We would like to remind you that all Russian companies which performed controlled transactions in the 2023 calendar year must notify the tax authorities by submitting transfer pricing reports by May 20, 2024. Starting from June 1, 2024, tax authorities may request companies to provide the relevant transfer pricing documentation that confirms the transfer prices used in controlled transactions in the previous year.

New Value for Recognizing Transactions as Controlled

Starting from 2022 transactions are recognized as controlled for volumes over 120 million rubles (previously 60 million rubles). The new threshold applies to transactions where the income and (or) expenses are recognized for profit tax purposes irrespective of the date of conclusion of such transactions (Letter of the Federal Tax Service of Russia No. Schu-4-13/6548@ of May 27, 2022).

We remind that controlled transactions include the following cases:

• Transactions with Russian subsidiaries and other related companies in Russia (see p.2 of article 105.14 of the Russian Tax Code) when the annual income is more than 1 billion rubles. For example, transactions with organizations that apply a zero profit tax rate or payers of the unified agricultural tax.
• Transactions with a related-party non-resident or an offshore company if the annual income under the transaction exceeds 120 million rubles.
• Transactions for import and export of certain types of goods with an annual income of more than 120 million rubles (Letter of the Ministry of Finance from 19.02.2019 N 03-12-11/1/10545).

Despite the increase in the price threshold and the exclusion of some transactions from the list of controlled transactions, these transactions may be checked by territorial tax inspectorates as part of price control under Article 54.1 of the Tax Code. Therefore, we recommend that the price of intra-group transactions be analyzed to determine whether it is in line with the market level.

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 the previous year.

Fines

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).

Our recommendations

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.

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