Transfer pricing in Russia and international trends 20 June 2013 Steven Cawdron, Ernst & Young Moscow
Mar 31, 2015
Transfer pricing in Russia and international trends
20 June 2013
Steven Cawdron, Ernst & Young Moscow
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International trends
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Changes in TP today – tax enforcement and controversyErnst & Young’s 2012 Tax Risk & Controversy survey► Dramatic effect of globalization► Tax administrators have become more aggressive and
focused► High pace of legislative change► Growing disclosure and transparency requirements► Expansion into emerging markets brings uncertainty ► A new breed of tax activism has emerged
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2012 Ernst & Young Global Transfer Pricing Tax Authority Survey► The 2012 Transfer Pricing Tax Authority Survey covers 50
tax authorities across the Americas, Asia Pacific, Europe, the Middle East and Africa
► Key survey results► Increase in tax authority staffing► Resilience of the arm’s length standard► Expanding geographic scope of transfer pricing legislation► Specific industries and countries under scrutiny► Increase in the imposition of penalties► Increase advance pricing agreement availability
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OECD and United Nations influences and factors► New OECD proposals
► Simplication of tax/transfer pricing administration► Safe harbors► Intangibles► BEPS
► UN engagement with emerging markets► Lack of comparables► Seen as a practical manual for the preparation of TP
documentation in developing countries► Being used to drive the political agenda by the BRICS (in
particular, Brazil, India and China).
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Audit topics, triggers and managing audits► More exchange of information activity between
governments and international matching of transactions to see if TP is correct
► TP documentation comparables becoming the weak link► Intangibles, intangibles, intangibles► Higher-profile disputes
► Reputational, financial, and even personal risk► Penalty exposure
► Expectation for taxpayers to comply with both the spirit and the letter of the law
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Russian Transfer Pricing
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New Russian Transfer Pricing Rules
► New rules became effective from 1 January 2012► Transition rules 2012-2013
► Primary focus is on related parties transactions► Although domestic transactions are also subject to control
if certain thresholds are reached► It has introduced:
► the arm’s length principle, i.e. substance over form► new Transfer Pricing methods, akin to the OECD► TP reporting / documentation requirements► TP audits & penalties► APA’s
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Developments in 2012 and 2013
► Taxpayers have sought guidance from the ministry of finance on a number of issues, including:► Grouping of transaction, calculation of the threshold for control,
application of the rules to financing transactions, application of penalties, preparation of documentation, data permitted for us as comparables, etc
► The Tax authority is directing resource at certain industry sectors
► Increasing exchange of information, and experience, between the Russian Tax Authority and Foreign counterparties
► First APA’s concluded, albeit with state companies and only on transactions priced with CUP
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Significant issues still exist
► The introduction of TP rules has helped the Russian tax system move closer to international standards
► However, significant practical issues still exist► More needs to be done to address:
► Year-end pricing adjustments► Intellectual property charges► Service charges and models► Compliance burden► Interaction with other taxes – customs & indirect
Thank you!