Russia: New Transfer Pricing Rules Came Into Force on January 1, 2012

19 January 2012
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Key takeaways:

  • On January 1, 2012 new Russian transfer pricing rules came into force. Old concept is totally replaced with more sophisticated controls mostly based on OECD Transfer Pricing Guidelines.
  • Under the new rules transaction price can be adjusted only for the purposes of Russian profits tax, personal income tax payable by individual practitioners, and to a limited extent - for the purposes of mineral extraction tax and value added tax, while previously the tax authorities were not limited in using transfer pricing adjustments.
  • The rule of 20% deviation from market price is abolished; under the new rules the tax authorities are required to compare the reviewed transaction with one or more comparable non-related-party transactions. In making such determination they can use a range of five different methods (separately or in any combination) of recalculating the price, three of which (using the comparable market prices, transactional net margin method and profits split method) are new and are available along with the previously used resale minus and cost plus methods. Comparable market prices method should be given priority.
  • Taxpayers are subject to specific tax administration: they are subject to special transfer pricing audits and transfer pricing reporting requirements. The law also introduces a new concept of advance pricing agreements.