New judicial practice
on transfer pricing issues

The team of Sterngoff Audit LLC conducted an analysis of current legal disputes related to transfer pricing issues in controlled transactions.

During the analysis, we found that the judicial practice of challenging prices in transactions for the first half of 2021 continues to increase the number of disputes in cases of unjustified benefits, checking prices in controlled transactions within the framework of transfer pricing.

We consider it necessary to note that the proof of the market price level and information about transfer pricing are becoming relevant, including for disputes not related to taxes. For example, in the case of LLC “Stal” (A68-1875/2020 (arbitr.ru)) on the recognition of the purchase and sale agreement as invalid, the court took the absence of tax authorities’ claims about prices in controlled transactions as proof of the reliability of the expert’s conclusion about the market price.

At the moment, it is difficult for the courts to find a common opinion on pricing issues under tax and customs legislation. The courts challenged the customs value of imported goods as intentionally underestimated due to the interconnectedness of the parties to the transaction. According to the court, the payers ‘ references to the documentation on the TP turned out to be insufficiently convincing (the Decision of the AC of the Novosibirsk Region of 25.05.2021 in case No. A45-31054/2020).

It is also possible to cancel the uncertainty of judicial practice on the issue of whether the territorial tax authorities have the authority to control prices in “controlled transactions”: on the one hand, referring to paragraph 3 of the Review of the Supreme Court of the Russian Federation of February 16, 2017, the courts remind of the inadmissibility of price control in controlled transactions within the framework of desk and field tax audits, as in the case of LLC Kristall (https://kad.arbitr.ru/Card/bac3bf4d-108c-4af4-99fb-a6d77151dba9). On the other hand, such control is carried out and the recognition of the transaction as controlled (submission by the taxpayer of the relevant Notification of controlled transactions) does not prevent the transaction and the price in it from being challenged by the territorial tax authority, the case of JSC “Pharmsintez” (https://kad.arbitr.ru/Card/4b06231a-8b97-434a-b84d-f05b27d67008).

In the end, the court practice for the first half of 2021 indicates that taxpayers won mainly disputes on whether there was a deviation in the price, whether it was multiple and whether the pricing corresponded to the functionality of the parties to the transaction. At the same time, the reality of the transactions was not questioned.

Specialists of LLC “Sterngoff Audit” recommend:

1. Do not neglect pricing issues even in uncontrolled transactions, since the focus of control of “uncontrolled” transactions is constantly expanding;
2. Check the validity of the applicable pricing methods for all existing intra-group agreements;
3. For the most significant transactions, have a so-called “security file” with the justification that the set prices correspond to the market level;
4. In case of disputes with customs, in addition to the transfer pricing documentation, prepare a “security file” and(or) documents justifying that the customs value of the imported goods is not underestimated, and the fact that the parties to the transaction are interrelated did not affect the price, terms and circumstances of the transaction.

Our specialists are ready to help you with the preparation of information on the TP, you can leave a request for the service at info@sterngoff.com.