- Sergey Minyailo
- February 13, 2020
We would like to remind you that all Russian companies which performed controlled transactions in the 2019 calendar year must notify the tax authorities by submitting transfer pricing reports by May 20, 2020. Starting from June 1, 2020, tax authorities may request companies to provide the relevant transfer pricing documentation that confirms the transfer prices used in controlled transactions of 2019.
Year after year transfer pricing requirements become stricter for taxpayers. Since 2014, all cross-border related-party transactions are subject to transfer pricing regulations, notwithstanding their value. This means that now these rules affect all international companies conducting transactions with their Russian subsidiaries and other related companies in Russia. In particular, all financing and loan transactions (with few exceptions), royalty and licensing agreements, and supply and service agreements between Russian companies and their foreign related parties fall under these regulations even if these transactions have a zero value.
From 2018, Russian organizations that are part of international groups of companies must annually submit additional documentation to the tax authorities ― the so-called “three-level reporting” on transfer pricing. Read more →
These transfer pricing regulations have placed an extra administrative burden on Russian companies trading with their foreign related companies. Under these rules, when taxpayers have cross-border related-party transactions, they are required to keep so-called transfer pricing documentation and to provide tax authorities with reports on controlled transactions.
Analyzing transactions and preparation of transfer pricing documentation is a necessary precondition for effective preparation and filing of reports to tax authorities. Considering the deadline for filing the reports, it is now the right time to start their preparation, as well as to draft a plan for elaboration (if it has never been developed before), or update transfer pricing documentation for transactions conducted in 2019.
Please note that failing to submit or submitting the controlled transactions report after the deadline, as well as providing reports with inaccurate information, may result in a RUB 5,000 penalty for a legal entity. Furthermore, if the prices applied in controlled transactions do not conform to market prices, tax authorities may add to a taxpayer’s taxable income the revenue that the taxpayer would have earned if correct pricing had been applied (tax adjustments). If a tax check reveals understated taxes for transactions, a company will also face a special penalty, which is 40% of unpaid tax (no less than RUB 30,000).
We will be pleased to provide you with services related to ensuring compliance of your Russian company with the new transfer pricing rules in Russia. We offer:
- Analyzing transactions of your company to find out which of them are subject to transfer pricing rules
- Advising on effective transfer pricing strategy to safeguard your operations from tax risks and to set up a transfer pricing policy to ensure effective cash and goods / services flow within your group
- Preparing transfer pricing documentation for your company
- Preparing and assisting with filing reports on controlled transactions to tax authorities
You will find more on transfer pricing here.