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Transfer Pricing

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Our tax lawyers have extensive experience of dealing with tax authorities on transfer pricing cases and bringing those cases to a successful resolution. Our practical experience, together with our in-depth financial and economic knowledge, enables CMS to provide world-class, strategic advice. Our expertise covers the full scope of transfer pricing issues, from advanced planning to the practical management of tax audits, using international and local documentation, and integrating transfer pricing policies with other Russian tax and legal issues. This includes: Local and global transfer pricing documentation.

Russia has implemented provisions requiring organisations to document their transfer pricing policies. Severe penalties will be introduced for a failure to provide certain documentary evidence in the event of a transfer pricing adjustment to a tax return. Consequently, as an MNE, you should ensure that your Russian transfer pricing policy is properly established, recorded and regularly reviewed. All major pricing decisions relating to intra-group transactions should be fully documented, and the documentation carefully preserved in accordance with local requirements. This should help avoid unpleasant surprises such as penalties or significant defence costs, in the event of a tax audit of your Russian business.

Financial and economic studies

Financial and economic studies have become essential for supporting an organisation’s transfer pricing methodology and documentation requirements. It should be noted that the Russian tax authorities can use various official sources of information – both foreign and domestic - to justify their tax adjustments; therefore detailed technical analysis is critical to support the data that an MNE uses to justify its pricing.

Transfer pricing policies for intellectual property Intangibles, such as trademarks and R&D activities, represent a significant component of the transfer pricing policy of an MNE as a tool for tax optimisation and cash repatriation.

The location of intangibles and corresponding cross-border flows are therefore one of the major items to be addressed in your Russian transfer pricing strategy.

Tax audits and litigation Over recent years, tax audits have increasingly focused on transfer pricing adjustments and often lead to double taxation. As a consequence, MNEs may well be required to robustly defend their current transfer pricing policy in Russia.

Our CMS lawyers have substantial experience both in the field of tax audits and litigation in Russia, and can therefore advise both on the substantive matters of a case and the procedural strategy to implement it. This is becoming ever more important as transfer pricing litigation increasingly rests on the determination of fine points of law and technical interpretation, as well as highly complex economic issues.

Advance pricing agreements MNEs may confirm in advance the arm’s length nature of their intra-group transfer prices by entering into advance pricing agreements with the Russian tax authorities. Such agreements can remain effective for a period of three to five years. In Russia unilateral, bilateral and multilateral agreements are now available. Based on our extensive expertise across Europe, we can offer detailed advice on the various options for underwriting your Russian transfer pricing position.

An integrated tax and economics approach

CMS firms have developed an integrated transfer pricing practice with its own economic resources. This team is able to provide you with a full range of economic analysis, from standard comparables searches to more complex studies such as activity-based costing, applications of the game theory and business or asset (including intellectual property) valuation. Our Europe-based economics team has managed and coordinated the work of recognised local experts in North and South America and Asia, enabling our practitioners to deliver truly global advice.

A coordinated, international team

To effectively address your transfer pricing needs, we have created a working group composed of tax lawyers and economists who regularly share expertise and experience. The group works closely with CMS lawyers specialising in other areas of law (such as intellectual property, customs and excise duties and VAT) in order to understand all aspects of our clients’ business and to add significant value.

In addition, CMS commercial lawyers can assist with drafting the agreements necessary to formalise a client’s chosen transfer pricing policy. As a result of our extensive European presence, together with our worldwide network of transfer pricing correspondents, we are able to provide you with a single contact partner in your home jurisdiction, or other relevant country, who will coordinate the wider team of specialists on your behalf. A proven track record and a prestigious client base CMS’ expertise in transfer pricing allows our lawyers to negotiate with Russian, European and global authorities.

We have been retained to negotiate Advance Pricing Agreement (“APA”) procedures between many European countries and other jurisdictions, such as the United States and Singapore. We are regularly involved in managing Competent Authority procedures between various countries including France, the United Kingdom, Germany, Switzerland, Spain, Australia, Japan and the United States. We have also successfully resolved a major case within the framework of the Italian procedure of “International Ruling”.

CMS works for many MNEs on transfer pricing matters, including more than half of the French index CAC 40 and a number of FTSE100 companies.

