"Taxes and Taxation", N 1, 2005

Transfer pricing refers to the sale of goods or services within a group of related entities at prices different from market prices. The goals may be different.

Firstly, transfer pricing is an important mechanism for the redistribution of financial resources within integrated structures (holdings). Thus, a production or mining company of a holding company can sell the products of a sales company of the same holding company at internal (low) prices; The sales company then sells the goods to end consumers at market (higher) prices. As a result, financial resources are concentrated in a single profit center (sales company) and can then be redistributed in accordance with the needs of the holding as a whole.

Secondly, transfer pricing can be used to minimize taxation. If the profit center (the sales company in the example above) enjoys certain tax benefits, the overall tax burden on the holding company as a whole is reduced.

From the government's point of view, the first of these transfer pricing functions can be assessed as neutral. To obstruct holdings from redistributing their own funds would be illogical and even economically harmful. On the other hand, minimizing taxation, even within the framework of the law, from the position of the tax authorities is an obviously suspicious activity and requires suppression.

The current version of Article 40 of the Tax Code of the Russian Federation represents some kind of compromise. On the one hand, it does not prohibit transfer pricing transactions as such and, accordingly, gives holding companies a certain freedom of maneuver in the formation of internal prices, but, on the other hand, it limits the tax efficiency of the transfer pricing method (the permissible deviation of prices from market prices is no more than 20%, otherwise taxes are recalculated based on market prices). Tax authorities are allowed to initiate verification of the correctness of prices only in certain cases (interdependence of the parties to the transaction, significant fluctuations in the prices of the taxpayer’s transactions, etc.). This ideology generally corresponds to international “anti-transfer” practice.

The current version of Article 40 of the Tax Code of the Russian Federation allows holding companies to bypass its restrictions when redistributing funds without any particular problems. In the above example, to do this, it is enough only to exclude direct interdependence between the sales and production organizations, as well as to exclude the direct sale of goods by the producing organization to end consumers (at prices different from internal ones). It is clear that in this case, transaction prices will not experience significant changes over short periods of time. In addition, it is useful to have some kind of economic justification for internal prices (marketing calculations, etc.). From the point of view of the law, however, this does not matter, but it can help in communicating with tax officials.

Currently, legal disputes under Article 40 of the Tax Code of the Russian Federation are rather exotic. The point, apparently, is that the law entrusts the proof of the discrepancy between prices and market levels to the tax authority, with which the latter usually has big problems. The only exceptions are the most egregious cases (lowering the transaction price by several times).

We also note that the law (Article 20 of the Tax Code of the Russian Federation) establishes a rather meager list of grounds for interdependence (participation of one organization in the capital of another, official subordination of one individual to another, family kinship), but at the same time it gives the court the opportunity to recognize persons as interdependent on other grounds . In view of this, the court can easily recognize the interdependence, for example, of a company and its director, who bought several dozen apartments from the company at four times the market value<*>.

<*>See: Information letter of the Presidium of the Supreme Arbitration Court of the Russian Federation dated March 17, 2003 N 71.

As it became known, the Government of the Russian Federation is currently preparing amendments to Article 40 of the Tax Code of the Russian Federation. Details are still unknown. One thing is certain: they will not be favorable for the taxpayer. At best, the matter will be limited to expanding the list of “interdependent persons” to whom the price control procedure can be applied, as well as placing the burden on the taxpayer himself to prove the “marketability” of prices. In the worst case, the new version may make transfer pricing completely impossible within holding companies, which would be extremely unpleasant for the latter: products will have to be sold to the warehouse of their own sales division at market prices.

It can be assumed that the planned amendments are a kind of government reaction to the YUKOS case. Let me remind you that the main claims brought against the company itself (not against its shareholders!) boil down precisely to its use (in 2000 - 2001) of transfer pricing schemes to minimize taxes. However, there were no references to Article 40 of the Tax Code of the Russian Federation in the judicial argumentation of the Ministry of Taxation and Taxation.<**>.

