YOUR RELIABLE PARTNER

New Regulations To Control Transfer Pricing

A new section to control of

transactions will be in the Tax Code of Russia

since

January 1, 2012

New control mechanism includes:• Rules for determining the controlled transactions

• Methods for determining the income on transactions between related parties

• Tax control procedure

At least one of the parties will reduce or increase the tax base on:

- Corporate income tax

- VAT

- Personal income tax

- Mineral Extraction tax

Transactions are subject to control

when:

What kinds of transactions will be under the tax control?

• Between related parties

• Foreign trade transactions

• Equated to transactions with related parties

• Transactions with offshores

Related partiesNow

• Individuals or companies directly or indirectly own more than 25% of the shares of a company

• One person is subordinated to another ex officio

• Relatives

• Company - in case one person (or legal entity) posseses directly or indirectly more than 25% of shares

• Companies - when the same individuals are 50% of the Board of Directors

• Company and person who has athourity to appoint CEO or not less then 50% of Bord of directors

• Companies in witch CEO or not less of Bord of Directors was appointed by one person

• Company and its CEO• Companies and individuals when share

of direct participation os each previous person in each subsequent one is more than 50%

Before

• Company directly or indirectly owns more than 20% of the shares of another company

• One person is subordinated to another ex officio

• Relatives

Equated to transactions with related parties

Transactions with independent parties, whose role in the execution of the contract is minimal:

– not perform any functions other than resale of goods or services

– do not assume any risks– do not use the assets

Foreign trade transactions:• Transactions with

the global exchange trade commodities:

- Oil and oil products - Ferrous metals- Non-ferrous metals- Chemical fertilizers- Precious metals and

stones

• Transactions with off-shores

Transactions beyond the tax control:

• Transactions between the parties of the same consolidated group

• Transactions between the parties that:

- Registered in one of the Russian regions - Do not have separate divisions in other Russian regions - Do not pay corporate income tax on the territories of other Russian regions;

- Do not have losses for corporate income tax purposes

Transactions between Russian related parties are monitored under the

following conditions:

Since 2014 year• The amount of income of

transactions of both parties is more than RUR 1 billion (2012 - RUR 3 billion; 2013 - RUR 2 billion)

• One of the parties is a payer of Mineral extraction tax , subject of transaction are minerals and the amount of income for the year is more than RUR 60 million

• One of the parties applies the special tax regime and the amount of income for the year is more than RUR 100 million

• One of the parties applies a tax rate of 0% and the amount of income for the year is more than RUR 60 million

• If at least one of the parties is a resident of the Special Economic Zone and the amount of income of transactions for the year is more than RUR 60 million

Transitional provisions

All transactions meeting the criteria are under the control when the amount of income from one person per year exceeds:

- 2012 - RUR 100 million - 2013 – RUR 80 million

The amount of income of transactions for the year is determined by adding the amounts of income received by the parties

Transactions made in calendar year

Date of the contract - NO

Date of recognition of income and expenses - YES

Since 2012

Control over transfer pricing will be a separate type

of tax audit

The main differences of tax audit

Controlled transactions

- is carried out by the Federal Tax Serviceonly- subject of audit is controlled transactionsonly

- repeated audit is prohibited

Conventional audit

- usually is carried out by territorial tax body

- subject of audit is taxation of current activity

- repeated audit is possible

Period of tax audit

No more than 3 years

Methods for determining the compliance of costs of transactions

with market prices

• method of comparable market prices• method of follow-up of prices• cost method• method of comparable cost-effectiveness• method of distribution of profits

Consequences of identification

of non-market pricesOne side of the

transaction

Additional charge of tax

The other side of the

transaction

  Adjustment of Tax Base

Thank you for attention!

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