regarded as controlled, the tax authorities are entitled to apply the principles of income determination established by article 105.3 of the Tax Code.

Therefore, taxpayers who conclude transactions with interdependent persons which are not regarded as controlled transactions, the tax base of which is computed in accordance with article 105.3 of the Tax Code and the respective chapter of part two of the Tax Code, must be prepared to face possible additional charges on the part of the tax authorities. This possibility is likely if taxpayers themselves fail to prove that the prices used in transactions comply with market prices.

[Letter No. 03−02−07/1−316 of the Ministry of Finance of the Russian Federation, dated 26 December 2012]