On 8 April 2016, the text of the bill “On Modification of Part One of the Tax Code of the Russian Federation” (regarding the preparation and submission of Country-by-Country Reports) was placed for public discussion on a federal site for draft regulations.
This draft has been developed in accordance with recommendations from the Organization for Economic Co-operation and Development (OECD) as part of their Base Erosion and Profit Shifting (BEPS) project to reform the international taxation system. Of particular relevance is Action 13, which provides a three-tiered approach to the preparation of Transfer Pricing documentation. These consist of Country-by-Country Reporting (CbCR), master file documentation, and local transfer pricing documentation.
The bill obliges Russian taxpayers that are part of international groups, from 1 January 2017, to provide the following:
These Country-by-Country Reporting submission requirements apply to international groups with total revenue (according to their consolidated financial statements for the previous year) of at least 50 billion roubles (about € 650 million).
The obligation to submit Country-by-Country Reporting falls on:
It is expected that this law will come into force on 1 January 2017. New requirements will apply to subsequent financial years after 2017.
Groups may voluntarily submit Country-by-Country Reporting in relation to financial years before 2017.
The new bill allows a transitional period (2017-2019) to adapt to these new responsibilities. During this period, penalties for non-compliance will not be applied.
The penalty for failure to provide the documents or for providing inadequate documentation will be (from 2020 onwards):
In our opinion, the main objective of this bill is to give international groups the opportunity to voluntarily submit Country-by-Country reporting in Russia. However, it remains an open question as to whether voluntary submission of CbCR in Russia will constitute sufficient grounds to remove the obligation to submit CbCR independently for companies registered in other jurisdictions where requirements for CbCR have come into force (e.g. in the Netherlands, Italy).
We also believe that the current version of the bill being proposed for discussion will be improved, since it fails to answer the following questions clearly:
In addition to the above, the current version of the bill specifies that Country-by-Country Reporting can be used for tax control purposes. In our opinion, this requires a more detailed explanation, especially as Action 13 specifies that tax authorities can use CbCR only for a preliminary estimation of transfer pricing risks; adjustments to the tax base cannot be performed based on CbCR data.
If you have any questions, please contact us.