On 3 August 2018, the President of the Russian Federation signed Law No. 302-FZ "Concerning Amendments to Parts One and Two of the Tax Code of the Russian Federation" (hereinafter – "the law").

The Law exempts a significant number of domestic transactions from the transfer pricing rules.

Once it enters into force, only transactions between Russian companies that apply different tax rates on profits or special tax regimes will be subject to the rules, and only if income from those transactions exceeds 1 billion rubles per year.

Thus, 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:

1. The parties to the transaction apply different tax rates on profits derived from that transaction
2. One of the parties pays mineral extraction tax at ad valorem rates
3. One party applies or both parties apply a special tax regime (for example, the unified tax on imputed income or the unified agricultural tax)
4. One of the parties is exempt from profits tax
5. One of the parties is an operator or holder of a license to develop a new offshore deposit
6. One or both parties are residents of the Skolkovo research center
7. 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. On the other hand, a threshold of 60 million rubles is set for other transactions that are equated with transactions between related parties (transactions involving globally traded commodities, transactions with offshore companies). The new law also provides a unified income threshold (60 million rubles) for cross-border transactions to be classified as controlled for transfer pricing purposes.

The new law will be effective for transactions for which income/expenses are recognized on or after 1 January 2019, irrespective of when the relevant contract was concluded.

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
• A 0% Value Added Tax (VAT) rate for services involving the exportation or importation of goods by ship under chartering (time chartering) agreements
• 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 audit

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Ernst & Young (CIS) B.V., Transfer Pricing and Operating Model Effectiveness, Moscow

• Evgenia Veter
  evgenia.veter@ru.ey.com
• Maxim Maximov
  maxim.maximov@ru.ey.com

Ernst & Young LLP, Russian Tax Desk, New York

• Kirill Lukyanets
  kirill.v.lukyanets1@ey.com

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ATTACHMENT

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