1. In your jurisdiction, are taxpayers obliged to maintain transfer pricing documentation? Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
In Russia, the requirement for transfer pricing documentation applies to financial years beginning on or after 1 January 2012. Only entities entering into “controlled transactions” are subject to the requirement.
Both domestic and cross-border transactions may fall under the definition of controlled transactions for transfer pricing purposes. Controlled cross-border transactions include:
- All related-party transactions, regardless of amount, save for the below exceptions;
- Third party transactions, where they relate to trading in goods on a foreign trade exchange and where the aggregate value of transactions with the third party in question exceeds RUB 60 million (EUR 1.5 million) in a calendar year; and
- Transactions between a Russian tax resident and an offshore tax resident (located in a jurisdiction specified in the Ministry of Finance blacklist) where the aggregate value of transactions between the parties in question exceeds RUB 60 million (EUR 1.5 million) in a calendar year.
Controlled domestic transactions include, in the first place, a general provision catching all related-party transactions where the aggregate value of transactions with the party in question exceeds RUB 3 billion (EUR 75 million) [2012 threshold; will be reduced to RUB 2 billion (EUR 50 million) in 2013 and RUB 1 billion (EUR 25 million) from 2014.] in a calendar year, as well as more specific cases (transactions involving residents of special economic zones, participants in the “Skolkovo” project, etc.).
2. What is the content of the documentation that must be prepared?
a) Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)?
As a general rule, all controlled transactions are subject to the transfer pricing documentation requirement. However, special transitional rules apply to the financial years 2012 and 2013. In respect of 2012, the requirement applies only to controlled transactions entered into between given related parties where the total amount of income / expense derived by the Russian taxpayer under those transactions exceeds RUB 100 million (EUR 2.5 million). In 2013, the threshold will be decreased to RUB 80 million (EUR 2 million). As from 2014, turnover limits will cease to apply, and, therefore, all controlled transactions will need to be documented.
b) What is the definition of “associated enterprises” for the purposes of this requirement?
In Russian law there is a relatively extensive list of “related parties”. The general definition is that parties are related where the particular features of their relationship are such that they may influence the terms and / or effects of the transactions they enter into, and / or the economic outcome of their activities or those of persons they represent. The term “influence” includes, in this respect, the ability to influence through the participation of one party in the charter capital of the other, or by virtue of an agreement concluded between the parties, or any other circumstances.
2012 threshold; will be reduced to RUB 2 billion (EUR 50 million) in 2013 and RUB 1 billion (EUR 25 million) from 2014.
More particularly, the list of related parties includes:
- Two companies, where one directly or indirectly holds more than 25% of the charter capital of the other;
- A company and an individual who directly or indirectly holds more than 25% of its charter capital;
- Two companies with the same parent company, where the parent has more than a 25% shareholding (direct or indirect) in the charter capitals of each one;
- A company and its CEO or director, or companies with the same CEO;
- Successive chains of individuals / companies with more than 50% participation in the capital of the subsidiary, etc.
c) For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?
d) Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state?
According to the law, foreign companies are not liable to provide any information to Russian tax authorities with respect to transfer pricing matters. However, tax authorities can request information held by foreign companies from the Russian taxpayer and / or from the foreign tax authorities, pursuant to an official procedure.
e) If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?
For the purposes of benchmark analysis, Russian legislation recognises primary and secondary sources of information. Primary sources include “official” data (information on prices and quotations from world trade exchanges for goods traded on such exchanges, customs statistics, etc.), and accounting and statistical data reported by Russian companies. Data reported by foreign companies is treated as a secondary information source, however, and may be used for the purposes of benchmarking analysis only where no information on Russian companies is available, or such information is insufficient.
The effect of the above is that the Russian tax authorities will not accept regional benchmark studies unless the taxpayer proves that no information is available from “official” sources or Russian companies, or that such information is irrelevant.
f) What language(s) are to be used by taxpayers in submitting the transfer pricing documentation?
The documents provided to the Russian tax authorities should normally be in Russian. Accordingly, if the original documents are in another language, the tax authorities can request a translation.
3. What is the deadline or timescale for providing transfer pricing documentation to the tax authorities (is it to be provided for example upon filing of the tax returns, at the beginning of a tax audit, or on the specific request of the tax authorities)?
Transfer pricing documentation should be provided to the tax authorities upon their request, which may be issued on or after 1 June of the year following the year of the controlled transaction. The company has 30 calendar days from the date of the request to provide the documentation.
In addition, transfer pricing notifications (documents prepared under a special form established by the Russian Federal Tax Service and containing general information on the parties to the controlled transaction, transaction price, method adopted, etc.) are to be provided to the tax inspectorates where ordinary corporate profits tax returns are filed before 20 May of the year following the year of the relevant controlled transaction.
4. In the event that the documentation is not provided within the applicable timescale, or is incomplete, do documentation-related penalties apply in your jurisdiction? If so, please detail the penalties and the circumstances in which they do and do not apply.
The simple fact that the documentation is not provided within the applicable timescale, or is incomplete, triggers a penalty in the amount of RUB 200 (EUR 5). However, if a tax reassessment is made as a result of non-provision of documentation to the tax administration, or provision of incomplete documentation, there may be a penalty for late payment of tax, and a fine equal to 20% of the excess tax (from 2014) or 40% (from 2017).
For the avoidance of doubt, no fines for underpayment of tax due to incorrect application of transfer prices may be imposed on Russian taxpayers before 2014. It is also noteworthy that such fines will only be applicable if the relevant company does not have in place transfer pricing documentation corresponding to the requirements set by the law.
5. Does the absence or incompleteness of documentation reverse the burden of the proof as regards the arm’s length character of the transactions?
The absence of documentation or incomplete documentation does not reverse the burden of proof as regards the arm’s length character of the controlled transactions: to make a reassessment, Russian tax authorities still need to demonstrate that the transactions in question do not comply with the arm’s length principle.
6. In the event that the tax authorities (i) impose documentation-related penalties and (ii) make a transfer pricing reassessment, does the imposition of documentation-related penalties prevent the taxpayer from initiating any mutual agreement procedure which may be contained in an applicable tax treaty (or, for EU countries, the procedure contained in the EU Arbitration Convention) with a view to eliminating any double taxation resulting from the transfer pricing reassessment?
At present, procedures aimed at elimination of double taxation are not used in Russia in connection with transfer pricing matters.