New law on transfer pricing
A new law setting out requirements for provision of 3-level transfer pricing documentation and also introducing provisions on automatic exchange of information between Russian tax authorities and foreign jurisdictions was adopted in Russia at the end of 2017 (Federal Law No. 340-FZ dated November 27, 2017).
The periods starting from January 01, 2017 are subject to this new law.
It should be noted that the previous tax law rules for preparation of reports on controlled transactions and transfer pricing documentation remain in force.
Which companies are subject to these new requirements?
Russian companies which are part of international groups of companies will be subject to these new requirements if the turnover of the whole group exceeds RUB 50 billion per year.
What do the new rules entail?
The new rules have introduced new reporting forms:
- Notice of participation in an international group of companies. Russian companies are to submit this document within 8 months of the end of the financial year following the year in which the group turnover exceeded RUB 50 billion rubles.
- 3-level transfer pricing reporting:
1. Country-by-Country report
Russian companies are to submit a report:
- within 12 months of the end of the financial year if they are the parent company of the group or an authorized participant;
- at the request of tax authorities. In this case, reports are submitted within the period specified by tax authorities or within 3 months of the request receipt date, whichever period is greater.
Companies are released from the obligation to submit a country-by-country report if such report is submitted by their parent company or an authorized participant of the group in a country with which Russia automatically exchanges information (a list of countries will be available at a later date).
2. Global documentation (Global File)
To be provided at the request of tax authorities. It may be sent no earlier than 12 months and no later than 36 months from the end of the financial year.
3. National documentation (Local File)
To be provided at the request of tax authorities. It may be sent no earlier than June 01 of the year in which controlled transactions are concluded. A transitional period (2018-2019) has been put in place: tax authorities may request the documentation for 2018 and 2019 no earlier than December 31, 2019 and December 31, 2020 respectively. The local file content is similar to the transfer pricing documentation prepared by companies as prescribed by law but includes additional information.
The Federal Tax Service is currently developing the formats for the notice of participation in an international group of companies and for country-by-country report. It will also issue an order with a list of countries with which Russia automatically exchanges information. Information for 2017 should begin to be exchanged in the second and fourth quarters of 2018.
What will happen if these requirements are not fulfilled?
New fines have been introduced for companies:
- RUB 50,000 for failure to submit in due time or errors in the notice of participation in an international group of companies;
- RUB 100,000 for failure to submit in due time or errors in the country-by-country report;
- RUB 100,000 for failure to submit global file and local file in due time.
What in the end?
Russian companies which are part of large international groups of companies are required to submit new reporting to tax authorities. In addition, the international exchange of information among tax jurisdictions requires conducting reconciliation of financial information included in country-by-country reports submitted by groups of companies abroad with information on controlled transactions with Russian companies which are part of groups. We recommend finding out beforehand from the companies of the group how country-by-country reports are submitted and the role of the relevant Russian company in their preparation.
What can we do to help?
We would be pleased to:
- Review the particular situation in your company and give recommendations on how to fulfill the new requirements of the law;
- Assist with the preparation of new reporting forms as well as participate in communication with group companies to discuss the preparation of new reports.
Feel free to contact us to learn more about our transfer pricing services.