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Russia: Draft legislative amendments to revise APA measures

Russia: Draft legislative amendments

The Russian Ministry of Finance in late March 2020 released an updated version of a draft law, known in English as: “On amending part one of the Russian Tax Code to improve tax control over prices, and on the procedure for entering into advanced pricing agreements.”


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The draft legislation is intended to optimise the procedure governing the conclusion of advance pricing agreements (APAs), to define the conditions when transactions can be regarded as controlled, and to introduce some other specific amendments to the provisions of the Russian tax law. 

The draft measures are expected to be adopted in 2020 and have an effective date from 1 January 2021, so that the provisions would apply to transactions for which income and/or expenses will be recognised in accordance with Chapter 25 of the Russian tax law beginning from 1 January 2021. 

Amendments to the APA conclusion procedure

The key amendments included in the draft legislation include items that would:

  • Give taxpayers that have completed a foreign trade transaction and applied for an APA involving foreign tax authorities the right to state in their APA the price control method used under the laws of the foreign jurisdiction. This right would be available on the condition that the result from using this method would be comparable with the results gained from application of the method stipulated by Article 105.7 of the Russian tax law.
  • Provide an option for a unilateral APA, if following consideration of an APA draft, the Russian and foreign tax authorities fail to reach a mutual agreement.
  • Place limits on tax audits of transactions covered by an APA, unless a decision has been made to conclude or deny the APA.
  • Change the procedure covering deadlines so that the deadline for considering an APA application, along with other associated documents, would run from the date of submission of the APA application (currently this deadline is calculated from the date of the APA application submission along with all related documents). This amendment would aim to mitigate the risk of delays in the APA conclusion process.
  • Remove the need to submit documents already in the possession of the tax authorities (in the context of considering an application to conclude an APA).
  • Provide an option to extend an APA to cover a period from the first day of the calendar year in which the taxpayer initially applied for an APA, through to the effective date of the APA, if following consideration of the initial APA application, an APA was denied on the grounds that mutual agreement was not achieved with the tax authorities of a foreign counterparty.

Other amendments would require taxpayers to conduct significant preparatory work in applying for an APA such as:

  • The list of reasons for refusing to conclude an APA would be expanded to include:
    • A failure to reach a mutual agreement with the tax authorities of a foreign counterparty
    • A failure by the taxpayer to submit additional details in due course
    • The taxpayer disagrees with the decision requiring it to revise an APA draft
    • The taxpayer disagrees with a decision to enter into an APA by refusing to execute the APA, including the taxpayer fails to sign the execution documents
  • A special procedure for tax audits would be introduced for controlled transactions—for transactions when an application to conclude an APA was submitted and denied, the deadline for initiating an audit would be determined from the date of the decision to deny the application (and running for the subsequent two years from the date of such a decision). In addition, periods for which controlled transactions may be audited would be expanded from three years to five years.
  • The period in which an APA could be considered would be significantly extended if it involves foreign trade transactions involving foreign tax authorities. The new time period would be 24 months from the moment an application is accepted. However, this consideration period would also be extended to 27 months, though it could be suspended for periods in which foreign tax authorities are providing documents as part of the mutual agreement procedure under an applicable income tax treaty.
  • The period of time for a taxpayer to provide additionally requested APA-related documents would be limited to 10 business days from receipt of a relevant request. The time period for supplying a revised APA draft and associated documents relating to a controlled transaction would be limited to 30 business days from receipt of the relevant request by the taxpayer.
  • A taxpayer would be required to notify the tax authorities in writing if a foreign counterparty submits an application to enter into an APA, no later than six months from the date of submission by the foreign taxpayer of such an application.

Other amendments

The draft law seeks to clarify several provisions regarding the definition of a controlled transaction. These amendments are intended to:

  • Determine the correct application of Article 105.14 of the Russian tax law in respect of foreign trade transactions involving ferrous metals, mineral fertilizers, and precious stones by way of eliminating discrepancies between the conditions for declaring transactions controlled, as established by paragraph 2 of Clause 1, and by Clause 5 of Article 105.14. As a result, foreign trade transactions involving the above groups of goods and executed with unrelated parties could become “controlled” when the relevant international business classification (TNVED) codes are introduced, as allowed by an order of the Russian Ministry of Industry and Trade.
  • Codify the rules previously reflected in interpretations published by the Russian Ministry of Finance regarding threshold calculations. For persons gaining income from transactions but not calculating corporate profit tax pursuant to the provisions of the Russian tax law, it is proposed that the estimated amount of income from transactions would be calculated, and declared controlled subject to the procedure established by Chapter 25 of the Russian tax law, using the accrual method.

For more information, contact the Global Leader of KPMG’s Global Transfer Pricing Services:

Komal Dhall | +1 212 872 3089 |

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