Provisions of Article 269 of the Russian Tax Code that have come into effect
The new provisions in Article 269 introduce the following procedure for recognising income and expenses on debt obligations (including credits, trade and commercial credits, loans, bank deposits, bank accounts or other borrowings, regardless of their form):
KPMG understands that many taxpayers already use a particular methodology to determine the interest rates on intra-group debt obligations. Amending these methodologies should be considered before taking into account the new provisions of Article 269.
KPMG believes that, based on the effective provisions of the Russian Tax Code, taxpayers can use the range limits set by Article 269 and continue applying their own methodology (if it is in line with market principles), as both these options are available under Article 269.
At the same time it should be noted that when entering into transactions with foreign counterparties, it is necessary to comply not only with the Russian tax legislation, but also with international regulations. In particular, pursuant to the provisions in most double tax treaties, the provisions apply only to the portion of a consideration that is aligned with market levels. Thus even if the interest rate has been determined using the range limits established by clause 1.2 of Article 269 of the Russian Tax Code, in order to recognise expenses on transactions with foreign counterparties, KPMG recommends that a separate analysis on the market level range for interest rates is conducted to ensure the correct calculation of the tax which is to be withheld (“withholding tax”) if the rates deviate from the market level range.
For further information on applying the provisions in Article 269, please refer to this publication.
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