Overview of sweeping changes to the transfer pricing rules

28 November 2023
Tax Messenger
The second half of 2023 has yielded an abundance of possible amendments to the Tax Code of the Russian Federation (“the Tax Code”) aimed at enhancing tax control in relation to related party transactions (“transfer pricing control”).

The B1 team has prepared an overview of expected changes to the transfer pricing rules based on the following draft federal laws:

  • Federal Law No. 539-FZ of 27 November 2023 “Concerning Amendments to Parts One and Two of the Tax Code of the Russian Federation and Certain Legislative Acts of the Russian Federation and the Annulment of Certain Provisions of Legislative Acts of the Russian Federation” (“the Federal Law”);
  • The bill “Concerning Amendments to Parts One and Two of the Tax Code of the Russian Federation and Certain Legislative Acts of the Russian Federation”[1] (“the Tax Policy Bill”);
  • The bill “Concerning Amendments to Article 105.17 of Part One of the Tax Code of the Russian Federation”[2].

The proposed amendments are on a comparable scale to the introduction of Section V.1 of the Tax Code in 2012, which changed the approach to transfer pricing control. It is therefore important to act now to assess the possible implications of the proposed changes.

In this bulletin we examine the most significant changes, setting out a detailed analysis below and providing a concise summary in the appendix.
Conclusions

Given the scale of the expected changes, B1 advises companies to:

  1. Conduct a review of TP risks in controlled transactions, especially in view of the increased sanctions for the deviation of prices/profit margins from the market (arm’s length) level.
  2. Determine the content/format of documents and information which must additionally be prepared and provided to the tax authorities as part of TP documentation and in a controlled transaction notification.
  3. Decide whether their Group falls within the category of MNE groups and, if appropriate, begin preparing country-by-country reports.
  4. Assess the need to revise interest rates in intra-group financial transactions.
  5. Assess possible risks, especially in relation to transactions for which the CUP method was used based on PRA and exchange data.
In the case of high-value transactions and/or where substantial risks exist, we recommend that companies consider concluding an APA.

For your convenience, the B1 team has prepared a table summarising the potential changes to the transfer pricing rules.
The provisions of the new edition of the Tax Code will apply to transactions for which income or expenses are recognised from 1 January 2024, regardless of the date of conclusion of the relevant agreement. However, a different procedure for implementing the amendments may be established by a regulatory act of the President of the Russian Federation.

The B1 team would be happy to provide you with comprehensive support in analysing the implications of the changes contained in the Federal Law and to assist you in preparing all kinds of TP reports.

Authors:
  • Ruslan Radzhabov
    Partner
    Transfer Pricing and Operating Model Effectiveness


  • Vasilii Anishchenko
    Partner
    Transfer Pricing and Operating Model Effectiveness
  • Evgenii Gaidamashchuk
    Senior Manager
    Transfer Pricing and Operating Model Effectiveness
  • Zara Arutiunian
    Senior Manager
    Transfer Pricing and Operating Model Effectiveness
  • Evgeniia Dziuba
    Manager
    Transfer Pricing and Operating Model Effectiveness
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