On 1 January 2024, sweeping changes to the Transfer Pricing regulation (the “Law”*) came into force, requiring Russian taxpayers to expand their Transfer Pricing (TP) compliance and reassess their risks associated with controlled transactions.

Here are the main changes:

• The criteria for recognising parties as related and transactions as controlled have been expanded.
• A mechanism for secondary TP adjustments has been introduced. Now the amount of the tax base adjustment by a tax authority with respect to a cross-border controlled transaction is equated to dividends, and is subject to a withholding tax at a rate of 15%.
• In addition, in such transactions, deviation of prices from the arm’s length level is punishable by a penalty equal to the amount of unpaid tax, and the minimum penalty has been raised to RUB 500,000 (EUR 5,131).
• Additional tax assessments based on the results of a TP audit will be calculated using the median (average) value of a profitability or arm’s length range, rather than the minimum or maximum values of such a range.
• The requirements for disclosing information in various forms of TP reporting on transactions entered into after 1 January 2024 have been significantly expanded. At the same time, penalties for failing to comply with the TP reporting requirements have increased manifold. Specifically, a penalty for failing to submit a notification on controlled transactions will increase by 20 times, and for failing to submit other forms of TP reporting by 10 times on average.

In addition, the Law introduces withholding taxation of income received by foreign companies from intra-group work and services. Such income is taxed at a rate of 15% from 1 January 2024.

At the same time, the Law partially and selectively restores certain benefits under the previously suspended DTTs with “unfriendly” states, which can be used until 31 December 2025.

* In Russian

Read more in our review

For further information, please contact:

Maria Kabanova
Counsel, International Tax
[email protected]