Since 2014, all cross-border related-party transactions are subject to transfer pricing regulations, notwithstanding their value. Before 2014, transfer pricing rules applied only to major cross-border related-party transactions, that is, transactions deriving income in the amount of RUB 100 million and RUB 80 million in 2012 and 2013, respectively. 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, royalty and licensing, supply and service agreements between Russian companies and their foreign related parties fall under these regulations even if these transactions have a zero value.
These transfer pricing regulations place an extra administrative burden on Russian companies trading with their foreign related companies. Under the new 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. The reports for 2014 are to be filed by May 20, 2015. Tax authorities may also request taxpayers to present the relevant transfer pricing documentation. 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 preparation of the transfer pricing documentation for transactions conducted in 2014.
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 recommend:
- 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
- Prepare transfer pricing documentation for your company
- Prepare and assist with filing reports on controlled transactions
You will find more on transfer pricing in our blog here.
By Anton Kabakov & Artem Usov