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New Transfer Pricing Guide

New Transfer Pricing Guide

LEGAL DIGEST, NEWS \ 16.02.2022

The Organization for Economic Co-operation and Development has published an updated version of the Transfer Pricing Guide for International Companies.

The updated edition as of January 20, 2022 includes: 

  • Guide for the application of the profit split method dated June 21, 2018.

The general principles of application of the method remained unchanged, however, the document disclosed in more detail a list of situations of reasonable application in practice of the profit split method.

In addition, comments on the determination of profit split criteria with practical examples were added to the Guide.

  • Guide for tax authorities on the application of the approach to difficult-to-assess intangible assets (IA) dated June 21, 2018.

First of all, difficult-to-assess IA are customary to understand as assets, the value of which is difficult to determine at the moment, and the final value of which may appear after some time (for example, experimental developments in the pharmaceutical industry).

If this approach is applied, the tax authorities can use actual data to assess the reasonableness of expectations and pricing formulas at the time of the initial transfer of the asset. The document also contains comments on the procedure for assessing such IA, since transactions with them carry high risks of double taxation.

  • Financial Transactions Guide.

This guide provides comments that allow to disclose a number of issues: from the importance of determining the type of transaction to specific recommendations regarding pricing in intra-group loan transactions, hedging, guarantees and sureties, etc.

Please be reminded that Transfer Pricing is a method of setting prices other than market prices in transactions between members of a group of companies or other interdependent entities (transfer price).

The Transfer Pricing rules apply to transactions between related parties. The criteria of interdependent persons are determined in article 105.1 of the Tax Code of the Russian Federation.

Transactions between related parties may be recognized as controlled ones if the conditions and summational limits for such transactions are met:

  • If the related party is a resident of the Russian Federation, the amount of income for the corresponding calendar year has to be at least 1 billion rubles.
  • If the related party is a non-resident of the Russian Federation, the amount of income for the corresponding calendar year has to be at least 60 million rubles

Organizations that have made controlled transactions in a calendar year have to submit documentation on controlled transactions to the tax authorities, including a corresponding notification.

If the company violates the requirements of the legislation in the field of Transfer Pricing, it may face a fine.

Despite the fact that the Russian Federation is not a member of the Organization for Economic Co-operation and Development, the tax authorities are guided by the provisions of this guide during inspections. In view of this, companies are also recommended to take into account the requirements of this document when assessing the pricing of controlled transactions.

In the matters of the implementation of transactions within the framework of the Transfer Pricing and drawing up reporting on it, please contact Acsour specialists. Our experts will advise you on all points of interest on this topic.