New section regulating matters related to transfer pricing was introduced to the Tax Code of the Russian Federation

After numerous discussions the State Duma of the Russian Federation has passed the Federal Law "On amendment of certain legislative acts of the Russian Federation in connection with improving of principles of determination of prices for the purposes of taxation" which added a new section concerning transfer pricing matters to the Tax Code of the Russian Federation.

As interdependent persons for the purposes of taxation this Law defines persons the specific nature of relations between which may influence conditions and/or results of transactions being consummated between them and/or economic results of activity of such persons or persons represented by them. An exhaustive list of grounds (just 11 grounds) for persons to be recognized as interdependent and procedure for assessment of the participation of organizations and individuals in other organization were established.    

Any and all transactions between interdependent persons are considered to be controlled transactions. The following transactions are treated as controlled transactions: the transactions involving sale of goods, performance of works, rendering of services between interdependent persons carried out with the help of an intermediate party, as well as cross-boarder transactions related to goods involved in international exchange trade and transactions one of the parties to which is an offshore company.

Transactions between the residents of the Russian Federation shall be controlled when:

• the amount of revenue under these transactions for a calendar year exceeds 1 billion rubles;
• one of the parties to such transaction pays severance tax calculated based on per cent tax rate and the subject matter of such transaction is extracted mineral (and the amount of revenue under transactions for a calendar year exceeds 60 million rubles);
• among the parties to the transaction there are payers of Unified Agricultural Tax or Unified Tax on Imputed Income, as well as taxpayers applying other taxation systems (and the amount of revenue under transactions for a calendar year exceeds 100 million rubles);
• one of the parties to the transaction is a profit tax exempt participant of Sklokovo project (and the amount of revenue under transactions for a calendar year exceeds 60 million rubles);
• one of the parties to the transaction is a resident of a special economic zone where tax treatment provides for special corporate profits tax benefits (and the amount of revenue under transactions for a calendar year exceeds 60 million rubles).

The taxpayers acquire new responsibility – to notify the tax authority on the consummation of any and all controlled transactions and to file with it (upon demand) the documents proving that prices under the controlled transactions correspond to market prices. There was a fine in the amount of 5,000 rubles established as tax liability for breach of such responsibility.

New form of tax control is being introduced: verification of completeness of calculation and payment of taxes in connection with consummation of transactions between interdependent persons. The verification shall be carried out on the basis of notification on controlled transactions or notice of the territorial tax authority which conducts field or desk audit. Within the frameworks of verification those controlled transactions may be audited which were consummated within a period not exceeding three calendar years preceding the year in which decision on conducting verification was made. In the event a decision on surcharge of tax is made as a result of verification of correspondence of the prices, the other party to the transaction may respectively adjust price under transaction and procedure for such adjustment is provided for by the Tax Code of the Russian Federation in detail.

If in the course of verification of completeness of calculation and payment of taxes in connection with consummation of controlled transactions the tax authority reveals that the price under transaction varies   from market prices, the taxpayer may be held liable for payment of fine in the amount of 40% of unpaid tax sum, but not less than 30,000 rubles.

Most of provisions shall become effective on 1 January 2012.