<**>Decision of the Moscow Arbitration Court dated May 26, 2004 in case No. A40-17669/04-109-241; Resolution of the appeal court of the Moscow Arbitration Court in case No. A40-17669/04-109-241 dated June 29, 2004

The fact is that the scheme used by the company does not violate the provisions of Article 40. As a result, the court made a decision (as is known, not in favor of YUKOS) based, essentially, not on any provisions of the Tax Code, but on the thesis of “bad faith of the taxpayer,” and in an extremely dubious interpretation. From the fact of bad faith (in the author’s opinion, not proven), the court made extremely far-reaching (in the author’s opinion, weakly legally justified) conclusions, including a total review of the civil consequences of transactions and even the actual abolition of the statute of limitations<***>. Perhaps it was the awareness of the legal instability of such a position that led government authorities to the idea of ​​revising Article 40 of the Tax Code of the Russian Federation in order to expand the scope of its applicability.

<***>Budylin S.L. Taxpayer bad faith - a legal concept or...? // Taxes and taxation. 2004. Oct. pp. 37 - 40.

However, to a large extent this is "waving fists after a fight." Using transfer pricing to minimize taxation involves redistributing income in favor of the least taxed elements of the group. YUKOS (and not only it) used the so-called “internal offshores” as these elements, that is, low-tax organizations registered under the legislation in force at that time in various regions of the Russian Federation. Since then, however, the situation has changed radically: after Chapter 25 of the Tax Code of the Russian Federation came into force, “internal offshore companies” were liquidated, and the corresponding schemes lost their effectiveness without any changes to Article 40.

In my opinion, it is the unification of taxation, and not the tightening of “anti-transfer” legislation, that is the most effective tactic for the state to combat tax losses from transfer pricing (at least in relation to domestic Russian transactions).

However, the problem of redistribution of regional taxes remains open. As a result of transfer pricing, taxes may be paid in the same amount, but in a different place. Naturally, one can expect that regional authorities will make every effort (including using the new version of Article 40 of the Tax Code of the Russian Federation) to prevent such a “leakage” of taxes to the outside.

Taxpayers should consider the following. Transfer pricing itself is not prohibited and can be effectively used within holdings. However, its tax consequences may be revised in accordance with Article 40 of the Tax Code of the Russian Federation.

Worse, as practice has shown, even if this article of the Tax Code is not applicable (for example, prices deviate from market prices by less than 20%), the tax consequences can still be revised based on the thesis of bad faith of the taxpayer. In this regard, the use of any type of transfer pricing to optimize taxation currently appears to be an extremely risky undertaking.

S.L.Budylin

Consultant

Roche & Duffay

Interdependent companies have an excellent opportunity to manipulate prices, thereby lowering the tax base by adjusting the amount of income, expenses or losses for tax purposes. When redistributing income and expenses, structures in low-tax jurisdictions are successfully used.

Controlled transactions and annual turnover limits

Tax control over transfer pricing is carried out at the international level and at the level of national legislation. Since 2010, the Organization for Economic Co-operation and Development (OECD) Transfer Pricing guidelines for multinational corporations and tax authorities (OECD Transfer Pricing guidelines, 2010) have been in force. In 2013, at the request of the G20, the Declaration on BEPS (Base Erosion and Profit Shifting).

The Declaration represents the OECD's action plan to combat base erosion and profit shifting. As part of the BEPS plan, it is planned to develop transfer pricing (TP) rules that will increase the transparency of transactions between companies by collecting additional information, as well as reduce costs for business.

In the Russian Federation, on January 1, 2012, Federal Law No. 227-FZ of July 18, 2011 (Law 227-FZ) came into force. Law 227-FZ, which supplemented the Tax Code of the Russian Federation with section V.1 “Interdependent persons. General provisions on prices and taxation. Tax control in connection with transactions between related parties. Pricing agreement."

Its provisions are aimed, inter alia, at preventing the transfer of tax profits outside the Russian Federation, eliminating the possibility of price manipulation in transactions between interdependent taxpayers and taxpayers applying different tax regimes within the country. The rules replaced Art. 40 “Principles for determining the price of goods, works or services for tax purposes” and Art. 20 “Interdependent persons” of the Tax Code of the Russian Federation.

