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10 May 2018 Russia's bilateral and multilateral APA Procedure officially published On 3 May 2018, the Procedure setting forth the process for managing bilateral and multilateral Advanced Pricing Agreements (APAs) was officially published in Russia. The adoption of the Procedure should provide a practical framework for the conclusion of APAs with the involvement of one or more foreign competent authorities. The Russian Finance Ministry delegated the competent authority powers with respect to bilateral and multilateral APAs to the Federal Tax Service (FTS) for the purposes of conducting respective mutual agreement procedures (MAPs) with competent tax authorities of tax treaty partner countries. Bilateral or multilateral APAs are only available for the Russian legal entities meeting the "large taxpayer" criteria. This stage is generally informal. The results of the preliminary discussion are not binding on the taxpayer or on the FTS. Whatever the outcome of the preliminary discussion, the taxpayer may still apply to the FTS for the conclusion of an APA in relation to foreign trade transactions. The Procedure contains the recommended form of an application and a list of documents required for the APA process to formally begin. A formal APA application should be submitted in both jurisdictions in order for the FTS to commence communication with the competent authority of another state. At this stage the FTS reviews the provided documentation and conducts discussions with the taxpayer. This stage assumes internal review by the FTS. However, if appropriate in a particular case, the FTS may already enter into advance mutual consultations with the foreign competent authority. As a result, the FTS may either: (i) initiate negotiations between the competent authorities; (ii) suggest amending the APA; or (iii) reject it. An important stage in the process of the conclusion of an APA is the conduct of negotiations between the FTS and the foreign competent authority, which may result in a mutual agreement between them. A copy of the mutual agreement itself is not made available to the taxpayer but is used as a basis for signing an APA with the taxpayer. If a mutual agreement is reached between the FTS and the foreign competent authority, the FTS will put forward to a taxpayer the conclusion of an APA on the terms agreed in the Mutual Agreement or to amend the draft APA in order to comply with the Mutual Agreement. If the taxpayer agrees, an APA will be concluded. Introduction of the Procedure should enable a practical mechanism aimed at preventing transfer pricing disputes, as recommended, inter alia, by Action 14 of the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) Action Plan. How this Procedure is to be implemented in practice remains to be seen. Notably, some first positive steps have been already made on the legislative side – effective from 29 December 2017, existence of a bilateral or multilateral APA in respect of a cross-border transaction allows reduction of the Russian tax base provided this is consistent with the arm's-length principle (previously this was not possible). At the same time, some questions remain to be open, such as whether the arm's-length standard will be set by reference to the Russian Tax Code or the OECD Transfer Pricing Guidelines (which may be a preferred scenario enabling some consensus). Document ID: 2018-5632 |
