On July 18, 2011 the President of Russian Federation signed a Federal Law 227-FZ “On amending certain constitutional acts of Russian Federation in respect of developing principles of determination of prices for taxation purposes”

The new transfer pricing control regulation will be targeted to effective combating transfer pricing disposal aiming to avoid taxation and withdraw capital outside the country. Also, the policy offers additional tools for protecting the rights of law-abiding taxpayers in Russian Federation, including large holding companies, by means of providing fair competitive conditions. The position of this law fully coincides with the global tax practices.

 

The law determines specific individuals whose relationship can affect formed price on transactions among themselves and other related individuals. Therefore articles 20 and 40 of the Tax Code of Russian Federation become inoperative. 

 

In fact 3 legal grounds are defined to determine taxpayers interdependent:

Tax authorities have the right to control all transactions amongst such interdependent taxpayers, as well as:

The Law determines general provisions on prices and taxation and defines the methods to be used in estimation of compliance between transactions prices and market prices for taxation purposes.

This law provides 5 transactional methods of price compliance estimation:

1. Method of comparable market prices

2. Method of oncoming sales price

3. Costs method

4. Method of comparable profitability 

5. Method of profits distribution 

In comparison with effective article 40 of the Tax Code the Law enhances the list of sources used by taxpayers and tax authorities to define the compliance of transaction’s price and profitability to the market terms.

Special attention in the law is paid to the control of transactions prices (profitability) compliance to the market conditions. Also, the law introduces a new procedure for the Russian market –conclusive pricing agreement. Also the law stipulates the right of taxpayer to conduct symmetrical correction of tax basis and the amount of tax. 

The power to control transactions for taxation purposes and accept pricing agreements is assigned exclusively to the FTS of Russia Headquarters.

The Law enters into effect since January 1, 2012 taking into account transitional provisions.