Dentons' Tax practice would like to remind you that, for transactions completed in 2015, the notice of controlled transactions must be filed with the tax authority at the taxpayer's location (place of residence, registration) on or before May 20, 2016, and taxpayers may be asked to provide supporting documentation on transfer pricing ("Transfer Pricing") starting June 1, 2016. The supporting documentation must be submitted within 30 business days of when the Federal Tax Service of Russia notice is received.
It should also be borne in mind that, although the Russian Ministry of Finance has in effect admitted that its previous clarifications, which allowed tax audit of pricing in arm's length transactions (transactions which by law shall not be treated as controlled) were in error (see Letter No. 03-01-18/35527 of June 19, 2015), the tax authorities continue to actively monitor prices in such transactions.
In most cases the courts state that transfer pricing audits by the local tax authorities are unlawful in principle; however, this is usually preceded by examination on the merits of whether a price is a market price.
Moreover, as an RF Supreme Court judge said in the Oriflame case, a lack of substantiation that the amount of expenses is consistent with the market, inter alia, can evidence that license fees were improperly deducted, although the tax authority was not even disputing that circumstance.
In this regard we recommend that the following should be done in advance:
- To prepare a notice on controlled transactions made in 2015;
- To prepare transfer pricing documentation for 2015 and update the documentation for previous periods that may yet be audited, considering the developing court practice on transfer pricing, in particular, having to do with debt obligations, lease, the sale of goods, and transactions involving participatory interests in limited liability companies;
- Assess the risks of pricing claims being brought with regard to arm's length transactions made by your company and, if necessary, work out and implement ways of eliminating or minimizing them.
Based on considerable experience in transfer pricing acquired through advising, including on preparing transfer pricing documentation and structuring deals, and also handling court disputes on matters of how transfer pricing in transactions affects their tax consequences, the Dentons' Tax practice is ready to assist you in preparing and updating transfer pricing documentation, including for transactions involving shares (participatory interests); intellectual property; loan transactions and other transactions to raise financing with the use of debt instruments; for contracts for the supply of goods; performance of work; provision of services; for nonstandard and mixed transactions; in building a sound position on transfer pricing with due account for the specifics of your situation, and in preparing the notice on controlled transactions.
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