Transfer Pricing (Documentation Standards)

Transfer pricing23


  1. Introduction
  • Legal context

In Russia the transfer pricing and tax control of related party transactions have been governed by Sections V.1 and V.2 of Part 1 of the Russian Tax Code since 2013.

The BEPS plan was signed in October 2015. So far the following efforts have been taken in Russia to implement the provisions of BEPS plan Action 13 on transfer pricing issues:

  1. A legal bill (the “draft bill”) on amending the Russian Tax Code has been developed. This draft bill incorporates the three-level system of preparing TP documentation (Local file, Master file and CbC Report, as per Action 13 of the BEPS Plan) into the national tax law.

As of September 2017 this draft bill has been submitted to the Russian State Duma (the Russian parliament). The plan is to review and adopt it by the end of 2017. In this case the requirements for filing new reporting forms to the tax authorities (in particular the CbC Report and Master File) will apply with respect to financial years starting from 2018. Taxpayers are free to file such forms for earlier periods on a voluntary basis.

  1. Russia has joined the multilateral Agreement of competent authorities on automatic exchange of CbC Reports. The Russian Federal Tax Service will be included into the exchange of CbC Reports with competent authorities from foreign states and will use all information contained in them for pre-inspection analysis. Russian taxpayers will also be able to file CbC Reports on a centralized basis, in particular, with respect to group companies that are tax residents of foreign countries.


  • Practical context

Introduction of the three-level system for preparing TP documentation is expected to affect large multinational companies. Parent companies of MNE (multinational entities) that are tax residents of the Russian Federation will bear this additional burden. They will have to prepare and file CbC Reports to tax authorities and prepare a Master File relating to transactions within their group.

As for subsidiaries operating in Russia, which are part of major international groups, the effects for them are not so significant. In many respects, the Russian Tax Code provisions currently in effect were developed based on OECD recommendations. In particular, the currently effective Russian Tax Code provisions on the content of documentation on controlled transactions do not significantly differ from the recommended content of Local files. The alignment of Russian law with the BEPS plan in this respect would not lead to material changes in the regulatory framework.


  1. Formal requirements


  • Which taxpayers

Controlled transactions are:

  1. Related party transactions (as defined in the Russian Tax Code). Some exceptions are provided, in particular for transactions of up to a certain amount between Russian companies (see p. 2.4 of this Review).
  2. The following non-related party transactions:

– related party transactions concluded using independent intermediaries

– foreign trade transactions for the following commodities traded in global stock exchange trading (oil, ferrous and non-ferrous metals, precious metals and stones, mineral fertilisers);

– transactions with persons and companies registered in offshore zones (tax havens). The list of such states is designated by the Russian Ministry of Finance.

Taxpayers who enter into transactions with related parties (controlled transactions) are obliged to file the respective notification to the tax authority on an annual basis. The controlled transaction notification and its completion procedure are approved by the Russian Federal Tax Service. Also the tax authority may request documents evidencing the pricing procedure and the market level of prices in controlled transactions.

Under the draft bill based on Action 13 of the BEPS Plan, the list of taxpayers who must report controlled transactions will remain virtually unchanged.


  • Aggregation of transactions

Taxpayers are free to compile information on controlled transactions and review a group of homogeneous transactions, meaning transactions with identical (homogeneous) goods (work, services), entered into in comparable commercial and/or financial conditions.

However, it is noteworthy that the Russian Tax Code establishes very broad and detailed provisions on comparability of the subject and conditions of transactions, which are difficult to conform with in practice.


  • Deadlines (timing)

According to applicable Russian Tax Code provisions:

  1. The controlled transaction notice should be filed on or before May 20 of the year immediately following the calendar year when the controlled transactions were concluded.
  2. The documents for tax control purposes for a particular transaction (group of transactions) are provided on a separate request from the competent tax authority. Documents may not be requested from the taxpayer before June 1 of the year immediately following the calendar year when the controlled transactions were entered into. Documents shall be provided by the taxpayer within 30 days from the request.