Authors

Portrait of Hayk Safaryan
Hayk Safaryan
Partner
Moscow

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20/05/2022
Rus­si­an tax meas­ures to sup­port busi­ness and latest tax trends for for­eign...
The Rus­si­an Tax Code is un­der­go­ing sig­ni­fic­ant changes to help busi­nesses ad­apt and stay afloat.In their turn, for­eign busi­nesses, act­ive in Rus­sia, cur­rently face un­pre­ced­en­ted chal­lenges and are seek­ing...
29/03/2022
Po­ten­tial chal­lenges in pay­ing VAT on elec­tron­ic ser­vices
In the cur­rent eco­nom­ic and polit­ic­al en­vir­on­ment, and tak­ing in­to ac­count the lim­it­a­tions now im­posed by many for­eign banks with re­spect to the trans­fer of funds to Rus­sia, we ex­pect that for­eign pro­viders of elec­tron­ic ser­vices may face prac­tic­al dif­fi­culties with pay­ing VAT to the Rus­si­an budget for the first quarter of 2022. Ac­cord­ing to the ap­plic­able le­gis­la­tion, the tax is due to be paid on or be­fore 25 April 2022.Ac­cord­ing to the in­form­a­tion at our dis­pos­al, In­ter­re­gion­al tax in­spec­tion No. 7 in charge of the elec­tron­ic ser­vices’ agenda is col­lect­ing in­form­a­tion from tax­pay­ers on ex­pec­ted prob­lems with pay­ments with a view to provid­ing tech­nic­al solu­tions.That be­ing said, for­eign pro­viders of elec­tron­ic ser­vices in Rus­sia should con­firm with their for­eign banks in ad­vance wheth­er it is pos­sible to pay VAT to the Rus­si­an budget in due time. Any prob­lems iden­ti­fied may be re­por­ted to the In­ter­re­gion­al tax in­spec­tion No.7 via the feed­back form in the tax­pay­er’s on­line ac­count.For­eign pro­viders of elec­tron­ic ser­vices may also dis­cuss with their Rus­si­an cus­tom­ers the VAT pay­ment mech­an­ism for the flows. For ex­ample, the Rus­si­an cus­tom­er may choose to vol­un­tar­ily with­hold the VAT due from the pay­ment made to the for­eign pro­vider, us­ing the mech­an­ism provided in the let­ter* of the Fed­er­al Tax ser­vice dated 24.04.2019 No. СД-4-3/[email protected] However, this ap­proach may be ap­plied only in re­spect of fu­ture pay­ments to the for­eign pro­viders.* In Rus­si­an
18/03/2022
Rus­si­an Fed­er­al Tax ser­vice com­ments on the arm’s-length level of loss-mak­ing...
The Rus­si­an Fed­er­al Tax Ser­vice has, for the first time, ac­know­ledged that a loss-mak­ing trans­ac­tion may still be con­sidered arm’s-length for trans­fer pri­cing pur­poses in Rus­sia in its let­ter No. ShYu-4-13/[email protected]* dated 5 March 2022 (the “Let­ter”).Ac­cord­ing to the Let­ter, in the cur­rent eco­nom­ic en­vir­on­ment, where the ap­plic­able sanc­tions in­tro­duced at the US and EU level may in­flu­ence the eco­nom­ic con­di­tions of com­mer­cial trans­ac­tions, Rus­si­an tax­pay­ers may be forced to sell their goods pro­duced for ex­port­a­tion abroad with a dis­count, which may in cer­tain cases lead to a loss res­ult­ing from such trans­ac­tions.This be­ing said, the Fed­er­al Tax Ser­vice should con­sider that these cir­cum­stances may in­flu­ence the pri­cing ap­plied in, and the res­ults of such trans­ac­tions, when con­duct­ing the trans­fer-pri­cing con­trol over such trans­ac­tions and when con­sid­er­ing ap­plic­a­tions for ad­vance price agree­ments filed by tax­pay­ers.Com­ment­sAl­though Rus­si­an tax au­thor­it­ies have his­tor­ic­ally pro­nounced their in­ten­tion to con­sider the eco­nom­ic cir­cum­stances of the trans­ac­tions