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Expected Changes in Transfer Pricing international experience and Russian practice

Expected Changes in Transfer Pricing international experience and Russian practice. Rustem Ahmetshin Senior Partner. 2. CURRENT ENVIRONMENT. А rticle 40 of the Tax Code Presumption of the transaction price Grounds for control – 4 types of transactions

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Expected Changes in Transfer Pricing international experience and Russian practice

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  1. Expected Changes in Transfer Pricinginternational experience and Russian practice Rustem Ahmetshin Senior Partner

  2. 2 CURRENT ENVIRONMENT • Аrticle 40 of the Tax Code • Presumption of the transaction price • Grounds for control – 4 types of transactions • Three methods for calculating the market price • Grounds for accruing taxes – 20% deviation from the market price • List of related (interdependent) parties (Article 20 of the Russian Tax Code)

  3. 3 CURRENT SITUATION • Аrticle 40 of the Tax Code: problems with application of the article • Restricted number of related parties; • Unsubstantiated tax control in the event of a 20% deviation from own prices; • Lack of information about market prices.

  4. 4 PROSPECTIVE AMENDMENTS TO TAX LEGISLATION FROM 2011 Expansion of the range of related parties under transactions between companies Now – sole grounds: direct or indirect participation (more than 20%). A A 21% 21% transaction transaction B 100% B C

  5. 5 PROSPECTIVE AMENDMENTS TO TAX LEGISLATION FROM 2011 Expansion of the range of related parties under transactions between companies Variant 1: direct participation (more than 20%). A 21% transaction B

  6. 6 PROSPECTIVE AMENDMENTS TO TAX LEGISLATION FROM 2011 Expansion of the range of related parties under transactions between companies Variant 2: indirect participation (more than 20%). A 21% transaction B 100% C

  7. 7 PROSPECTIVE AMENDMENTS TO TAX LEGISLATION FROM 2011 Expansion of the range of related parties under transactions between companies Variant 3: direct or indirect participation of the same person in both companies. A 21% 21% C 100% B D transaction

  8. 8 PROSPECTIVE AMENDMENTS TO TAX LEGISLATION FROM 2011 Expansion of the range of related parties under transactions between companies Variant 4: direct or indirect participation of the same person together with related parties. 21% 21% F A E 50% 50% 10% 11% C 21% B D transaction

  9. 9 PROSPECTIVE AMENDMENTS TO TAX LEGISLATION FROM 2011 Expansion of the range of related parties under transactions between companies Variant 5: subsequent participation with over 50% interests A 51% B 51% transaction C 51% D 51% E

  10. 10 PROSPECTIVE AMENDMENTS TO TAX LEGISLATION FROM 2011 Controlled Transactions from 2011 1999 – 2010 Transactions between related parties Transactions between related parties • if the total incomes and expenses under transactions involving one party exceed 1 billion roubles a year; • if the subject of the transaction is liable to mineral extraction tax calculated at the ad valorem rate; • if a party to the transaction is a taxpayer of unified tax on imputed income or unified agricultural tax (from 2014).

  11. 11 PROSPECTIVE AMENDMENTS TO TAX LEGISLATION FROM 2011 Controlled Transactions from 2011 1999 – 2010 Foreign-trade transactions Foreign-trade transactions • with oil and oil products, ferrous and non-ferrous metals, precious metals and stones (based on a list of the Ministry for Economic Development and Trade of Russia); • with persons located in the states (territories) based on the list of the Russian Ministry of Finance or if the transaction’s beneficiary is located in the abovementioned states (territories).

  12. 12 PROSPECTIVE AMENDMENTS TO TAX LEGISLATION FROM 2011 Controlled Transactions since 2011 1999 – 2010 Barter transactions Transactions where the price deviates by more than 20% from the own prices of the taxpayer Are not controlled. Are not controlled.

  13. 13 PROSPECTIVE AMENDMENTS TO TAX LEGISLATION FROM 2011 Methods used to determine market prices 1999 – 2010 from 2011 Comparable uncontrolled price method Resale price method Cost plus method Product processing sale price method Comparable profits method Profit distribution method

  14. 14 PROSPECTIVE AMENDMENTS TO TAX LEGISLATION FROM 2011 Sources of information on market prices 1999 – 2010 since 2011 Official sources of information Official sources of information Stock exchange prices and quotations Customs statistics Information in publicly accessible publications and data systems Opinion of an appraiser

  15. 15 PROSPECTIVE AMENDMENTS TO TAX LEGISLATION FROM 2011 As well as: • Symmetrical adjustment of the tax base by other parties to the transaction; • Preliminary agreements on pricing for tax purposes (from 2012).

  16. 16 PROSPECTIVE AMENDMENTS TO TAX LEGISLATION FROM 2011 • Tax control • Notifications on controlled transactions • Detailed description of transactions upon the tax authority’s request • Specific tax audit conducted by the Federal Tax Service • A fine (40% of the tax assessed) and interest may be imposed

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