New Federal Law FZ-227 of 18 July 2011 which enacted comprehensive transfer pricing rules entered into force on 1 January 2012.

According to the new Law, companies falling under the scope of transfer pricing rules will be obligated to disclose related party transactions and provide tax authorities with a transfer pricing study documenting the inter-company prices used.

The ownership ratio which is necessary to declare parties as related has been increased from 20- 25%. The new rules provide for being related through participation via a chain of ownership of more than 50% each.

Companies will be treated as related parties also due to control on the board of directors, provided that more than 50% of the directors of these companies are the same individuals and not less than 50% of the directors are appointed/ chosen by the same individual.

According to the law for determining the transaction price following five methods can be used:

1. Comparable uncontrolled price (CUP) method

2. Resale price method

3. Cost plus method

4. Transactional net margin method

5. Profit split method.

The Law gives preference to the CUP method and if it is not applicable a company may use the most appropriate method. In the case where the above mentioned methods do not accurately define the price of an individual transaction it can be determined through an independent valuation.

According to the Law comparables from the Russian financial statements should be used and foreign comparables are applicable only if Russian ones do not exist.

According to the new rule transfer pricing documentation, supporting the arm’s length nature of prices applied and the method used may be requested by tax authorities not earlier than 1 June of the year following the calendar year when the controlled transactions took place. Once it is requested the company has 30 days to present transfer pricing documentation for the tax authority’s review.