Stay with us. Because our cooperation is based on personal trust.
back to Global
  • Americas
  • Middle East
  • Europe
  • Asia Pacific
  • Africa
Choose your location
  • Argentina
  • Bolivia
  • Brazil
  • Canada
  • Chile
  • Colombia
  • Costa Rica
  • Dominican Republic
  • Ecuador
  • El Salvador
  • Guatemala
  • Honduras
  • Jamaica
  • Mexico
  • Nicaragua
  • Panama
  • Paraguay
  • Peru
  • Puerto Rico
  • Trinidad and Trobago
  • United States
  • Uruguay
  • Venezuela
Choose your location
  • Armenia
  • Iran
  • Iraq
  • Israel
  • Kyrgyztan
  • Pakistan
  • Saudi Arabia
  • Turmenistan
  • United Arab Emirates
  • Uzbekistan
Choose your location
  • Albania
  • Austria
  • Belarus
  • Belgium
  • Bulgaria
  • Croatia
  • Cyprus
  • Czech Replublic
  • Denmark
  • Estonia
  • Finland
  • France
  • Georgia
  • Germany
  • Gibraltar
  • Greece
  • Hungary
  • Iceland
  • Ireland
  • Italy
  • Latvia
  • Lithuania
  • Luxembourg
  • Macedonia
  • Moldova
  • Montenegro
  • Netherlands
  • Norway
  • Poland
  • Portugal
  • Romania
  • Russia
  • Serbia
  • Slovakia
  • Slovenia
  • Spain
  • Sweden
  • Switzerland
  • Turkey
  • Ukraine
  • United Kingdom
Choose your location
  • Australia
  • Cambodia
  • China
  • Hong Kong
  • India
  • Japan
  • Korea
  • Laos
  • Macao
  • Malaysia
  • Mongolia
  • Myanmar
  • New Zealand
  • Philippines
  • Singapore
  • Sri Lanka
  • Taiwan
  • Thailand
  • Vietnam
Choose your location
  • Angola
  • Benin
  • Burkina Faso
  • Burundi
  • Cameroon
  • Egypt
  • Ghana
  • Guinea
  • Ivory Coast
  • Kenya
  • Madagascar
  • Mali
  • Mauritius
  • Morocco
  • Mozambique
  • Niger
  • Nigeria
  • Rwanda
  • Senegal
  • South Africa
  • Tanzania
  • Togo
  • Tunisia
  • Uganda
  • Zambia
29.11.2018

Development of TP court practices in Russia

Dispute on recognition of the transaction as controlled and application of a specific TP method for determining market prices

Key Facts
  • The Russian Tax authorities may recognize the interdependency of companies “on other grounds”, even if the counterparties do not meet the criteria for interdependency specified. in the Russian Tax Code.
  • The Russian tax authorities continue to insist on the use of the CUP method to determine the market range of prices in controlled transactions.
  • The Russian tax authorities pay special attention to the quality of information and calculations provided by taxpayers in TP Documentation.

Court practices regarding the application of TP rules in Russia is evolving. In the recent PJSC Togliattiazot case, the court initially supported the tax authorities’ position with respect to additional tax charges of an approximate amount of RUB 40 million. This is the third high-profile TP case (after similar cases involving PJSC Uralkali and NK Dulisma).

The subject of the dispute in this case was the supply of chemicals from PJSC “Togliattiazot” (RusCo) to the company NITROCHEM DISTRIBUTION AG (SwitzCo) in 2012 for a value of more than RUB 1 billion.

The dispute focused on two issues:

  • Recognition of the transaction as controlled due to the level of interdependency between parties in the transaction
  • Application of a specific TP method for determining market prices in the transaction

Recognition of the transaction as controlled due to the level of interdependency between parties in the transaction

Pursuant to the Russian Tax Code, cross-border transactions are recognized as controlled if the counterparties in the transaction are interdependent (if there is a direct or indirect capital participation between them of at least 25%).

Despite, according to official data, the level of participation between RusCo and SwitzCo being less than 25%, the Russian tax authorities have managed to establish interdependency of the parties in the transaction through “a complex scheme of nominal ownership, trust management and custody of shares”.

The court initially supported the tax authorities and established interdependency of RusCo and SwitzCo on the basis of paragraph 7 of Art. 105.1 of the Russian Tax Code (“on other grounds”).

Application of a specific TP method for determining market prices in the transaction

In order to confirm the market level of prices in the transaction, PJSC “Togliattiazot” submitted TP documentation on the analyzed export transactions to the Russian tax authorities. The TP documentation was prepared using the transactional net margin method (TNMM).

The approach of PJSC “Tolyattiazot” to calculating the market range was challenged by the Russian tax authorities for the following reasons:

  • As far as it is possible to use the CUP method in this case, the use of other methods (including TMNN) are not correct from a Russian tax legislation perspective.
  • The results of the benchmark analysis (list of comparable companies) do not meet the criteria for comparable companies stated in the Russian Tax Code

The court supported the tax authorities’ approach regarding the need to apply the CUP method (the comparable market price method) to this transaction, and agreed with the tax authorities on the results of the analysis carried out under the TNMM method.

Why is it important?

  • The Russian Tax authorities may recognize the interdependency of companies “on other grounds”, even if the counterparties do not meet the criteria for interdependency specified in the Russian Tax Code;
  • The Russian tax authorities continue to insist on the use of the CUP method to determine the market range of prices in controlled transactions (if applicable);
  • The Russian tax authorities pay special attention to the quality of information and calculations provided by taxpayers in TP Documentation.
Article published in TP Newsletter #2/2018
Current developments in the transfer pricing area in 10 countries
View publication
Get in contact

If you have any questions about WTS Global or our global services, please get in touch.
We will respond to you as soon as possible.