The draft bill based on Action 13 of the BEPS Plan establishes the deadlines for filing additional reports:

  1. Taxpayers participating in a multi-national enterprise (“MNE”) file the Notice of participation in the MNE to the tax authority within 8 months from the end of the last fiscal year for the parent company (see p. 4.2 of this Review).
  2. The CbC Report is filed by the parent company of the MNE or its authorized participant (which is a tax resident of the Russian Federation) within 12 months from the end of the fiscal year for which the consolidated statements of the group are filed. Also the tax authority in established cases (see p. 4.2 of this Review) may send a request to the Russian company participating in the MNE for provision of the CbC Report within a period of time that may not be less than three months.
  3. The Master file is provided by the taxpayer on the separate request from the competent tax authority within three months. The Local file is also provided on the separate request of the tax authority and must be provided within 30 days from the request.


  • Materiality

The general provision of the Russian Tax Code is that controlled transactions are transactions between related parties. However, there are some materiality thresholds. In particular, transactions between Russian companies using the general taxation system are recognized as controlled transactions only if the total income under transactions between them during the calendar year exceeds RUB 1 billion. For companies that apply a preferential tax regime, the thresholds are lower (the lowest such threshold is RUB 60 million).

Related party transactions where one party is not a Russian tax resident are controlled, irrespective of the amount.

As concerns the volume and the level of detail of the information disclosed to a tax authority, the Russian Tax Code contains a general recommendation to the taxpayer that the degree of detail and comprehensiveness of the documents presented to the tax authorities shall be proportionate to the degree of complexity of the transaction and the manner in which the transaction price is determined.


  • Retention of documents

General provisions of the Russian Tax Code establish that taxpayers are obliged to maintain for four years the accounting data and documents required for tax assessment and payment, in particular, documents evidencing the generation of revenues, incurring of costs and tax payments.


  • Frequency of documentation updates

The Russian Tax Code does not contain special provisions concerning the procedure for, and frequency of, updating the information.

However, as the controlled transaction notification is filed annually and information on the transactions entered into in a certain calendar year is requested in the course of the tax audit, the recommendation is that the taxpayers should update information on intra-group transactions annually.

According to the draft bill based on Action 13 of the BEPS Plan, the CbC Report, Master file and Local file are also to be prepared and updated annually.


  • Tax return disclosures

TP documentation on controlled transactions are not part of tax statements. The mere entering into controlled transactions is not disclosed in the income tax return. However, a separate report form (the controlled transaction notification) is filed with the tax authority.

If prices in related party transactions do not conform with market prices, resulting in the understatement of taxes, the taxpayer is free to independently and voluntarily adjust the taxable base and tax amounts in the annual return for the respective tax. The information that identifies the transaction, with respect to which the taxpayer independently adjusted the taxable base and the tax amount, is shown in explanations to the tax returns.


  • Burden of proof

When the tax authority implements control procedures in connection with related party transactions, the general rule is that the burden of proof is on the tax authority. For instance, if the taxpayer in assessing revenues in related party transactions reasonably applied one of the methods specified in the Russian Tax Code, the tax authority should apply the same method during the audit. Application of another method is only possible if the tax authority proves that the method the taxpayer applied does not enable one to determine if the conditions of the controlled transaction are comparable with those of arm’s length transactions.

However, if a taxpayer did not file the requested documents on controlled transactions or if the filed documents are clearly insufficient and unreasonable, the tax authority may apply its own more suitable method in the course of its audit. In the future, the burden of disputing the conclusions and additional tax amounts based on the tax audit shall pass to the taxpayer.


  • Penalties


  • General

According to Russian Tax Code non-provision of the controlled transaction notification when due, or provision of a notification containing unreliable information, entails a RUB 5,000 penalty.

According to the bill based on the Action 13 BEPS Plan penalties for non-filing of the new report forms are much higher:

  1. Non-filing of the Notice of participation in an MNE or filing a notice with unreliable information – RUB 50,000 penalty.
  2. Non-filing of the Master file or Local file at the request of the tax authority and when due – RUB 100,000 penalty.


  • Penalties in case of a TP adjustment

If the tax audit detects that the prices in related party transactions do not conform to those in arms’ length transactions, and this resulted in underpayment of taxes, the penalty is 40% of the underpaid tax amount but not less than RUB 30,000. The taxpayer shall be released from this liability if he submitted the documents substantiating the market level of the applied prices under controlled transactions in the course of the audit to the tax authority.


  • CbC reporting

According to the draft bill, based on the Action 13 of the BEPS Plan, non-filing of the CbC Report when due or filing of a report with unreliable information shall entail the imposition of a RUB 100,000 penalty.