Law 227-FZ enshrined the main “global” principle of transfer pricing regulation - the “arm's length principle”.

The arm's length principle in transfer pricing

According to the “arm's length” principle, for tax purposes, the value of prices (payments) for transactions between interdependent and equivalent persons is recalculated in relation to market values, as if the companies were independent. Prices are not checked for all transactions in a row, but only for controlled ones.

What are controlled transactions?

For tax purposes, controlled transactions are recognized as:

1. Transactions between interdependent persons (taking into account the features that are enshrined in Article 105.14 of the Tax Code of the Russian Federation).
2. Transactions (a set of transactions) acquiring the status of controlled transactions as a result of equating them with transactions of interdependent persons (Clause 1 of Article 105.14 of the Tax Code of the Russian Federation).
3. Transactions recognized as judicially controlled (Clause 10, Article 105.14 of the Tax Code of the Russian Federation)

We have combined the 2017 controlled transactions criteria for tax purposes in the table:

Example of calculating the sum criterion

Company “A” (RF) provides marketing services to Company “B” (RF) for a total amount of 300 million rubles. Company "B" produces and sells products of Company "A" worth 750 million rubles. Company “A” participates in the capital of Company “B”, the share of this participation is more than 25%.

Question:
Is the transaction controlled for Company A?

Answer:
Yes, it is. To determine the amount criterion for a controlled transaction between related parties, we must add up 300 million rubles. (marketing) and 750 rub. (products). Result = 1,050 million rubles. (more than 1 billion rubles).

Taxpayers should remember that not all transactions are considered controlled.

Regardless of whether the transactions satisfy the conditions provided for in paragraphs 1 - 3 of Art. 105.14 Tax Code of the Russian Federation, transactions are not recognized as controlled transactions:

• the parties to which are participants of the same consolidated group of taxpayers (except for transactions the subject of which is an extracted mineral resource recognized as subject to mineral extraction tax, the extraction of which is taxed at a rate established as a percentage);
• the parties to which are persons who simultaneously satisfy the following requirements:
  • registered in one subject of the Russian Federation, do not have separate divisions in the territories of other subjects of the Russian Federation, as well as outside the Russian Federation, do not pay income tax to the budgets of other subjects of the Russian Federation;
  • do not have losses (including losses of previous periods carried forward to future periods) accepted when calculating income tax;
  • there are no circumstances for recognizing their transactions as controlled in accordance with paragraphs. 2 - 7 p. 2 tbsp. 105.14 Tax Code of the Russian Federation;
• and some others.

What taxes are covered by transfer pricing?

Very often, listeners ask the question: “Can all taxes fall under the control of tax authorities based on transfer pricing?” The Tax Code contains a limited list of taxes, the completeness of calculation of which is controlled, namely:

1. Corporate income tax.
2. Personal income tax, which is paid in relation to income from business activities and private practice (Article 227 of the Tax Code of the Russian Federation).
3. MET - if one of the parties to the transaction is a MET payer, the subject of the transaction is minerals, the extraction of which is taxed at a tax rate set as a percentage.
4. VAT - if one of the parties to the transaction (organization or individual entrepreneur) is not a VAT payer or is exempt from fulfilling VAT obligations as a taxpayer.

Methods for determining market price

The most important and difficult question is how to apply the arm's length principle and in practice determine the market price of the transaction for tax purposes. There are several methods for such assessment developed within the OECD that create a conceptual basis for determining prices (Transfer pricing methods (methodologies)).

