A number of legislative acts have brought sweeping changes to transfer pricing that will come into effect on January 1, 2024.
The most important changes were brought by the bill No. 448566-8 of the Federal Law “On Amendments to Parts One and Two of the Tax Code of the Russian Federation”, which was approved by the State Duma in the second reading on November 17, 2023.
Expansion of the circle of interdependent persons
Criteria for legal entities and individuals:
Added to the list of interdependent persons:
Transactions with counterparties from the countries included in the List of the Ministry of Finance are also recognized as controlled transactions if the value threshold exceeds RUB 120 million. An exception is made for transactions:
Secondary adjustment mechanism
If, following an audit, the prices of a controlled transaction are recognized as non-market prices, the amounts of the adjustments will be recognized as dividends received from a source in the Russian Federation, on which the relevant tax will be withheld.
No withholding tax will be withheld if the foreign entity returns the amount of the adjustment to the taxpayer's accounts in Russia no later than the date of payment of the relevant tax. No withholding tax will be withheld if the foreign entity returns the amount of the adjustment to the taxpayer's accounts in the Russian Federation and interest income for the use of funds later than the date of payment of the relevant tax.
Calculation of market price interval
Exclusion of par. 6 of Article 105.9 of the Tax Code and, as a consequence, the use of published data for the minimum and maximum threshold for determining the price level. The price level is determined in connection with the provisions of Article 105.9 of the Russian Rax Code.
Median value of the market price interval
The concept of median value of market prices for adjustments for controlled transactions is introduced. When making an independent adjustment, the taxpayer may choose any value within the market price range.
Pricing agreements for taxation purposes
For large taxpayers, pricing agreements are provided for 5 years for transactions from the following commodity groups:
Information disclosure requirements
Notification of controlled transactions:
Transfer pricing:
Refusal of a foreign counterparty to provide information is not a sufficient argument for the tax authorities!
Increase in penalties
RUB 100,000 – for failure to provide notification of controlled transactions.
RUB 1,000,000 – for failure to provide the following documentation on an international group of companies:
RUB 500,000 – for failure to provide notification of participation in an international group of companies and/or documentation on a transaction (group of homogeneous transactions) in due time.
For failure to pay tax as a result of applying non-market prices:
These changes should be taken into account when preparing transfer pricing documentation for 2024.
The most important changes were brought by the bill No. 448566-8 of the Federal Law “On Amendments to Parts One and Two of the Tax Code of the Russian Federation”, which was approved by the State Duma in the second reading on November 17, 2023.
Expansion of the circle of interdependent persons
Criteria for legal entities and individuals:
- shareholding directly or indirectly more than 25%;
- authority to appoint a single executive body or at least 50% of the collegial executive body.
Added to the list of interdependent persons:
- controlling persons and their controlled foreign companies, as well as controlled companies of the same controlled persons (i.e., daughters, granddaughters, etc.);
- controlled transactions with foreign structures without formation of a legal entity registered in an offshore jurisdiction or if one of the participants of such structure is registered in an offshore jurisdiction.
Transactions with counterparties from the countries included in the List of the Ministry of Finance are also recognized as controlled transactions if the value threshold exceeds RUB 120 million. An exception is made for transactions:
- with foreign export credit agencies and foreign organizations engaged in banking activities from jurisdictions with which double taxation avoidance agreements have been suspended, provided that the conditions are met:
- obligations arose before August 8, 2023 and
- the absence of interdependence of the Russian organization - debtor and the foreign organization - creditor is confirmed;
- with counterparties from jurisdictions with which double taxation avoidance agreements have been suspended, provided that the contracts for such transactions were concluded before March 1, 2022 and the procedure for determining prices and (or) pricing methods (formulas) used in such transactions was not changed after that date, and such transactions are not recognized as controlled in accordance with the provisions of paragraphs 1 and 3 of Article 105.14 of the Russian Tax Code in effect as of March 1, 2022;
- on the basis of which debt obligations from Article 310.2, par. 2, subpar. 8 of the Tax Code were incurred.
Secondary adjustment mechanism
If, following an audit, the prices of a controlled transaction are recognized as non-market prices, the amounts of the adjustments will be recognized as dividends received from a source in the Russian Federation, on which the relevant tax will be withheld.
No withholding tax will be withheld if the foreign entity returns the amount of the adjustment to the taxpayer's accounts in Russia no later than the date of payment of the relevant tax. No withholding tax will be withheld if the foreign entity returns the amount of the adjustment to the taxpayer's accounts in the Russian Federation and interest income for the use of funds later than the date of payment of the relevant tax.
Calculation of market price interval
Exclusion of par. 6 of Article 105.9 of the Tax Code and, as a consequence, the use of published data for the minimum and maximum threshold for determining the price level. The price level is determined in connection with the provisions of Article 105.9 of the Russian Rax Code.
Median value of the market price interval
The concept of median value of market prices for adjustments for controlled transactions is introduced. When making an independent adjustment, the taxpayer may choose any value within the market price range.
Pricing agreements for taxation purposes
For large taxpayers, pricing agreements are provided for 5 years for transactions from the following commodity groups:
- petroleum and goods derived from petroleum;
- ferrous and non-ferrous metals;
- precious metals and precious stones;
- mineral fertilizers.
Information disclosure requirements
Notification of controlled transactions:
- disclosure of terms of transactions;
- mandatory disclosure of methods and sources of information;
- for interdependent persons – disclosure of the value chain for foreign trade transactions by groups of goods from Article 105.14 of the Tax Code (specified above).
Transfer pricing:
- disclosure of terms of transactions;
- financial statements of foreign counterparties;
- data on income and expenses, amount of profits (losses), number of personnel, value of non-current assets of a foreign counterparty.
Refusal of a foreign counterparty to provide information is not a sufficient argument for the tax authorities!
Increase in penalties
RUB 100,000 – for failure to provide notification of controlled transactions.
RUB 1,000,000 – for failure to provide the following documentation on an international group of companies:
- country report;
- national and global documentation;
- accounting statements of each group member.
RUB 500,000 – for failure to provide notification of participation in an international group of companies and/or documentation on a transaction (group of homogeneous transactions) in due time.
For failure to pay tax as a result of applying non-market prices:
- in respect of foreign trade transactions – 100% of the amount of unpaid tax on the foreign counterparty's income (equal to the amount of the transfer pricing adjustment), but not less than RUB 500,000;
- in respect of Russian transactions – 40% of the amount of unpaid tax, but not less than RUB 30,000.
These changes should be taken into account when preparing transfer pricing documentation for 2024.