  • Interest

If in connection with the non-market level of prices in controlled transactions the taxpayer adjusts the taxable base and the tax amount voluntarily and independently and pays the shortage on taxes on or before the profit tax payment date for the respective tax period, then no penalty interest is imposed.

If the assessment of the taxable base and underpayment of taxes were detected during a tax audit, the general provisions of the Russian Tax Code impose penalty interest for the untimely payment of taxes in the amount of 1/300 of the refinancing rate of the Russian Central Bank applicable at that time for each day of delay.


  • Use of most reliable information

The Russian Tax Code does not contain direct indications on the detailed content and sources of information used for analysis. Besides information on specific deals, information in public domain on the established level of the market prices and stock exchange quotations as well as data of information and pricing agencies can be used. Tax authorities recommend that links to documents and other information sources should be added to TP documentation on controlled transactions.


  • Languages

Under the general provisions of the Russian Tax Code, the statements, information and documents are filed to the tax authorities in Russian.

The CbC Report may be filed in a foreign language if the parent company of an MNE is not recognized as a Russian tax resident.


  • Confidentiality

According to the general provisions of the Russian Tax Code, any information on a taxpayer received by the tax authorities constitute tax secrets (except for certain information expressly stated in law).

The bill based on the Action 13 of the BEPS Plan contains special provisions with respect to information received from CbC Reports: the competent authority is entitled to transfer CbC Reports to competent authorities of foreign countries as part of the automatic exchange of information allowed under multinational treaties to which Russia has signed up.


  1. Standards with respect to the content of transfer pricing documentation


  • Master File

According to the draft bill based on the Action 13 of the BEPS Plan the Master File is compiled in a free form and should contain the following information:


  1. Organizational structure

Information on the ownership structure of the MNE, listing the persons who are participants and the countries where they operate (as a chart).


  1. Description of MNE’s business(es)

General description of business of the group of companies, including:

– the main factors influencing the financial performance;

– a description of the supply chain and the main suppliers of manufactured products and services;

– list and summary of the main intra-group service contracts, including the description of functional options of the main group participants involved in provision of these services and pricing approaches as part of the provided services of the group;

– a summary functional review of business of the group participants that influence the financial performance, in particular, description of the main performed functions, the assets in use, and the economic (commercial) risks undertaken;

– information on the main transactions related to the restructuring of business, and the purchase and disposal of assets in the fiscal year under review.


  1. MNE’s intangibles (as defined in Chapter VI of the OECD Transfer Pricing Guidelines)

– a description of the group’s strategy on development, possession and use of intangibles, in particular, placement of the main R&D centers and their management;

– a description of intangibles having a material impact on the pricing methods and the list of group participants holding such assets;

– a list of contracts related to intangibles as concluded between the group’s participants;

– a general description of the pricing method related to development, possession and use of intangibles;

– a general description of transactions involving the transfer of rights to intangibles between the group participants in the fiscal year under review, indicating such participants and the remuneration for such transfers.


  1. MNE’s intercompany financial activities

– a summary of the group’s financing system (including financing raised from persons other than group participants);

– an indication of the participants who act in the interests of the other participants of the group, including the countries (territories) that are the place of registration of such participants and their place of management;

– a general description of the pricing method related to financing of the group’s participants.


  1. MNE’s financial and tax positions

– consolidated financial statements for the most recent fiscal year (if not available, any consolidated statements for management, tax and other purposes);

– a list and summary of pricing agreements and tax explanations from competent authorities, applied in transactions between the group participants and related to revenue allocation between states.


  • Local File

So far, the procedure for preparing these documents is to a certain extent described in Section V.1 of Part 1 of the Russian Tax Code. Documents shall be a set of documents or single document drafted in a free format and containing the following information:

1) on the taxpayer’s business related to this transaction:

– the list of persons, who entered into the controlled transaction, a description of the controlled transaction, its conditions, including description of the pricing method

– the functions of parties to the transaction, the assets in use, and the economic (commercial) risks undertaken

2) information on transfer pricing methods:

– substantiation of the reasons for selection of the method being used;

– indication about the information sources used;

– calculation of the market price interval (profitability range) for the controlled transaction, with description of approach, and selection of the comparable transactions used;

– amount of received revenues (profit) and/or total incurred costs (losses) resulting from the controlled transactions;

– adjustments of the taxable base made by the taxpayer and amounts of tax (or losses) etc.


