Almost simultaneously with the adoption by the State Duma of a law on tightening control over transfer pricing, the government introduced a bill for consideration by the House that would also change the procedure for tax authorities to carry out inspections of prices used by businesses. Currently, the deadline for ordering an inspection is two years from the date of filing the notification of controlled transactions, but if the data is clarified, it can be extended. The amendments allow for the standard three years for inspection activities to be carried out. Experts consider the fact that the deadlines will no longer be shifted due to clarifications to be a favorable change for business, while they allow for increased activity by tax officials in terms of pre-audit analysis of the prices used by companies.
The government has submitted to the State Duma a bill changing the procedure for assigning transfer pricing (TP) audits in relation to transactions between related parties. The amendments are made in pursuance of the decision of the Constitutional Court (CC). Now the tax authorities, according to Art. 105.17 of the Tax Code of the Russian Federation, there are two years to schedule an audit from the moment the taxpayer submits a notice of controlled transactions. In practice, if the taxpayer clarifies information about transactions, this period is counted anew. In July, the Constitutional Court ordered that the Tax Code norm be adjusted, and before that, the following approach be applied: to order an inspection there are two years from the date of notification, which first contains data on transactions or contains significant changes in information. If the changes are not significant, the period should be counted from the date of first notification.
The bill, however, proposes a different solution: from 2024, inspections will be ordered without taking into account the date of receipt of notification of controlled transactions – the provisions on a two-year period are excluded. But the period for which the completeness of tax payment is verified remains the same – now it is the last three years.
Lawyers agree that the draft gives the tax service a “standard” three years to make decisions about the audit. As Yuri Mikhailov, director of the B1 group of companies, explains, this harmonizes tax legislation so that there are no discrepancies. He adds that Russian transfer pricing rules, compared to foreign ones, regarding the timing of appointment of inspections, are “much softer in relation to taxpayers.”
However, Alexander Erasov, a partner in the tax practice of MEF Legal, according to him, is surprised that, taking into account the position of the Constitutional Court, the shortened two-year period is completely canceled.
Now, explains Natalya Valkovskaya, head of the transfer pricing services group at Kept, submitting clarifications does not shift the deadline for opening the audit, and this is a “favorable change.” The expert notes that the later the inspection is opened and price deviations and arrears are identified, the greater the penalty. According to Alexander Erasov, we are talking about large transactions, and penalties sometimes make up a very significant part when paying arrears, which becomes even more sensitive at a high level of the key rate. Anton Zykov, partner in the Department of Taxes and Law at DRT, believes that the changes will most likely affect the pre-audit activity of the tax office – perhaps more organizations will be asked to pay additional tax outside of inspections due to the expected deviation of prices from market prices.
Note that changes to the Tax Code were proposed almost simultaneously with the tightening of control over “transfer” transactions, which has already seriously worried business (see Kommersant on November 3). The corresponding law was adopted by the State Duma on Friday, first again in the second and then in the third reading. It expands the circle of interdependent persons – at the expense of controlling persons and their controlled foreign companies (CFCs), as well as persons controlling the same CFCs, and organizations controlled by close relatives. At the same time, transactions with export credit agencies will not be considered controlled, as well as those subject to control due to the suspension of the provisions of agreements on the avoidance of double taxation.
The adopted law introduces the need to disclose resale chains for a number of goods outside the Russian Federation and changes the approach to determining market prices: instead of the minimum value of the market interval, the median will be used. At the same time, liability increases: for example, fines for failure to provide notifications of transactions and for false information increase from 5 thousand to 100 thousand rubles, and if non-market prices are used, the difference with the market price will be recognized as the payment of dividends and taxed at 15%. These changes should come into force from 2024. However, during the second second reading of the draft, a clarification appeared – “unless otherwise provided” by the presidential act.