Market overview

The Russian tax authorities doubled TP penalties to 40% in 2017 in a bid to crack down on tax avoidance.

The previous penalty for transfer pricing misconduct had been 20% since 2014. Penalties cover the additional tax payable due to TP adjustments.

Alexander Golikov, head partner of BGP Litigation said: "There is a longstanding will of Russian businessmen to hide the actual structure of their business, to make it as secure and sophisticated as possible, not to avoid taxes but to avoid criminal hostile takeovers."

"In my opinion, transparency as such is a good thing. However it is like a hammer, you can use to build something, but you can also use it to kill someone. The same thing applies to transparency. On the one hand you can use it to increase budget and tax, but transparency can also be used to the detriment of entrepreneurs."

Transfer pricing matters are subjected to specific audits conducted by the Federal Tax Service (FTS). The audits focus on loss-making transactions, transactions where low-tax jurisdictions are concerned, exports in wealth-related businesses, service fees and royalties.

Additionally, the FTS may investigate the following from a TP angle: domestic transactions that are regarded as high risk and transactions that provide baseless tax benefits.

The Ministry of Finance updated rules for multinationals regarding the formatting of their TP reports in March 2017. Although Russia is not an OECD member, its TP principles are based on OECD recommendations.

The amended draft law augmented the number of entities obligated to provide country-by-country reporting (CbCR), through lowering the revenue threshold to RUB50 billion ($836 million) or more.

The taxpayer deadline for CbCR notification was extended from three to eight months from the end of the last fiscal year, starting from January 2017. Taxpayers were also given the option of filing CbC reports voluntarily for fiscal years prior to 2017.

A singular notification method was introduced, whereby the ultimate parent entity, surrogate parent entity or an MNE's constituent entity in Russia, can submit a report in lieu of other Russian-based corporations which are associated with the same MNE.

The data used in CbCR was extended to a combination of financial statements, with emphasis on uniformity in methods of data use.

The implementation date of this law is currently unknown. This is the only draft law presently which concentrates on OECD BEPS Actions 8-10.

Overall, the Russian TP environment is set for change. Russia signed the multilateral instrument (MLI) on BEPS on June 7 2017, and plans to amend 66 of its double tax treaties (DTT) through the MLI, meaning taxpayers should stay alert for changes to TP legislation. Greater transparency will be hammered through, whether the local business climate wants it or not.

Tax authorities

Federal Tax Service – Ministry of Finance
Postal address: Neglinnaya str., 23, 127381, Moscow
Public reception: +7 (495) 913-03-21, +7 (495) 957-62-55
Fax: +7 (495) 913-00-05; +7 (495) 913-00-06 (Citizen's appeals)
International cooperation division: +7 (495) 913 03 79

Tax rates at a glance

(As of July 2017)

Corporate profits tax rate 0/15.5/20%
Capital gains tax rate 0/15.5/20%
Branch tax rate 15.5/20%
Withholding tax
Dividends 15%
Interest on certain types of state and municipal securities 15%
Other interest 20%
Royalties from patents, know-how, etc. 20%
Income from the operation, maintenance or rental of vessels or airplanes in international traffic 10%
Payments of other Russian-source income of foreign companies 20%
Branch remittance tax 0%
Net operating losses (years)
Carryback 0
Carryforward 10

Source: Deloitte

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