On 29 September 2019, the Russian Government signed a Law no. 325-FZ (Amendments to the Tax Code of the Russian Federation) and published in the Official Gazette. The main amendments relating to transfer pricing are as follows:
Controlled transactions involving intangibles:
The Tax Code provides that a specific functional analysis will be required, which will consider (1) DEMPE functions (development, improvement, maintenance, protection and exploitation of intangible assets), (2) DEMPE-related risks and (3) additional comparability criteria intangible assets (e.g. their exclusivity, duration of legal protection, etc.).
Profit-split method:
The law also includes amendments to Article 105.13 of the Russian Tax Code relating to the Profit Split method. For the application of this method, economic ownership and control of intangible assets is in accordance with the legal ownership.
MAP:
The Tax Code also introduced rules on Mutual Agreement (MAP) procedures under BEPS Action 14 to settle transfer pricing and DTA disputes. The transposition procedure proposed in the previous draft has been deleted and includes the following:
- The MAP may lead to a tax refund or offset, including cases where tax base adjustments have been made on the basis of TP rules;
- The procedures and deadlines for the submission of the taxpayer’s application and its further review are set by the Russian Ministry of Finance on the basis of the existing double taxation agreements of Russia;and
- Although the final law proposes a simplified approach to MAP, detailed procedures will be available after the entry into force of the law at the Russian Ministry of Finance.
Other changes:
- The Tax code amended the determination of market price range for transfer pricing purposes.
- The tax code also introduced extension of limitation on the carry-forward of losses until 31 December 2021.
These amendments to the Tax Code entered into force on 1 January 2020.