According to the draft bill on the basis of Action 13 BEPS Plan, for Russian companies participating in an MNE, for which the total revenues meet the established criterion (RUB 50 billion, see p. 4.1 of this Review), the Local file should additionally contain the following information:

  1. Local entity

– information on the taxpayer’s management structure as well as on other persons to whom the management reports are to be filed and countries (territories) where such persons carry out their core lines of business;

– information on the taxpayer’s operations and market strategy, as well as information on conducted restructuring and transfer (receipt) of intangibles;

– existing market competition level (main competitors, consumers of manufactured products, suppliers of raw and materials) and the impact of particular features of the competitive environment on pricing processes.


  1. Controlled transactions

– description of reasons based on which it was concluded that the price used in the controlled transaction meets the market price;

– description of adjustments made to align the transaction conditions;

– copies of material intra-group agreements that influence the pricing in controlled transactions;

– copies of pricing agreements, tax explanations of competent authorities, applied in transactions between the group participants related to the controlled transactions under review.


  1. Financial information

– auditor’s report on the financial statements (accounts) of the taxpayer for the most recent reporting period (if any).


  1. Country-by-Country reporting standards


  • Threshold and required content

In the bill based on the Action 13 of the BEPS Plan:

The requirement to submit a CbC Report (also to prepare a Master file and expanded Local file) applies to taxpayers being participants in a global group of companies (MNE), for which the overall revenues according to consolidated financial statements for the fiscal year exceeds RUB 50 billion, if the parent company of the group is a Russian tax resident. If the parent company of the MNE is not a Russian tax resident, the limit established in laws of the foreign country where the parent company is tax resident is used, if higher.

The CbC Report shall contain information on:

1) the overall income/revenues from transactions for the fiscal year, in particular including a breakdown of the overall amount of income/revenues for transactions with group participants and associated enterprises and total income/revenues from transactions with other persons;

2) the pre-tax profit/ loss for the fiscal year;

3) income tax paid in the fiscal period for which the report is drafted;

4) assessed income tax for the fiscal period, for which the report is drafted;

5) share capital as of the fiscal year end date

6) accumulated profit as of the fiscal year end date;

7) headcount for the fiscal year;

8) tangibles as of the fiscal year end date;

9) identity information for each group participant, indicating the state, according to the laws of which such participant was established, the state of its tax residency and the core lines of business of each group participant.

The CbC Report is submitted to the tax authority in the established format in electronic form (which has not yet been officially approved).


  • Notification requirement for subsidiary companies

As for subsidiaries operating in Russia which are part of major global groups, whose overall revenues exceed the established RUB 50 billion threshold, the draft bill based on the Action 13 of the BEPS Plan introduces the requirement to file a Notice of participation in the MNE, which contains the following information:

1) name and identity data of the taxpayer being a participant in a global group of companies;

2) information on whether or not the taxpayer that files the notice is a parent company or an authorized participant in a global group of companies;

3) name and identity data of the parent company and the state of its tax residency;

4) name and identity data of any other participant that has filed a CbC Report, being an authorized participant in a global group of companies, and the reasons substantiating its right to file a CbC Report;

5) the date of the last day of the period for which the consolidated financial statements are prepared.


As per the general rule, the CbC Report is filed by the parent company of the MNE or its authorized participant. However, a tax authority may require that a Russian taxpayer which is a group participant file this report in the following cases:

1) if the tax authority has received information from competent authorities of foreign states that the parent company or the authorized representative of the group has defaulted on its legal duty to submit the CbC Report;

2) if the state, whose tax resident is the parent company or the authorized participant of the group, is included in the list of countries that constantly default on their duties to automatically exchange CbC Reports, as approved by the competent federal executive body (the Russian Ministry of Finance).


We are also ready to provide you with the following services:

  • Conducting an audit in several stages.
  • Review of the financial statements.
  • Carrying out agreed upon procedures.
  • Tax audit.

More about services on site: AUDIT SERVICES.

We will be glad to start working with your company.

Our contacts:

Alexander Kulikov

Head of Audit and Taxation Department

Office : +7 495 988-21-91

Chet Bowling  

Managing Partner

Office : +7 495 988-21-91