per­formed when con­duct­ing trans­fer-pri­cing audits, they have nev­er be­fore in prac­tice con­firmed the pos­sib­il­ity of re­cog­nising loss-mak­ing trans­ac­tions as per­formed in com­pli­ance with trans­fer-pri­cing re­quire­ments.This was not even the case dur­ing the COV­ID-19 pan­dem­ic, when tax au­thor­it­ies sug­ges­ted that tax­pay­ers ap­ply the ad­just­ments aimed at en­sur­ing the com­par­ab­il­ity of the com­mer­cial terms of tested trans­ac­tions, which was for­mu­lated rather vaguely in Rus­si­an tax le­gis­la­tion.However, this new ini­ti­at­ive, al­though rep­res­ent­ing a pos­it­ive shift in the per­cep­tion of Rus­si­an tax au­thor­it­ies, still leaves a vast num­ber of open ques­tions to be cla­ri­fied.For ex­ample, it is not clear what eco­nom­ic cir­cum­stances Rus­si­an tax au­thor­it­ies will ac­tu­ally con­sider when as­sess­ing the com­pli­ance of the trans­ac­tion with the arm’s-length prin­ciples. In prac­tice, ac­com­pa­ny­ing eco­nom­ic con­sequences of the sanc­tions, such as ex­change-rate volat­il­ity or tem­por­ary sus­pen­sion of cer­tain busi­nesses in Rus­sia, may have even stronger in­flu­ence on the res­ults of the com­mer­cial trans­ac­tions than the im­me­di­ate re­stric­tions in­tro­duced as part of the sanc­tions pack­ages.Moreover, the Let­ter ex­pli­citly ad­dresses the tax­pay­ers en­gaged in ex­port­a­tion of the goods pro­duced, while cur­rent eco­nom­ic con­di­tions will likely in­flu­ence the prices charged in and the res­ults of vari­ous types of trans­ac­tions per­formed in Rus­sia, in­clud­ing im­port­a­tion of goods to Rus­sia, pro­vi­sion of works and ser­vices, trans­ac­tions with in­tel­lec­tu­al prop­erty, etc. It is un­clear wheth­er sim­il­ar ap­proaches would ul­ti­mately be ap­plic­able to a wider range of cross-bor­der trans­ac­tions, fall­ing un­der trans­fer-pri­cing con­trol.Fi­nally, the Let­ter does not ad­dress the pos­sib­il­ity of per­form­ing cross-bor­der ad­just­ments aimed at re­duc­tion of tax pay­able to the Rus­si­an budget, cur­rently pro­hib­ited un­der the le­gis­la­tion in force. However, such ad­just­ments may in fact be re­quired in the cur­rent con­di­tions, es­pe­cially in cases when the Rus­si­an parties to the con­trolled trans­ac­tions hold en­tre­pren­eur­i­al status, and are thus gen­er­ally bound by the ob­lig­a­tion to en­sure arm’s-length prof­it­ab­il­ity to their routine coun­ter­parties.Our tax team will be closely mon­it­or­ing fur­ther anti-crisis de­vel­op­ments in the trans­fer pri­cing do­main and will re­port on any such changes.* In Rus­si­an
14/03/2022
The Mo­scow of­fice of CMS to con­tin­ue as an in­de­pend­ent law firm
Dear FriendsWe have been through a lot dur­ing 30 years in Rus­sia. Now a dif­fi­cult de­cision has been taken by CMS to leave the Rus­si­an mar­ket. We are grate­ful to our in­ter­na­tion­al col­leagues for their...
14/03/2022
Fourth stage of Rus­si­an cap­it­al am­nesty be­gins
