Transfer Pricing – Time to Act!

1. Transfer Pricing – Time to Act! EvgeniaVeter, Head of Transfer Pricing Practice in the CIS, Ernst & Young (CIS) B.V. Moscow branch 19 October 2011

2. Agenda • Transfer pricing on the global agenda • New TP law – key changes • New Russian TP law – is it truly international? • Typical questions we hear • Road-map to prepare to the new law

3. Transfer Pricing On the Global Agenda Most important issues for tax directors • Ernst & Young’s Global 2010 Transfer Pricing Survey key findings: • Most respondents identified TP as the most important tax issue facing their group (EMEIA – 33%) • 74% of parent and 76% of subsidiary respondents believe TP will be “absolutely critical” or “very important” to their organizations over the next two years • Growing number of countries devoting attention to TP • Increased enforcement and regulatory activity • TP documentation more important than ever • 74% of parent respondents believe TP documentation is more important now than it was two years ago

4. New Russian TP Law – Key Changes • Arm’s length principle • Substance-over-form approach • Arm’s length range • Five TP methods • TP documentation / reporting requirements • Dedicated TP audits • Corresponding adjustments • domestic transactions • TP penalty • APA program for largest Russian companies

5. Russian TP Law – Is It Truly International?

6. Typical Questions We Hear • “Can we now follow a TP model in Russia that we use in other OECD countries?” • Better chances than before • However, still expect some barriers: • Foreign principal structures? • Variable royalty? • PE? • “Can we use a TP documentation which the group has developed for other countries?” • Generally YES • However, expect some differences: • Same functional profile? • Local comparables? • Accounting standards? • Language

7. Road-map To Prepare To New Rules Imple-ment Docu-ment • Diagnose Design Monitor Defend • If Master-file is available at the HQ level: • Adaptation / localization for Russia • Validate functional analysis / conclusions on the TP methods • Consider a need to do a local benchmarking study • Russian translation • If no centrally available TP documentation: • Undertake functional analysis • Perform economical analysis (incl. benchmarking studies) • Document the conclusions

8. Questions?

9. Contacts EvgeniaVeter Partner, Head of Transfer Pricing Practice in the CIS Ernst & Young (CIS) B.V. Moscow branch Tel: + 7 495 660 4880 Cell: + 7 910 445 6779 evgenia.veter@ru.ey.com

10. Thank you!