TP audit guide

An overview of the transfer pricing audit environment in Russia as of August 2016 by KPMG Russia.

Market overview

With Russia under no obligation to the OECD, advisers in the jurisdiction expect the government to pick and choose which of the recommendations from the BEPS Project suit its position and are incorporated into Russian tax legislation.

Country-by-country reporting (CbCR) is supported by the Russian government and legislation is expected to be introduced and effective by 2018. Guidelines relating to the common approach to transfer pricing documentation are under development and implementation is expected in the same year. As well as this several of the BEPS Action Points, such as new legislation defining what constitutes permanent establishment, already exist in a way which is 'BEPS compliant' in Russia.

The Russian government has been keen to encourage Russian controlled foreign companies (CFCs) to incorporate, or re-incorporate, under Russian law, something which many taxpayers had in the past been reluctant to do because of the risk of expropriation of their assets by the state.

This is known as the de-offshorisation campaign and starting from 2017, concealing, or not declaring any assets held offshore will be an offence. For the purposes of the law a CFC is any company in which a Russian taxable person or entity has a controlling stake.

Reforms were introduced to the tax code in 2014 to the effect that the Russian state could essentially force any Russian citizen's business activities not conducted, or incorporated, in Russia back into the country under Russian law. If a Russian citizen held a controlling stake of 25% or more in the foreign asset, then the law means that the Russian government has jurisdiction.

The extra information available to the tax authorities through the implementation of CbCR and the automatic exchange of information between tax authorities will likely see a significant increase in the tax collected in Russia, as the information can be used to fuel additional audits.

Advisers expect to see an uptick in the amount of litigation as a result of increased audits in an already litigation-heavy environment. The tax authorities have shown an increasing willingness to engage in it, and an increasing sophistication as regards their understanding of complex tax and transfer pricing arrangements. This, combined with courts tending to find against the taxpayer, will encourage multinationals to seek other dispute resolution methods.

Tax authorities

Federal Tax Service – Ministry of Finance
23 Neglinnaya Street, P O Box 127381, Moscow
Tel: +7 495 913 00 09
Fax: +7 495 913 00 05

Tax rates at a glance

(As of January 1 2016)

Corporate profits tax rate 0/15.5/20% (a)(b)
Capital gains tax rate 0/15.5/20% (a)(c)
Branch tax rate 15.5/20% (a)
Withholding tax
Dividends 0/13/15% (d)
Interest on certain types of state and municipal securities 15% (e)
Other interest 20% (e)
Royalties from patents, know-how, etc. 20% (e)
Income from the operation, maintenance or rental of vessels or airplanes in international traffic 10% (e)
Payments of other Russian-source income of foreign companies 20% (e)
Branch remittance tax 0%
Net operating losses (years)
Carryback 0
Carryforward 10

  1. The basic corporate profits tax rate consists of a 2% rate payable to the federal government and rates ranging from 13.5% to 18% payable to the regional governments. The regional governments set the rates applicable to their respective regions.
  2. The 0% rate applies to profits of companies performing educational and medical activities.
  3. The 0% rate applies to capital gains realised by Russian tax residents on the disposal of certain shares or participation interests acquired after January 1 2011 and held for at least five years.
  4. The 13% rate applies to dividends received by Russian tax residents (companies or individuals). The 15% rate applies if the recipient of the dividends is a foreign legal entity. The 0% rate applies to dividends received by Russian tax residents if the recipient has held at least 50% of the payer's capital for more than 365 days, subject to certain limitations.
  5. This tax applies if the payments are made to foreign legal entities that are not Russian tax residents and if they are not attributable to a permanent establishment in the Russian Federation. The tax is considered final.

Source: EY 2016 Worldwide Corporate Tax Guide

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