Russian Transfer Pricing

2014 Update Anton Kabakov

Partner

Hellevig, Klein & Usov Llc

20.05.2014

• Tax authorities rely on TP Rules to fight capital

outflow

• 4,600 notifications in 2012. Much or too little?

• Head of Tax Service: approx. 300 reported

transactions raised suspicion

• Filling in gaps in TP regulations?

TP First results

• All related-party cross-border transactions are now subject to transfer pricing rules. NO EXCEPTIONS.

• More administrative burden: documentation and reporting obligations.

• Transfer pricing audits. Deadline for initiating audits for 2012 is June 30, 2014. First audits are expected shortly

More control

Reporting

• To be filed by May 20 of the year following the

reporting year

• Requires a lot of efforts to collect the required

information. The content of TP report is under

Supreme Commercial Court consideration with

a view to decrease the volume of information

to be reported

Reporting. Content

AS PER TAX CODE ADDITIONAL TAX SERVICE REQUIREMENTS

• Year of transactions • Subject of transactions • Basic information about the parties to

transactions • Revenue derived from or losses incurred

under such transactions

• Grounds for qualifying transactions controlled transactions

• Delivery terms and measurement units • Country of origin of goods • Place of transaction and shipment of goods • Product unit price and quantity • Additional information about the parties to

transactions • Transfer pricing methods (Optional) • Information sources used for benchmarking

(Optional)

Price control

• Controlled transactions? Of course!

• If a transaction is not subject to TP rules

(uncontrolled), is there any price control?

Ministry of Finance: Yes, under general tax

anti-avoidance rule.

Intragroup financing

• NOW: 3 sets of regulations • Transfer pricing rules plus

• Thin capitalization rule plus

• General deductibility rate rule

• PLANNED: Thin capitalization rule plus

transfer pricing if interest rates are above set safe harbors only

• FROM 2015: Thin capitalization rule plus

transfer pricing (TP safe harbors are set for

financing transactions with banks)

Intragroup financing

• Are interest free loans now allowed? Not really, but they are no longer absolutely prohibited.

• TP reporting and documentation requirements are waived for loans, credits, sureties, bank guarantees concluded before 2012, unless revised after 2012

How can companies protect

themselves? If tax authorities contest

the price and charge additional taxes

• Late payment interest (1/300 of refinancing rate (8.25%))

• Penalty 20% of unpaid taxes in 2014-2017

• Penalty 40% of unpaid taxes from 2017 onwards

What can be done?

• Transfer pricing self-adjustment + payment additional tax prior to TP audit

• Provide tax authorities with transfer pricing documentation

Thank you

Anton Kabakov

Partner at Hellevig, Klein & Usov Llc

anton.kabakov@awaragroup.com

+7 921 39 711 93

The content of this presentation cannot substitute legal counseling, which, to be

duly rendered, always requires actual and specific knowledge of the client’s

particular situation.