Transfer pricing regulation in Russia: overview and specifics

By Daria Martirosova, ADE Professional Solutions

The concept of controlled transactions and a legal framework for control over transfer pricing has existed in Russia since 2012. Nonetheless, many companies are still not exactly aware of how these regulations apply to them.

This may be partially explained by a rather long transition period during which tax authorities had to focus on formal procedures rather than requesting price substantiation from taxpayers. Given that this period is about to end, now is the right time to gain an insight into the main aspects of Russian transfer pricing (TP) regulations and estimate their impact on intragroup transactions between Russian companies.

The main group of operations subject to control is in fact that of transactions between affiliated parties. Tax authorities’ power to exercise such control corresponds to a newly introduced taxpayer obligation to notify tax authorities of controlled transactions and to present transfer pricing documentation upon request. Non-compliance with the arm’s-length principle is of course followed by tax penalties.

Application of TP rules to a wide range of relations

Compared with prior law, current legislation provides a broad definition of affiliated parties: any parties having particular relations that may affect transactions between them or their economic performance shall be considered affiliated. Participation interest is no longer a formal condition for determining affiliation.

Moreover, regulations allow control when no affiliation is involved as well: respective provisions are provided for “equated” transactions (the international trading of exchange commodities and transactions with residents of “black-listed” jurisdictions).

Control may be exercised over each and every domestic transaction with an affiliated party if the total amount of contract revenues and expenses with that party exceeds RUB 1 billion over a calendar year (no materiality criteria are provided). No threshold requirements are set for cross-border transactions.

Court practice

Although litigation experience in the application of TP legal framework is still lacking, certain high-profile cases may be considered indicative of the position of courts on similar issues.

The Mazda case (A40-4381/13) may not be viewed as a proper TP case due to a different legal framework applicable for the 2009 tax period, but it did deal with determining price in intragroup transactions for tax purposes.

The issue at hand was whether losses reported by Mazda Motor RUS and generated from transactions with a foreign, related party resulted from poor car market conditions in Russia in 2009 (as explained by the taxpayer) or from overpricing and profit shifting (as insisted on by the tax authority and eventually determined by the courts).

The Oriflame case (A40-138879/2014) provides a different perspective on intragroup transactions: instead of applying the same quasi-TP regulations and adjusting the amount of licence fees paid by the Russian group company abroad, the courts concluded that no such payments could be deducted at all.

This may be viewed as a firm action of Russian courts against aggressive tax planning, showing that a seemingly classic TP case may go the other way if it is necessary to address tax aspects of certain intragroup arrangements. At the same time, it is likely that such practices will be modified as soon as certain BEPS plan mechanisms are implemented in Russian legislation and new instruments are available for countering tax regulation abuse.

Specifics of method application

Russian TP legislation provides the same five methods as the OECD Transfer Pricing Guidelines. At the same time, there are certain differences in the application of those methods.

For instance, due to the specific regulations of selling and management expenses in Russia, analysis of gross profit margins and application of the cost plus method may be misleading in cases where no data on internal comparable transactions are available and market-level margins have to be determined based on publicly-accessible financial results of similar companies.

The other specific issue is the unclear prospects of the profit split method application in Russia. Taking into account the common approach of tax authorities, it seems unlikely that this method will be considered reliable enough in practice, since it is mostly based on judgement rather than confirmable calculations.

Correlation with the OECD TP Guidelines

Russian TP legislation is considered based on the main principles of the OECD Transfer Pricing Guidelines. At the same time, since it is clearly not as detailed, in certain cases it may appear necessary to refer to the guidelines. Russian judicial practice on reference to OECD documents is diverse: such reference is accepted just as often as it is declined.

Certain OECD actions affect Russian legislation directly; for instance, new information disclosure requirements on intragroup transactions are now expected following the BEPS plan.

Further comments and recommendations

All things considered, it is highly advisable to specifically check group policies on transfer pricing for compliance with Russian regulations and assess the impact of these regulations on the commercial activities in Russia.

Conditions of any transactions subject to control shall be planned out beforehand with due regard to the TP rules, rather than analysed ex-post upon receipt of a request from tax authorities.

Tax authorities tend to maintain their position in favour of the public treasury all the way, appealing against unfavourable decisions and aiming to reach targeted amounts of tax revenues. It is therefore highly important to be prepared to provide proper substantiation of transfer prices and stand one’s ground in several instances of both administrative and judicial procedures.

All in all, the professional community is now on the lookout for judicial disputes over the proper application of TP legislation upon receiving the results of a TP documentation review by tax authorities. Until some solid precedents appear, many questions will remain unanswered. 


Daria Martirosova

Daria Martirosova

ADE Professional Solutions, Moscow, Russia
E: This email address is being protected from spambots. You need JavaScript enabled to view it.

Dmitry Sklyarov

ADE Professional Solutions, Moscow, Russia
E: This email address is being protected from spambots. You need JavaScript enabled to view it.

Published: November 2016 l Photo:

GGI Logo 70x50px

GGI Geneva Group
International AG

Schaffhauserstrasse 550
P.O. Box 286
8052 Zurich


T: +41 44 2561818
F: +41 44 2561811
This email address is being protected from spambots. You need JavaScript enabled to view it.