None of them can be considered universal (suitable for every situation), and as a general rule it is necessary to choose the method that provides the most accurate assessment. The Tax Code of the Russian Federation recommends using 5 methods (Article 105.7 of the Tax Code of the Russian Federation):

1. The method of comparable market prices (has priority over other methods and can be used if there is at least one comparable transaction in the relevant market), as well as if the required amount of information about such a transaction is available.
2. The subsequent sales price method (is a priority when purchasing goods from an interdependent party and its subsequent resale without processing to an independent party).
3. Cost method (is a priority in transactions for the provision of services).
4. The comparable profitability method (can be used in the absence or insufficiency of information on the basis of which one can reasonably conclude that there is a necessary degree of comparability of the commercial and (or) financial conditions of the compared transactions and use the subsequent sales method and the cost method).
5. Profit distribution method (used if it is impossible to use other transfer pricing methods or if the parties to the analyzed transaction have rights to intangible assets in their ownership (use).

The starting point when choosing a method is an understanding of the controlled transaction based on functional analysis. The components of such an analysis are a study of the functions of the parties to the transaction, the assets they use and the risks they assume.

Comparability of commercial and (or) financial terms of transactions and functional analysis are carried out taking into account the provisions of Art. 105.5 of the Tax Code of the Russian Federation, which define the characteristics of transactions necessary for analysis, the conditions, factors and other parameters taken into account, and using the information provided for in Art. 105.6 Tax Code of the Russian Federation.

The next stage of our research is to compare the terms of transactions between interdependent persons with the terms of transactions between persons who are not interdependent. The Tax Code of the Russian Federation allows the use of exclusively publicly available sources of information, as well as information about the taxpayer.

The Tax Code of the Russian Federation does not contain a specific list, which gives taxpayers some advantage when preparing documentation. The taxpayer chooses the sources of information himself! And then, if a dispute arises, the tax authorities must prove the legality of the choice.

You can get services from us:

• - preparation of notifications on controlled transactions for the Federal Tax Service of the Russian Federation;
• - preparation of a package of transfer pricing documentation to justify the market price level and avoid fines;
• - identify controlled transactions.

Who controls prices?

It would seem that everything is clear here. Price control is carried out by the federal executive body authorized for control and supervision in the field of taxes and fees. The Tax Code of the Russian Federation establishes a ban on monitoring the compliance of prices used in controlled transactions with market prices during on-site and desk inspections (clause 1 of Article 105.17 of the Tax Code of the Russian Federation).

And, nevertheless, arbitration practice has already accumulated on this issue, which is closely intertwined with the topic of unjustified tax benefits. We will present a selection of arbitration courts and conclusions on this topic in the next article by tax lawyers.

Responsibility for transfer pricing

Let's end this review with a reminder of taxpayer responsibility. For non-compliance with the requirements of the Tax Code of the Russian Federation for controlled transactions, the following fines are provided:

• in case of non-payment or incomplete payment of tax amounts as a result of the use of “non-market” prices, a fine is levied in the amount of 20% of the unpaid tax amount from 2014, and from 2017 - in the amount of 40% of the unpaid tax amount, but not less than 30,000 rubles . (Article 129.3 of the Tax Code of the Russian Federation);
• The fine for failure to provide notification of controlled transactions to the tax office will be 5,000 rubles. (Article 129.4 of the Tax Code of the Russian Federation) for each transaction.

Report on controlled transactions:

Notification of controlled transactions is submitted before May 20 of the year following the reporting year. Those. The deadline for submitting a notification of controlled transactions for 2016 is until May 20, 2017, and for 2017 - until May 20, 2018.

If the updated notification is submitted before the tax authority has identified the error, the taxpayer is exempt from the fine for inaccurate information in the notification. It's never too late to check yourself.

Documentation on controlled transactions may be requested by the tax authorities no earlier than June 1 of the year following the calendar year in which the controlled transactions were carried out. At the same time, as part of a tax audit, a request for documentation on controlled transactions may take 3 years.

Exemption from penalties is possible if the taxpayer submits to the tax authority documentation justifying the market price level.

Taxpayers are given 30 days to provide requested transaction documentation.

In this article, we have only briefly outlined the main aspects of the application of transfer pricing for controlled transactions. In our further reviews, we will talk in detail about the advantages of each price research method, symmetrical adjustments, arbitration practice and many other features of transfer pricing in Russia.

