A year has passed since stricter transfer pricing (TP) requirements came into force in Russian tax law (see Federal Law dated 27.11.2023 No. 539-FZ, Order of the Federal Tax Service of Russia dated 02.12.2024 No. ЕД-7-13/1088@).
What should you pay attention to?
1. The most common mistakes when completing controlled transactions notifications:
- Transactions with residents of offshore jurisdictions exceeding the annual threshold of RUB 120 million are not included in the notification (even territorial tax authorities point to this mistake; the offshore list includes, among others, EU countries, South Korea, Japan, etc.).
- “Pricing method codes” are not indicated (this error occurs if “0” is not entered in the “Transaction price determination code” field).
- An incorrect pricing method code is indicated (for example, “5. Profit split method” or “7. Independent market valuation” for import and resale transactions of goods by a related company in the Russian Federation).
- Incorrect information source codes are indicated (for example, “254. Data from information and pricing agencies” when method 4 (comparable profitability) is used).
Such mistakes, or late submission of the notification, result in a RUB 100,000 penalty (Article 129.4 of the Tax Code of the Russian Federation).
2. The most common difficulties in preparing TP documentation:
- A foreign related counterparty refuses to provide “information on income and expenses, number of employees, profit (loss), value of fixed assets and intangible assets for the reporting period in which the controlled transaction was carried out, with supporting documents, including financial statements” (paragraph 1, Article 105.15 of the Tax Code of the Russian Federation).
- For transactions with independent residents of offshore jurisdictions recognized as controlled, selecting a pricing method for tax purposes is difficult and benchmarking is labor-intensive.
- The counterparty’s function is declared only nominally, while the FTS requires “documentary confirmation” (invoices, staffing schedule, KYC file, etc.).
- Incorrect selection of comparable companies when calculating the market range: companies with a non-comparable functional profile are used (for example, for import and distribution transactions, companies are selected that purchase goods only in Russia and do not perform an import function).
Failure to submit documentation within the established deadline results in a RUB 500,000 penalty (paragraph 3, Article 129.11 of the Tax Code of the Russian Federation, FTS clarification).
3. Additional risk
A related counterparty proposes to “replace” dividends with intra-group services, royalties, or increased prices for imported goods in order to bypass the monthly payment cap of RUB 10 million. This approach creates significant customs and tax risks.
We will be glad to answer your questions on this topic, assist with timely preparation and submission of the 2025 controlled transactions notification, develop or update a full TP documentation package taking into account the latest FTS clarifications, and provide consultation on TP risks with calculation of possible additional tax assessments, including in foreign languages.
