On January 1, 2024, stricter transfer pricing regulations will come into force in Russia. These changes in the area of transfer pricing apply to transactions carried out from 2024 onwards. The corresponding draft law No. 448566-8 was adopted and published on 27.11.2023 as Federal Law No. 539-FZ.
The biggest concern of companies with regard to the new TP rules is the new approach to price adjustments, in particular the so-called "secondary adjustments". The income of a non-resident taxpayer resulting from such adjustments will be considered as dividends and subject to 15% withholding tax, while an exemption from tax is possible if the adjustment amount is repaid to the account of the Russian paying company. The second important change is that the adjustment resulting from the TP audit will be made up to the median value of the market price/profitability interval and no longer up to the minimum limit, as was previously the case.
This significant tightening of the TP rules shows the clear intention of the legislator to address the growing problem of cash outflow from the Russian Federation under consideration of the current foreign exchange restrictions, the cause of which lies in non-market prices within transactions that allow higher amounts to be paid abroad.
Under the current circumstances we may expect a significant increase in the number of TP tax audits, as well as additional tax charges and fines for companies.
In addition, the legislative changes will extend the list of interrelation criteria and set forth the obligation to provide more detailed information. The fines for violations will also be significantly increased.
Thus, for non-payment of tax due to non-market pricing in controlled cross-border transactions, the fine will be 100% of the amount of unpaid tax, but not less than RUB 500,000, and for domestic transactions it will be 40% of the amount of unpaid tax, but not less than RUB 30,000. Other fines for non-submission or submission of documents with false information will also be increased by a multiple:
- for notifications on controlled transactions: RUB 100,000 instead of RUB 5,000;
- for notifications on participation in a multinational enterprise group (MNE): RUB 500,000 instead of RUB 50,000;
- for country-by-country reports / master files / local files / financial reports of an MNE participant: RUB 1 million instead of RUB 100,000.
In addition, a new fine of RUB 500,000 will be introduced for failure to submit documentation related to a specific transaction or a group of transactions.