Contact us, we will help you identify controlled transactions and, if necessary, prepare the necessary documentation.

The chief accountant of Lebedinsky GOK took first place in the Top 1000 ranking of the best accountants in Russia, announced by the Glavbukh magazine.

On December 2, the organizers of the prestigious competition, representatives of the Glavbukh magazine, arrived at the Lebedinsky GOK to personally congratulate the chief accountant of the enterprise, Lyudmila Karpacheva, on winning the competition. In a solemn atmosphere, during the weekly operational meeting of the managing director of the plant, in the presence of heads of divisions and subsidiaries, Lyudmila Pavlovna was awarded the “Accounting Fairy” figurine and a cash prize.

For the winner, this was a pleasant surprise, because throughout the year more than 11 thousand applicants from all over Russia completed the tasks of the competition: they solved professional problems and passed complex tests.

From the moment the competition began, judging by the results that were published on the publication’s website online, Lyudmila Karpacheva immediately became one of the leaders, and closer to the final she firmly established herself in the top three contenders for victory who scored the maximum number of points.

The decisive test was the essay competition, which Lyudmila Pavlovna handled brilliantly, noted Elena Chernysheva, editor-in-chief of the Glavbukh magazine:“We had to make a difficult choice, because all the leaders were truly worthy opponents, serious professionals in their field. But in the final, when Lyudmila Karpacheva overtook her main competitor, the jury unanimously awarded her the title “Chief Accountant of the Year.” Such a strong enterprise should have just such a chief accountant!”

- Recognition of you as a professional - probably one of the most important aspirations in life, - admitted Lyudmila Karpacheva, chief accountant of Lebedinsky GOK JSC. - I devoted my whole life to my favorite job - accounting. I came to the plant at the age of 18. Apart from this enterprise, I have never worked anywhere else and I believe that this is the best place for professional and intellectual growth. Thanks to the magazine “Glavbukh”, which noted my work. And a special thank you to you, Oleg Yuryevich, because only next to such a leader and among such colleagues can you try, strive and achieve success. On the eve of the 50th anniversary of the Lebedinsky Mining and Processing Plant, it is so joyful to win new victories!

The managing director of the plant, Oleg Mikhailov, congratulated the winner on her well-deserved victory and emphasized that he had no doubt that the best chief accountant in Russia works at the Lebedinsky GOK.

- Lyudmila Pavlovna, this award found its owner absolutely rightly! I wish all employees of the plant to have your determination, your perseverance and intelligence. And to you personally - patience and good luck. We all congratulate you and are proud of you!”

The winner shared that the prize money will be used for the construction of a children's playground in the courtyard of house No. 103 on Sevastopolskaya Street in Gubkin. This is her long-standing dream, so that young families with small children will have a place for an active, interesting, and most importantly, safe holiday. Lyudmila Pavlovna is sure that in the spring there will be slides, swings, carousels, and sandboxes.

Glavbukh magazine is a practical publication for accountants, which has been published for more than 20 years, and according to leading subscription agencies and the research company TNS Gallup Media, it has the largest circulation and audience among professional publications. The national rating of chief accountants, launched by the editors, is one of the most prestigious industry competitions. And today the top line of this rating is occupied by the chief accountant of the Lebedinsky GOK.

Corporate Communications Department

JSC Lebedinsky GOK

Opinion of the editors and readers

• Elena Chernysheva, editor-in-chief:
• “The new layout has many features that make it easier to both read the magazine and navigate through the issue. For example, our readers respond very well to the new column “An Issue in Five Minutes,” where we briefly but succinctly present the contents of the most important and interesting articles in the issue. After reading them, you get the feeling that you are up to date with all the news. And if you want more details, please go to the detailed article. By the way, it also contains the most important conclusions in the foreground.
• And what is our poster worth - a useful sample that can be hung on the wall so that everyone can see and know how and what to do. Here are interesting examples: “This is what sick leave should look like for an employee to receive benefits for it,” or “Memo to everyone who goes on a business trip,” or “Rules for visiting the accounting department on the eve of March 8.”
• I like how the magazine has looked better since the redesign. And I like to feel that such an interesting product is being made by me and my team.”

