Amendments to the Russian Tax Code concerning TP and MPA adopted by the State Duma in the third reading
Amendments to Russian Tax Code concerning TP & MAP
The draft law, aimed at achieving key policy aims for Russia’s budget and tax policies, as well as the BEPS Plan 14 (No. 720839-7) was adopted on 19 September by the State Duma in the third reading.
The draft law, aimed at achieving key policy aims for Russia’s budget and tax policies, as well as the BEPS Plan 14 (follow this link to read the draft No. 720839-7) was adopted on 19 September by the State Duma in the third reading.
We would like to draw your attention to the final draft law which introduces several amendments to the previous versions. The main amendments relating to transfer pricing are as follows:
1. Amendments to transfer pricing tax control on transactions with intangibles
The draft law suggests conducting the specialised functional analysis for transactions with intangibles that takes account of: (1) DEMPE functions and risks (development, enhancement, maintenance, protection and exploitation of intangibles) and (2) additional comparability criteria for intangibles (e.g. their exclusivity, legal protection terms, etc.).
In contrast to the initial version, the above comparability criteria are in form of recommendations and are not mandatory, as strict adherence to all suggested criteria would make the CUP method inapplicable in practice.
The draft law also includes amendments to Article 105.13 of the Russian Tax Code (“RTC”) relating to the Profit Split method. For the application of this method, the economic ownership and control over intangibles has parity with the legal ownership.
2. Amendments to the calculation of the arm’s length range in commodity transactions
In relation to commodity transactions, draft amendments are made to p. 5 of Article 105.9 of the RTC, where the wording “prices registered by the exchange at the date of [the transactions’] conclusion” will be changed to “prices of the transactions executed on the exchange during a similar period of time where circumstances are comparable”. These amendments are aimed at clarifying the calculation of the arm’s length range and the application of the quoted period for commodity transactions.
3. Development of a Mutual Agreement Procedure, ‘MAP’
The detailed implementation procedure proposed by previous versions of the draft law have been removed (i.e. all references to the motivated tax authorities’ opinion, requests of documents from taxpayers, etc. are excluded). In particular, the current draft law in the RTC envisages the following:
— the MAP may result in a tax refund or offset (including instances where tax base adjustments were made based on the TP rules);
— the procedures and deadlines for submitting a taxpayer’s application and its further review shall be established by the Russian Ministry of Finance based on Russia’s existing double tax treaties;
— a taxpayer or the competent foreign authority (in relation to the country with whom Russia has a double tax treaty) may initiate the MAP in Russia.
Although the final draft law proposes a more simplified approach for MAP the detailed procedures will be available from the Russian Ministry of Finance after the law is effective.
The proposed amendments are still subject to the signing by the President before becoming effective. It is expected that amendments to the RTC will enter into force on 1 January 2020.
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