New Transfer Pricing Regulations.


Legal Update No.251.

Goltsblat BLP advises that the Federal law of 18 July 2011 No. 227-FZ “On Amendments to Certain Legislative Acts of the Russian Federation Relating to Development of the Rules for Price Determination for Taxation Purposes” (the Law), governing the so-called transfer pricing regulation, was adopted.

We outline below the key provisions of the Law:

1.   Entry into force and special provisions:  The Law shall enter into force on 1 January 2012. The fines based on price adjustments will not apply with regard to the periods till 2014, 20% fine will be charged in 2014-2016, and 40% fine will apply starting from 2017.

2.   Related persons:  The share of direct or indirect participation of one legal entity in another which provides grounds for regarding persons / entities as related shall amount to 25%. Direct or indirect state (government) participation in Russian companies shall not, as such, be regarded as a ground to deem the companies related. The courts shall retain the right to treat persons /entities as related under grounds not directly specified in the Law.

3.   Scope of controlled transactions:  Provisions of the new Law shall apply to transactions with goods, works and services; therefore, the Law does not extend to transactions with other objects of civil rights (property rights etc). Still, we cannot exclude that this provision may be subsequently adjusted by the legislators.

4.    Market price range:  Reference to a previously allowed 20% safe harbour of price fluctuations has been substituted by market price range.

5.    Prices deemed arm’s length:  The following prices shall be deemed market prices for tax purposes:

  • state regulated prices (subject to certain limitations);
  • prices established in line with directives by antimonopoly bodies (subject to certain limitations); 
  • prices set as a result of exchange trading session;
  • prices set forth by an appraiser (in cases where the appraisal is mandatory under the Russian legislation);
  • prices determined under an approved advance pricing agreement.

6.    Controlled transactions:  The following transactions shall be regarded as controlled:

(i)   Transactions between Russian related persons, if the total sum of income (ie revenue) generated on such transactions:

  • exceeds RUR 1 bln in a calendar year (the threshold is set as RUR 3 bln for year 2012, and RUR 2 bln for year 2013);
  • exceeds RUR 100 mln in a calendar year, and one of the parties to the transaction applies special tax regime in the form of unified tax on imputed income or unified agricultural tax (this provision enters into force on 1 January 2014);
  • exceeds RUR 60 mln in a calendar year, and one of the parties to the transaction: 

      • pays mineral extraction tax, or

      • is exempt from profits tax or applies zero profits tax rate, or

      • is a resident of special economic zone.

        (ii)   Cross-border transactions between related parties without any threshold on the sum of income.

        (iii)   Cross-border transactions on goods traded on global commodity exchanges, if the total amount of income (revenue) on such transactions exceeds RUR 60 mln in a calendar year, with regard to:

        • oil and oil products;
        • ferrous and non-ferrous metals;
        • mineral fertilizers;
        • metals and precious stones.

        (iv)   Transactions with the residents of the jurisdictions and territories, which are listed by the RF Ministry of Finance as low-tax and (or) non-cooperative in terms of fiscal information exchange (offshores / tax havens), in case the total sum of income under such transactions exceeds RUR 60 mln in a calendar year.

        (v)   Courts may consider a transaction to be controlled in cases where such transaction does not formally fall into the list of controlled transactions due to conditions artificially created by a taxpayer. 

7.   Transactions out of transfer pricing control:  The transactions shall be out of the scope of transfer pricing control if they are made between:

        • Russian legal entities, registered in one region of Russia (federation unit), provided that such entities:
            • do not have any separate subdivisions either in another region of Russia (federation unit), or abroad;
            • do not pay profits tax to other regional budgets (treasuries) of the RF federation units;
            • do not have profits tax losses;
            • do not fall into other category of controlled transactions under the Law;
        • members of the consolidated taxpayer group.

8.    Determination of the thresholds:  The thresholds for a transaction to be considered controlled are based on the sums of income (revenue) under transactions in a calendar year, where such sum of income is determined as total sum of income  received under such transactions with one person (related persons) in a calendar year, calculated in line with the rules for income recognition under Chapter 25 of the Russian Tax Code.

9.   Transfer pricing methods:  The Law determines five methods to be used by tax authorities for the calculation of taxable income in the related-party transactions:

  • comparable uncontrolled price method;
  • resale price method;
  • cost plus method;
  • transactional net margin method;
  • profit split method.

The Law introduces certain hierarchy of methods. The comparable uncontrolled price method is the main method and tax authorities can opt for other methods only if this method cannot apply. At the same time, the Law provides that the resale price method shall be used as a priority method for cases where goods are purchased from a related person and are subsequently resold without processing under a transaction with unrelated party.

10.   Sources of information:  The main sources of information to be used by tax authorities in exercising control with regard to transactions between related parties include:

  • information on prices and exchange quotations;
  • customs statistics;
  • information on prices and exchange quotations from official information sources of authorised state and municipal bodies;
  • data from informational and price agencies;
  • information on transactions made by the taxpayer.

In the absence or lack of information from the above sources the tax authority may use other information. At the same time, the Law requires the tax authorities to use only publicly available information sources.

