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Transfer pricing

Transfer pricing (also called “Funds Transfer Pricing” or FTP) is the sale of goods and services between related parties at prices, which differ from those prevailing on the market. Transfer pricing is an international concept and its use cannot be considered a breach of tax law.

Pankov and Associates have been a member of the Chamber of Tax Consultants since 2009. Our specialists are involved in work to improve Russian tax legislation. We can select optimal forms of taxation for your purposes and provide analysis, diagnostics and advice on transfer pricing, thus reducing your expenditures.

We offer our clients:

  • advice on design of transfer pricing methods;
  • analysis and diagnostics of the risks of transfer pricing and recommendations to improve current pricing policy;
  • reinforcement of your current methods, ensuring that pricing is at market levels for tax purposes;
  • assistance in preparing documents in respect of transfer pricing, to prove that pricing is at market levels for tax purposes;
  • help in preparing notifications for transactions that are subject to official monitoring.

The provisions of the Russian Tax Code (Section V.1 “Interdependent persons. General provisions for pricing and taxation. Tax control of transactions between interdependent persons”) as amended on 1 January 2012 introduce the concept of “controlled transaction” and establish criteria which define interdependent persons.

Prices in transactions between interdependent persons and equivalent transactions are subject to control by tax agencies. The following factors are taken into consideration to determine whether a transaction is subject to control:

  • interdependence of the parties to the transaction;
  • the object of the transaction;
  • the country of residence of the parties to the transaction;
  • the mode of taxation used by the parties to the transaction;
  • the amount of income from all transactions between the parties to the transaction.

Documentary requirements applied to transfer pricing

Under the Russian Tax Code a taxpayer is obliged, upon request from a tax agency, to present documentation substantiating the market level of prices used in controlled transactions. The Tax Code does not specify the form of such documentation, but sets out requirements for its content.

The transfer pricing documentation must contain:

  • information about the parties to the controlled transaction and their activities associated with the controlled transaction;
  • a description of the controlled transaction and its terms, including description of the pricing methods;
  • information about the functions, risks and assets of the parties to the controlled transaction;
  • justification of selection of the approach and of the methods used to analyse transaction prices;
  • indication of sources of the information used;
  • the interval of market prices/profitability for the transaction with a description of the approach used to select comparable transactions;
  • the sum of income (profits) and/or the sum of costs (losses) as a result of the transaction, the final margin obtained;
  • information on economic benefits obtained by the parties to the controlled transaction;
  • information on factors, which affected the price/profitability of the transaction;
  • adjustments made by the taxpayers to the tax base and tax amount (if any).

Details of these and other changes introduced in the supplement to the Russian Tax Code are described in our article, “Transfer pricing”.

Our professionals will help you deal with issues relating to corporate development, business support, tax planning and legal disputes. We can provide legal support for your business, consolidate its legal basis, defend your company’s interests in court if necessary and offer competent assessments of both Russian and international legislation.

We abide by international professional standards in our work.

Our professionals work in the spheres of corporate development, business management, tax planning and litigation. We can provide legal protection for your business, strengthen its legal foundations, defend the interests of your company in court, and accurately assess its position in respect of both Russian and international law.

We conform to international professional standards