On 9 March 2022, the Rus­si­an Pres­id­ent signed the Law* on the fourth stage of the cap­it­al am­nesty. Ac­cord­ing to the Law, un­der the fourth stage, in­di­vidu­als will be able to sub­mit, between 14 March 2022 and 28 Feb­ru­ary 2023, a spe­cial de­clar­a­tion re­flect­ing as­sets sub­ject to leg­al­isa­tion. The am­nesty will ap­ply to acts com­mit­ted be­fore 1 Janu­ary 2022.Cap­it­al am­nesty is the vol­un­tary de­clar­a­tion by in­di­vidu­als of their for­eign ac­counts, real es­tate, se­cur­it­ies and oth­er prop­erty held abroad. It in­volves the trans­fer of de­clared prop­erty to Rus­sia without crim­in­al, ad­min­is­trat­ive and tax li­ab­il­ity when the rel­ev­ant vi­ol­a­tions are re­lated to the de­clared prop­erty and ac­counts.Un­der the first three stages, which took place in 2015, 2017 and 2019, in­di­vidu­als were en­titled to sub­mit in­form­a­tion to the Fed­er­al Tax Ser­vice on land and oth­er im­mov­able prop­erty, vehicles, se­cur­it­ies (in­clud­ing shares), as well as par­ti­cip­at­ory in­terests and equity stakes in or­gan­isa­tions, con­trolled for­eign com­pan­ies and bank ac­counts loc­ated out­side Rus­sia that had not been de­clared be­fore.In con­trast to the pre­vi­ous stages, in­di­vidu­als will also be able to de­clare cash. Also, the word­ing “se­cur­it­ies” has been re­placed by “fin­an­cial as­sets”, al­low­ing not only shares and bonds, but also de­riv­at­ive fin­an­cial in­stru­ments (e.g. fu­tures, op­tions, etc.), to be de­clared in the fourth stage. The list of sup­port­ing doc­u­ments to be at­tached to the spe­cial de­clar­a­tion has been sup­ple­men­ted.In re­la­tion to cash, guar­an­tees will be giv­en provided that the de­clar­ant de­pos­its the cash spe­cified in the de­clar­a­tion in­to cur­rent or sav­ings ac­counts with Rus­si­an banks with­in 30 days from the date of sub­mis­sion of the de­clar­a­tion to the tax au­thor­ity.Com­ment­sThe Law does not cla­ri­fy how cash de­pos­its in­to bank ac­counts will be con­firmed. It is also un­clear wheth­er cash flow state­ments on for­eign ac­counts will be audited and wheth­er it is ne­ces­sary to have doc­u­ments to prove the trans­ac­tions re­flec­ted in them. In this re­gard, we will fol­low fur­ther de­vel­op­ments in this area and keep you in­formed of new cla­ri­fic­a­tions.Those who par­ti­cip­ated in the pre­vi­ous stages of the cap­it­al am­nesty can also par­ti­cip­ate in the fourth stage. However, the Law does not provide for re­peat de­clar­a­tions with­in a single stage (i.e. a de­clar­a­tion can be sub­mit­ted only once). As a res­ult, it is im­port­ant to ana­lyse all as­sets and as­sess the pos­sib­il­ity of de­clar­ing, guar­an­tees and risks.The CMS Rus­sia team is ready to as­sist in this field by not­ably:car­ry­ing out an as­set ana­lys­is to as­sess the feas­ib­il­ity of par­ti­cip­at­ing in the cap­it­al am­nesty (in­clud­ing wheth­er it is pos­sible to file a de­clar­a­tion, con­sequences, be­ne­fits of ob­tain­ing guar­an­tees and po­ten­tial risks);pre­par­ing a spe­cial de­clar­a­tion and re­ports for pre­vi­ous peri­ods (i.e. ODDS, 3-ND­FL);as­sist­ing with the pre­par­a­tion of a set of sup­port­ing doc­u­ments;as­sist­ing with fil­ing re­turns to the tax au­thor­it­ies.  * In Rus­si­an
17/02/2022
Pe­cu­li­ar­it­ies of re­port­ing for 2021 and 2022
Please join us on 17 Feb­ru­ary 2022 to hear about our new cli­ent ser­vice line and the re­port­ing re­quire­ments for 2021 and 2022.Eka­ter­ina Usova, Ac­count­ing and Re­port­ing Lead Man­ager, and Olga Odint­sova, Part­ner...
28/01/2022
Leg­al de­vel­op­ments that may af­fect your busi­ness in 2022
CMS Rus­sia ex­perts have pre­pared their an­nu­al se­lec­tion of the most sig­ni­fic­ant leg­al de­vel­op­ments that may af­fect your busi­ness in Rus­sia in 2022.
16/11/2021
What’s new: over­view of Rus­si­an tax law de­vel­op­ments, in­ter­na­tion­al tax...
