In September 2016, proposed draft legislation that would introduce a new format for transfer pricing reporting by multinational corporate groups was released for public discussion. At that time, it was anticipated that the new rules would be effective beginning 1 January 2017. However, the Russian Ministry of Finance in March 2017 published amendments that would add new provisions to the Russian tax law regarding the international automatic exchange of financial account information, and that would provide new standards for transfer pricing documentation for multinational corporations.  At present, the measures have not be finalized, and most likely the draft legislation will be considered by the parliament in the autumn of 2017.

Some of the changes in the draft legislation concern:

• CbC reporting would apply for multinational group companies (MNE) with annual consolidated group revenue equal to or exceeding RUB 50 billion (approximately €650 million)  for the prior year. 
• The deadline for making the CbC report submission would be no later than 12 months after the last day of the financial year of the MNE.
• Regulations would extend CbC reporting to subsidiary entities.
• If the parent entity is foreign, the local threshold would be used to determine if a CbC report is required. 
• There is no direct explanation as to how the consolidated group revenue threshold would be calculated if the parent entity is in a foreign jurisdiction that does not require the submission of a CbC report. 
• If the ultimate parent entity of an MNE or an authorized member of an MNE compiles consolidated financial statements in a currency other than the currency of the Russian Federation, the revenue amount would be converted into rubles, applying the official annual average exchange rate of the respective foreign currency to the Russian ruble in the financial year immediately preceding the financial year for which the CbC report must be filed (the 2016 version of the legislation would have required use of the official exchange rate as at the end of the financial year).
• Entities would be required to notify the Russian tax authorities that a Russian taxpayer is part of a multinational group within eight months (not three months as stated in the 2016 version of the draft law) from the end of the last fiscal year of the parent entity. For example, if the year ends on 31 December 2017, this would mark the first reporting period. The first deadline for notifications would thus be on 30 August 2018.
• The option of submitting a singular notification on behalf of several Russian-based entities that are members of the same MNE would be available. Thus, either the ultimate parent entity, the MNE’s surrogate parent entity, or even another MNE’s constituent entity in Russia (if designated by the ultimate parent entity) could submit notification containing a full list of the Russian-based constituent entities.
• Under the penalty provisions, a failure to provide the notification or the provision of incorrect information will result in a penalty of up to RUB 50,000 (but penalty would not be applicable for 2017-2019). Failure to submit a CbC report when required or submission of incorrect information would result in penalties of up to RUB 100,000 (penalty not applicable for 2017-2019). However, if the taxpayer identifies inaccuracies in the filed CbC report and submits a revised version before it is discovered by the tax authorities, this could result in the taxpayer not being subject to sanctions.
• The data sources for the CbC report would be based on consolidated financial statements prepared in accordance with IFRS or any other globally accepted accounting standards, or other local standards, as long as there is consistency in the chosen approach.

The requirements for the Master file’s contents are described in more detail in the amended draft legislation, and are better aligned with the OECD recommendations as published as part of the base erosion and profit shifting (BEPS) Action 13. Another change that would bring additional concerns to the Russian-based subsidiaries that are members of the MNE is that the 2017 version of the draft legislation would allow the Russian tax authorities to directly request the Master file from Russian taxpayers that are members of an MNE, rather than requesting it from the ultimate parent entity. 

A failure to submit a Master file when required, or if incorrect information is submitted, there would not be a penalty (the 2016 version of the draft law prescribed a penalty of RUB 100,000).

The requirement to prepare a Local file arises for Russian taxpayers that:

• Are members of MNEs with consolidated revenue exceeding RUB 50 billion (or an equivalent threshold applied by foreign law to the non-Russian resident ultimate parent entity)
• Conduct transactions with a related party or related parties of the same MNE and that are not Russian residents

The 2017 amendments provide that the Local file must contain the same structure and content as the national transfer pricing documentation with respect to controlled transactions that taxpayers must prepare under current Russian transfer pricing rules for taxation purposes. A difference arises in the part concerning the additional information that must be included to complete the document with content in line with OECD recommendations published as part of BEPS Action 13. The 2017 amendments to the draft legislation do not expressly state that national transfer pricing documentation is fully replaced by the Local file, and neither is it specified whether the Local file is to be prepared for one particular transaction (as it would be for national transfer pricing documentation) or for all transactions.

A Russian taxpayer that is part of an MNE must provide the Local file upon request from the tax authorities within the same time period as stipulated for the local transfer pricing documentation on controlled transactions (that is, not earlier than 1 June of the year following the calendar year in which the controlled transactions took place, and within 30 business days from date of request by the tax authorities). The failure to submit the Local file when required or for submitting incorrect information would not result in a penalty (the 2016 draft law prescribed a penalty of RUB 100,000).

Country information—that is, the CbC report, Master file, Local file—would have to be presented in Russian, and all amounts would be reported in Russian rubles. However, there is nothing to prevent taxpayers additionally presenting country information in a foreign language. There is an exception granted only to MNEs that have an ultimate parent entity that was not a Russian tax resident in the reporting year. In such instances, the CbC report could be provided in a foreign language.

New definitions or updated definitions are provided in the 2017 draft legislation, that are in line with the OECD guidelines published as part of BEPS Action 13, for the following terms:

• MNE’s ultimate parent entity
• MNE’s authorized entity
• Consolidated revenue

For more information, contact a tax professional with KPMG’s Global Transfer Pricing Services practice in Russia:

Natalia Valkovskaya | +7 495 514 13 05 | nvalkovskaya@kpmg.ru