11.   Documentation provision:  Taxpayers are required to notify territorial tax authorities of the controlled transactions made within a calendar year. Such notifications shall include only subject of the transaction, parties to the transactions and sum of income and (or) expenses. The Law does not require the taxpayer to provide any additional documents or calculations attached to the notification.  The obligation to provide transfer pricing documentation arises only upon receipt of the respective claim to provide the documents from the tax authorities. The tax authorities are authorised to require documentation related to a certain transaction (or group of similar transactions).  The documentation shall mean the document describing activities of the taxpayer, list of the parties to the transaction and their functions, description of the transaction, the transfer pricing methods used for price determination, information on economic benefits derived by the taxpayer.  Failure to provide documentation as such shall be subject to a fine of RUR 5 thousand; however absence of documentation may expose the taxpayers to additional fines mentioned above in case a transfer pricing adjustment is made. Until 2014 the respective provisions on notifications and documentation shall apply to the cases where the sum of income under controlled transactions in a calendar year exceeds RUR 100 mln in 2012 and RUR 80 mln in 2013.

12.    Transfer pricing audits:  Transfer pricing audits  shall be a separate type of tax audits to be conducted under special rules. The procedure for the transfer pricing audit and issuance of the decision upon its results is generally similar to field / desk tax audits (one of the key differences is the increased (double) periods for conduct of audit, provision of documents and objections to the audit act).

13.    Collection of additionally assessed taxes:  Transfer pricing tax audit may cover only profits tax, personal income tax (with regard to individual entrepreneurs, advocates, notaries), mineral extraction tax and VAT (only if one party to the transaction is not a VAT taxpayer). Collection of taxes additionally assessed as a result of such transfer pricing audit may be performed exclusively under a court procedure.

14.   Corresponding adjustments:  The Law envisions possibility to perform corresponding adjustments in cases where the tax authority in the course of tax audit comes to a conclusion that the price applied by one of the parties to a controlled transaction does not correspond to the market range.  In such case the other party to the controlled transaction is entitled to make corresponding adjustments in its tax accounts. However, corresponding adjustments are allowed only if the party to the transaction, which was subject to the original assessment, voluntarily paid such additional assessment to  the tax authority.

15.  Advance pricing agreements:  The Law allows major Russian taxpayers (as defined by applicable Russian tax registation regulations) to conclude advance pricing agreements (APA) with tax authorities. APA shall cover the rules for price determination and (or) application of transfer pricing methods in controlled transactions for tax purposes. Respectively, conclusion of APA shall exempt the taxpayer from the obligation to prove that the prices applied in controlled transactions with related parties correspond to the market price range.  APA can be concluded for a term of not more than 3 years.

16.  Transitional provisions:  Provisions of Articles 20 and 40 of the Russian Tax Code shall continue to have effect with regard to transactions, income and (or) expenses on which are reported by taxpayers before the entry of the Law into force. Although the initial version of the Law envisioned that the RF Ministry of Finance shall issue guidance (methodic recommendations) on application of the Law provisions, the final text does not have such provision. It is worth reminding that Russia is still not an OECD member and OECD transfer pricing guidance are not mandatory for Russian tax authorities, as well as courts.  As a result, the taxpayers shall have to base their decisions and interpretation on the text of the Law and evolved court case law, which will still be relevant with regard to certain provisions of the new Law (eg subject matter of controlled transactions, hierarchy of methods, etc).

17.   Disputable provisions:  The Law contains a number of controversial provisions, for instance:  the Law uses the term “publicly available sources of information”, while there is lack of definition of this term, and that will inevitably result in disputes on whether certain information is derived from publicly available sources, and, thus, whether it can be used to determine the market price range; the hierarchy of methods set forth by the Law may limit application of certain transfer pricing methods in cases where there is information that is publicly available, but not acceptable for the purposes of the respective method chosen; the Law excludes from the controlled transactions the transactions between companies located in one region (federation unit) of Russia on condition they do not report losses, while it is unclear whether this exclusion may apply to cases where losses were reported by one of the parties in the respective tax period, but after the transaction was made.

18.  Top priority issues:  The following objectives may be set as the primary steps to be made by taxpayers  in relation to the Law adoption:

  • review and list possible transactions that may qualify as controlled;
  • determine acceptable method of market price calculation for the goods, works and services provided by the company on such transactions;
  • identify sources of information which may be used to determine the market price range;
  • calculate market price range with regard to the goods, works and services provided by the company;
  • compare the market price range determined under the Law with prices acceptable under the requirements of customs and (or) antimonopoly authorities, as well as under other applicable pricing-related regulations in respective industry sector (eg pharmaceuticals).

Furthermore, due to lack of possibility to refer to OECD guidelines, as well as differences in approaches used by OECD and Russian legislators, multinational enterprises may have to adapt their global corporate transfer pricing policy to the specific Russian legislation requirements. As an example, in certain cases the Law treats cross-border transactions between unrelated persons as controlled, which is not common for the most OECD-member states; the Law does not provide any special rules for cost-sharing arrangements , which is typical for most European jurisdictions. Also, in contrast to the OECD Guidelines the Law envisions formal hierarchy of the information sources used for market price range determination, as well as makes the advance pricing agreements available only to Russian companies.

For additional information, please contact:

Evgeny Timofeev,
Partner, Head of Russian/CIS Tax Practice,
Goltsblat BLP
T: +7 (495) 287 44 44,

Andrey Shpak,
Partner, Tax Practice,
Goltsblat BLP
T: +7 (495) 287 44 44,

Contact details


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