We are glad to in­vite you to our next tax we­bin­ar on Rus­si­an re­cent sig­ni­fic­ant tax law changes, in­ter­na­tion­al tax­a­tion and court prac­tice. Please join us on 16 Novem­ber at 9:00 am CET (11:00 am Mo­scow...
01/11/2021
Do­ing busi­ness in Rus­sia
This is the new edi­tion of the CMS Do­ing busi­ness in Rus­sia guide. 
2021
Tax sys­tem
In this chapter of Do­ing busi­ness in Rus­sia, we provide an out­line of the fol­low­ing as­pects:cor­por­ate tax­a­tiontax­a­tion of in­di­vidu­alsspe­cial tax re­gimestax in­cent­ivesdouble tax­a­tion treat­ies Gen­er­al ap­proach Re­cent de­vel­op­ments The most im­port­ant amend­ments to tax­a­tion laws over the last three years in­clude:Since 2019, for­eign com­pan­ies and for­eign in­ter­me­di­ar­ies provid­ing e-ser­vices are ob­liged to re­gister for VAT pur­poses in Rus­sia and pay taxes loc­ally, un­der cer­tain con­di­tions. This ob­lig­a­tion ap­plies to all types of cli­ents of such for­eign com­pan­ies (i.e. Rus­si­an leg­al en­tit­ies, in­di­vidu­al en­tre­pren­eurs and in­di­vidu­als).Spe­cial ad­min­is­trat­ive areas were cre­ated on Russky Is­land (Primor­sky Krai) and Ok­tyabrsky Is­land (Ka­lin­in­grad Re­gion). Res­id­ents of these areas who meet spe­cif­ic re­quire­ments can en­joy some tax be­ne­fits.Sig­ni­fic­ant tax be­ne­fits un­der cor­por­ate profits tax and in­sur­ance con­tri­bu­tions were in­tro­duced for ac­cred­ited IT com­pan­ies and de­velopers of elec­tron­ic com­pon­ents (provided they sat­is­fy cer­tain cri­ter­ia). At the same time, the scope of VAT ex­emp­tions on the dis­pos­al of rights to com­puter soft­ware and data­bases (which were equally ap­plied both by loc­al and for­eign com­pan­ies) has been ma­ter­i­ally re­duced.A pro­gress­ive per­son­al in­come tax scale for in­come re­ceived by Rus­si­an res­id­ents has been in­tro­duced. From 1 Janu­ary 2021, Rus­si­an tax res­id­ents’ in­come ex­ceed­ing RUB 5m (EUR 55,5551At the no­tion­al ex­change rate of RUB 90 = EUR 1, as used for con­veni­ence through­out this guide.foot­note)  is taxed at the rate of 15% in­stead of the pre­vi­ously ap­plic­able flat rate of 13%.Gen­er­al trans­fer pri­cing con­trol was ab­ol­ished for do­mest­ic in­tra­group op­er­a­tions (ex­cept in spe­cif­ic cases). Or­gan­isa­tions act­ive on the fin­an­cial mar­ket are now un­der an ob­lig­a­tion to col­lect fin­an­cial in­form­a­tion about their cus­tom­ers, as well as their cus­tom­ers’ be­ne­fi­ciar­ies and con­trolling per­sons, and to provide such in­form­a­tion to the tax au­thor­it­ies. If, at the re­quest of such an or­gan­isa­tion, a cus­tom­er, be­ne­fi­ciary or con­trolling per­son re­fuses to dis­close the re­quired in­form­a­tion, op­er­a­tions between the cus­tom­er and the or­gan­isa­tion must be sus­pen­ded.
27/10/2015
Trans­fer pri­cing in prac­tice, or how the Rus­si­an tax au­thor­it­ies ex­pand...
The tax au­thor­it­ies con­tin­ue to abide by the prin­ciple of “what is not for­bid­den is al­lowed”, us­ing con­tra­dict­ory norms of the Rus­si­an Tax Code to their ad­vant­age.  As a res­ult, there is a surge...
15/10/2014
Trans­fer Pri­cing | A stra­tegic ap­proach for glob­al busi­ness per­form­ance
As shown by the re­cent works at G20, OECD, European or UN level, mul­tina­tion­al en­ter­prises (MNEs) have to ad­apt to rap­idly chan­ging leg­al and eco­nom­ic en­vir­on­ments:le­gis­la­tions and prac­tices evolve con­stantly...