Russia to Adopt Country-by-Country Reporting From 2017

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Aug. 4 — The Russian government has a strong intention to require multinational companies to report taxes and profits by country of operation from 2017 and provide for voluntary disclosure of that information from 2016, three EY practitioners said.

Evgenia Veter, Elena Luts and Olga Kurkina noted that the Russian draft country-by-country reporting law, issued in April 2016, envisaged submission of country-by-country reports using primary and secondary filing mechanisms in line with those recommended by Organization for Economic Cooperation and Development (25 Transfer Pricing Report 100, 5/26/16).

Veter, a partner and head of EY's transfer pricing services in Moscow, and Luts and Kurkina, managers in EY Russia's transfer pricing practice, discussed the current thinking in Russia about country-by-country reporting and the other BEPS transfer pricing items in Bloomberg BNA's Transfer Pricing Forum July 29.

The draft law on country-by-country reporting—recommended under BEPS Action 13—would require parent companies or surrogate parent companies of international groups to prepare and submit reports. A secondary filing obligation arises for each Russian constituent entity, the practitioners noted.

The reports would have to be prepared within 12 months of the end of the financial year for which consolidated financial statements are prepared. The draft law also provides for reports to be submitted on a voluntary basis for financial years prior to 2017.

Apart from the country-by-country report itself, Russian taxpayers would have to annually submit notifications of participation in international groups.

Introducing country-by-country reporting requirements should enable Russian groups with an international presence to submit the reports in Russia—that is, in the parent company jurisdiction. The subsequent provision of reports to other jurisdictions in which the international groups operate would be the responsibility of the Federal Tax Service through the system of automatic information exchange, the practitioners said.

No Master File, Local File

The master file and local file aren't yet required in Russia, but they may be introduced as “a next natural step at a later point, once the country-by-country reporting requirement is enforced,” they said.

The information to be included in the Russian transfer pricing documentation may be broader than the expectations set for a local file under BEPS Action 13, Veter, Luts and Kirkina said. For example, Russian law requires undertaking a local comparability analysis for a Russian tested party and the analysis undertaken on a regional basis would not be compliant with the current Russian transfer pricing rules, they noted.

Actions 8, 9 and 10

The transfer pricing guidance under BEPS Actions 8, 9 and 10 “require a more fundamental rethinking of the Russian transfer pricing rules,” Veter, Luts and Kurkina said. Those action items cover allocation for risk and intangibles, and contemplate aligning transfer pricing with “value creation.”

The EY practitioners pointed out that the current Russian transfer pricing rules have been in effect for less than five years. The first transfer pricing audits are still underway, and “practical implication of the current rules is still subject to development,” they said. Additionally, Russian legislation is currently going through a number of other significant developments, such as new rules on controlled foreign corporations.

“In view of these facts, such fundamental changes as those in line with Actions 8-10 would represent another significant milestone in the Russian transfer pricing legislation. Although such changes are necessary to align Russian transfer pricing rules with international developments and realities of the global tax landscape, they are likely to take more time because of the relatively ‘young’ transfer pricing legislation of the country.”

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