Why Russia's guidance on controlled transactions is a headache

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Why Russia's guidance on controlled transactions is a headache

Russia's Ministry of Finance has clarified how taxpayers should calculate the threshold for controlled transactions, but its interpretation leaves companies with a choice of non-compliance or dedicating more resources to transfer pricing.

Since Russia’s new transfer pricing rules were released last year, there has been much debate over how they should be applied.

The threshold value for domestic related party transactions to qualify as controlled is RUB3 billion ($103 million).

Taxpayers can determine whether a transaction exceeds the threshold by considering the aggregate income of all transactions between pairs of related companies.

Or, as the ministry stated in a recent letter, taxpayers can make calculations based on the sum of all transactions performed with all related parties in a year.

Under the ministry’s interpretation, if a Russian parent company provides services, loans, or sells goods to a subsidiary, and the total income received is below the threshold, those transactions could still be classed as controlled if income from transactions with all other subsidiaries in the group takes the total above the threshold.

The tax authorities can request transfer pricing documentation for all controlled transactions, which must be provided by taxpayers within 30 days of receiving the request.

The authorities will then be able to make transfer pricing adjustments if they decide the transactions do not meet with arm’s length standards.

A transfer pricing director for a Russian oil company, who wished to remain anonymous, said if the principle of calculating the overall income of all transactions with all related parties is enforced, the number of controlled transactions may radically increase.

“The more controlled transactions we have, the more money we spend on transfer pricing staff and other supplementary services,” said the director.

“The chance of not filing the notification on time will also increase and that may lead to a transfer pricing audit,” the director added.

Evgenia Veter, of Ernst & Young, said taxpayers must now decide to what extent they want to follow the ministry’s recommendations and what risk there will be if they do not.

“Companies will need to assess the risk of not documenting some transactions against the cost of being completely compliant,” said Veter. “To be fully compliant taxpayers will need to spend a lot of time and money on people and management services to prepare transfer pricing documentation for even very small transactions.”

“Taxpayers will still want to prepare documentation for more sensitive transactions but may be willing to accept some risk to avoid the cost of documenting every transaction,” she added.

It is questionable whether the tax authorities will actually have the resources to audit such a greatly increased number of controlled transactions.

However, the possibility of disputes arising if taxpayers do not follow the guidance will be high.

Veter said the tax authorities seem to be trying to find the safest answer from a legislative or technical perspective but this is not always practical.

“In the medium term, the ministry’s opinion must be taken into account by those taxpayers who are planning their intra-group arrangements, for example, considering setting up a shared services centre, and providing uniform transactions by one group member to other members,” said Svetlana Stroykova, of PwC.

Return to the BRICS tax cooperation special focus

more across site & shared bottom lb ros

More from across our site

It should be easy for advisers to be transparent about costs, Brown Rudnick partner Matthew Sharp said in response to exclusive ITR in-house data
The sprawling legislation phases out Joe Biden-era green tax incentives for businesses; in other news, the UK will reportedly maintain its DST despite US pressure
New French legislation should create a more consistent legal environment for taxing gains from management packages, say Bruno Knadjian and Sylvain Piémont of Herbert Smith Freehills Kramer
The South Africa vs SC ruling may embolden the tax authority to take a more aggressive approach to TP assessments, an adviser tells ITR
Indirect tax professionals now rate compliance as a bigger obstacle than technology and automation; in other news, Italy approved a VAT cut on art sales
AI-powered tax agents are likely to be the next big development in tax technology, says Russell Gammon of Tax Systems
FTI Consulting’s EMEA head of employment tax and reward tells ITR about celebrating diversity in the profession, his love of musicals, and what makes tax cool
Canadian Prime Minister Mark Carney and US President Donald Trump have agreed that the countries will look to conclude a deal by July 21, 2025
The firm’s lack of transparency regarding its tax leaks scandal should see the ban extended beyond June 30, senators Deborah O’Neill and Barbara Pocock tell ITR
Despite posing significant administrative hurdles, digital services taxes remain ‘the best way forward’ for emerging economies, says Neil Kelley, COO of Ascoria
Gift this article