This draft has been developed in accordance with recommendations from the Organization for Economic Co-operation and Development (OECD) as part of their Base Erosion and Profit Shifting (BEPS) project to reform the international taxation system. Of particular relevance is Action 13, which provides a three-tiered approach to the preparation of Transfer Pricing documentation. These consist of Country-by-Country Reporting (CbCR), master file documentation, and local transfer pricing documentation.

The bill obliges Russian taxpayers that are part of international groups, from 1 January 2017, to provide the following:

• Notification that they are part of their respective international group (by no later than 20th September of each calendar year);
• Country-by-Country Reporting in a format that meets the CbCR standards (by no later than 12 months from the date on which the financial year ends).

These Country-by-Country Reporting submission requirements apply to international groups with total revenue (according to their consolidated financial statements for the previous year) of at least 50 billion roubles (about € 650 million).

The obligation to submit Country-by-Country Reporting falls on:

• The parent company of the international group;
• The taxpayer that is the authorised member of the international group;
• The taxpayer that is a member of the international group (if the parent company of the group / the authorised member of the group is not tax resident in the Russian Federation and the Russian tax authorities are not able to obtain Country-by-Country Reporting prepared by these foreign companies).

It is expected that this law will come into force on 1 January 2017. New requirements will apply to subsequent financial years after 2017.

Groups may voluntarily submit Country-by-Country Reporting in relation to financial years before 2017.

The new bill allows a transitional period (2017-2019) to adapt to these new responsibilities. During this period, penalties for non-compliance will not be applied.

The penalty for failure to provide the documents or for providing inadequate documentation will be (from 2020 onwards):

• For notifications: 50,000 roubles;
• For Country-by-Country Reporting: 100,000 roubles.

In our opinion, the main objective of this bill is to give international groups the opportunity to voluntarily submit Country-by-Country reporting in Russia. However, it remains an open question as to whether voluntary submission of CbCR in Russia will constitute sufficient grounds to remove the obligation to submit CbCR independently for companies registered in other jurisdictions where requirements for CbCR have come into force (e.g. in the Netherlands, Italy).

We also believe that the current version of the bill being proposed for discussion will be improved, since it fails to answer the following questions clearly:

• What language should be used when preparing Country-by-Country Reports, and when providing additional comments (if necessary)? This matters, as the exchange of Country-by-Country Reporting with the tax authorities of foreign countries is presupposed;
• What sources of information should be used when preparing Country-by-Country Reports? Consolidated financial statements? The financial statements for each separate company? Management reporting? etc.;
• If consolidated financial statements are made in a foreign currency, what exchange rate should be used for converting that currency into rouble equivalent amounts when assessing if the group meets the RUB 50 billion threshold;
• How does with define which company is the entity authorised and responsible for submission of Country-by-Country Reporting;
• How is the period for the submission of the notification to be defined if the financial year differs from the calendar year;
• What should be on the lists of activity types that should be specified in Country-by-Country Reporting for each member of the international group?

In addition to the above, the current version of the bill specifies that Country-by-Country Reporting can be used for tax control purposes. In our opinion, this requires a more detailed explanation, especially as Action 13 specifies that tax authorities can use CbCR only for a preliminary estimation of transfer pricing risks; adjustments to the tax base cannot be performed based on CbCR data.

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