When does an amended notification on controlled transactions not entail a transfer pricing audit?

9 August 2023
Tax Messenger
Judicial practice

On 14 July 2023, the Constitutional Court of the Russian Federation published Ruling No. 41-P (the "‎Ruling of the Russian Constitutional Court") in a case challenging the constitutionality of the first paragraph of clause 2 of Article 105.17 of the Tax Code of the Russian Federation (the "‎Russian Tax Code")[1] in connection with a claim filed by Vimpel-Communications PJSC ("‎VimpelCom").

Having considered VimpelCom’s claim, the Russian Constitutional Court ruled as follows:

1. The first paragraph of clause 2 of Article 105.17 of the Russian Tax Code is unconstitutional for the following reason:

  • The current version of the paragraph is interpreted in line with current law enforcement practice and allows the Russian Federal Tax Service to initiate a transfer pricing audit within a period beginning on the date when an amended notification is received in cases where the original notification contained information on a controlled transaction and the tax authority’s decision does not establish that the new information on this transaction or other transactions in the amended notification is significant for the purposes of deciding whether to perform a transfer pricing audit.

2. Federal legislators are to amend regulations accordingly, ensuring that:

  • The periods for initiating a transfer pricing audit are differentiated, depending on whether an original or amended notification is received, including taking into account whether an amended notification is received before or after the expiration of the two-year period following the date on which the original notification is received

3. Before legislative amendments are made, the period for initiating a transfer pricing audit of controlled transaction in case an amended notification is received should be calculated from the date on which the tax authority receives:

  • The amended notification if it provides information on the transaction for the first time or contains significant changes in the information provided in the original notification
  • The original notification if changes made do not prevent the identification of controlled transactions
As a reminder, under clause 3 of Article 105.16 of the Russian Tax Code, data on controlled transactions reflected in the notification must include:

1. The calendar year for which the taxpayer provides information on its controlled transactions
2. The subject of the transactions
3. The parties to the transactions
4. Income received and/or expenses/losses incurred

Thus, the Russian Constitutional Court actually agreed with the position[2] previously taken by the Supreme Court of the Russian Federation (the "‎Russian Supreme Court") and confirmed the unacceptability of a formal approach to issues related to the provision and review of notifications, including the assessment of the materiality of information included in notifications.


VimpelCom brought an action to challenge the Russian Federal Tax Service’s decision to perform a transfer pricing audit later than two years after the date on which the original notification was received. Courts of all instances[3],[4],[5] supported the position of the Russian Federal Tax Service. The Russian Supreme Court[6], in its turn, declined to refer a cassation appeal to its Judicial Board for Economic Disputes.
On 29 December 2020, the Russian Federal Tax Service decided to perform a transfer pricing audit of controlled transactions conducted between VimpelCom and Veon Wholesale Services B.V. in 2017. VimpelCom believed that the Russian Federal Tax Service had no objective reasons or statutory grounds for deciding that the two-year period for initiating a transfer pricing audit commenced on the date when an amended notification was received, as the data in the amended notification had not changed significantly and was consistent with the information in the original notification (except for a change in the "‎Contract number" field: the fact that the contract was unnumbered was indicated as "No. 0" in the original notification and as "‎w/o no." in the amended notification). VimpelCom noted that the period for initiating a transfer pricing audit can be extended only if an adjusted tax return is filed and only when the information on transactions has been changed.

In addition, VimpelCom filed an administrative claim with the Russian Supreme Court to partially annul the provisions of the Notification Completion Procedure[7] on which the first-instance court based its conclusion. The Russian Supreme Court denied VimpelCom’s claims[8], stating that the Russian Tax Code does not permit a taxpayer to partially correct information in a previously submitted notification. This decision was upheld by an appellate determination of the Appellate Board of the Russian Supreme Court[9].
What conclusions can be drawn?

  1. It is important to prepare and submit a notification. The timely submission of a duly prepared notification that raises no additional questions from the tax authorities is an important factor in minimizing the risks of future transfer pricing and tax audits.
  2. When deciding whether to initiate transfer pricing audits, the Russian Federal Tax Service analyzes the data in notifications. Such data must therefore be complete, accurate and detailed as well as all recommendations of the tax authorities and judicial practice must be taken into account.
  3. The period for initiating a transfer pricing audit can be extended. While the Russian Constitutional Court supported the taxpayer’s position, it has also confirmed that if significant changes are made to a notification, the period for initiating a transfer pricing audit will be calculated from the date on which the amended notification is submitted.
  4. Monitor the situation. The number of controlled transactions has significantly increased since 1 July 2023, due to the extension of the so-called blacklist of the Russian Ministry of Finance. It is therefore highly important to develop an internal process for preparing and completing notifications and have a detailed methodology in place for their completion.

How B1 can help

The B1 team will be glad to assist you in handling the following issues related to preparing and submitting notifications:

  • Preparing notification in XML format using special software application developed by B1 professionals, on the basis of data downloaded from the taxpayer’s accounting systems
  • Refining an XML-format notification generated independently by the taxpayer using automated accounting systems
  • Developing a methodology for collecting data and preparing notifications, taking into account legal requirements, judicial practice and specifics of the taxpayer’s operations and accounting systems
  • Assisting in developing of internal processes and controls required to collect data and prepare notifications, taking into account specifics of the taxpayer’s operations and accounting systems
  • Methodological support when the taxpayer prepares a notification independently (including support in using a module for preparing notifications on controlled transactions in 1C system)
  • Ensuring that information is "‎mirrored" in notifications of all parties to controlled transactions when separate notifications are prepared by several group companies
  • Support in identifying and performing a diagnostic of controlled and equivalent transactions, including transactions with independent foreign counterparties registered in countries "‎blacklisted" by the Russian Ministry of Finance

  • Yuriy Mikhailov
    Transfer Pricing Services for Financial Institutions and Financial Transactions
  • Oleg Aliev
    Transfer Pricing Services for Financial Institutions and Financial Transactions
  • Daria Mustafina
    Transfer Pricing Services for Financial Institutions and Financial Transactions
  • Daria Eronteva
    Transfer Pricing Services for Financial Institutions and Financial Transactions
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