On 3 August 2018, the President of the Russian Federation signed Law No. 302-FZ About changes to Part One and Two of the Tax Code of the Russian Federation”
Once the new law enters into force, only transactions between Russian companies that apply different tax rates on profits or special tax regimes will be subject to the new rules, and only if income from those transactions exceeds 1 billion rubles per year.
Accordingly, transactions between two parties within Russia will be classified as controlled for transfer pricing purposes only if income generated from the transactions exceeds 1 billion rubles per year and one of the following conditions is met:
- The parties to the transaction apply different tax rates on profits derived from that transaction.
- One of the parties pays mineral extraction tax at ad valorem rates.
- One party applies or both parties apply a special tax regime (for example, the unified tax on imputed income or the unified agricultural tax).
- One of the parties is exempt from profits tax.
- One of the parties is an operator or holder of a license to develop a new offshore deposit.
- One or both parties are residents of the Skolkovo research center.
- One or both parties apply an investment tax deduction for profits tax purposes.
Currently, no income threshold exists for cross-border transactions between related parties in Russia. However, the new law offers an integrated income threshold (60 million rubles) for cross-border transactions to be classified as controlled for transfer pricing purposes.
The law also contains amendments that are not directly related to transfer pricing, such as:
- The exclusion of movable property from the scope of assets tax
- The streamlining of documentation required to support the 0% VAT rate for exported goods
- Changes to the time limits for conducting an in-house tax
The amended rules will apply apply from 1 January 2019.