• Svetlana Kovalevskaya, chief editor:
• “The magazine has become much more beautiful, brighter and more functional for readers. Although our work is now more difficult. More time is spent, for example, on titles - these are the pages where we write announcements of articles in the thematic sections “Taxes and Contributions”, “Salaries”, “HR Work” and others. But announcements should not be simple, but tasty, so that you immediately want to go to the article and read it.
• And from the pages of the magazine, heroes are now talking to readers - an experienced chief accountant, a novice accountant and an inspector. When reading, this creates a feeling of dialogue with a knowledgeable specialist, which is especially important for our accounting audience.”

• Elena Nesterenko, reader:
• "Great magazine! Informative, convenient, practical and interesting. And the design is very nice"

• Natalya Sergeevna, reader:
• “Well, I don’t know. Everything is the same, in my opinion. You can understand everything from the content and select the section you are interested in."

• Tatyana Krupinova, reader:
• “Very convenient and informative. Thank you!"

According to the press service of the plant, on December 2, the organizers of the prestigious competition, representatives of the Glavbukh magazine, arrived at the Lebedinsky GOK to personally congratulate the chief accountant of the enterprise, Lyudmila Karpacheva, on winning the competition. In a solemn atmosphere, during the weekly operational meeting of the managing director of the plant in the presence of heads of divisions and subsidiaries, Lyudmila Pavlovna was awarded the “Accounting Fairy” figurine and a cash prize.

We had to make a difficult choice, because all the leaders were truly worthy opponents, serious professionals in their field. But in the final, when Lyudmila Karpacheva overtook her main competitor, the jury unanimously awarded her the title “Chief Accountant of the Year.” Such a strong enterprise should have just such a chief accountant!Elena Chernysheva editor-in-chief of the magazine "Glavbukh"

From the beginning of the competition, judging by the results that were published online on the publication’s website, Lyudmila Karpacheva immediately became one of the leaders, and closer to the final she firmly established herself in the top three contenders for victory who scored the maximum number of points. The decisive test was the essay competition, which Lyudmila Pavlovna handled brilliantly.

Recognition of you as a professional is probably one of the most important aspirations in life. I devoted my whole life to my favorite job - accounting. I came to the plant at the age of 18. Apart from this enterprise, I have never worked anywhere else and I believe that this is the best place for professional and intellectual growth. Thanks to the magazine “Glavbukh”, which noted my work. And special thanks to the managing director of our enterprise, Oleg Yuryevich, because only next to such a leader and among such colleagues can you try, strive and achieve success. On the eve of the 50th anniversary of the Lebedinsky Mining and Processing Plant, it is so joyful to win new victories!Lyudmila Karpacheva Chief Accountant of Lebedinsky GOK JSC

The managing director of the plant, Oleg Mikhailov, congratulated the winner on her well-deserved victory, and emphasized that he had no doubt that the best chief accountant in Russia works at the Lebedinsky GOK.

Lyudmila Pavlovna, this award found its owner absolutely rightly! I wish all employees of the plant to have your determination, your perseverance and intelligence. And to you personally, patience and good luck. We all congratulate you and are proud of you!Oleg Mikhailov Managing Director of Lebedinsky GOK JSC

The winner shared that the prize money will be used for the construction of a children's playground in the courtyard of Gubkin house No. 103 on Sevastopolskaya Street. This is her long-standing dream - for young families with small children to have a place for an active, interesting and, most importantly, safe holiday. Lyudmila Pavlovna is sure that in the spring there will be slides, swings, carousels, and sandboxes.

Glavbukh magazine is a practical publication for accountants, which has been published for more than 20 years and, according to leading subscription agencies and the research company TNS Gallup Media, has the largest circulation and audience among professional publications. The national rating of chief accountants, announced by the editors, is one of the most prestigious industry competitions. And today the top line of this rating is occupied by the chief accountant of the Lebedinsky GOK.