Transfer pricing, retro-bonuses, correction VAT invoices: legislation amendments

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1 Transfer pricing, retro-bonuses, correction VAT invoices: legislation amendments Last week the RF President signed Federal Law #39-FZ as of April 05, 2013 (hereinafter - the Law) which makes a range of important amendments to the RF Tax Code. The amendments concern the deadlines of transfer pricing compliance regulations, the VAT procedure in respect of bonuses and premiums paid to customers as well as procedure of correction performance. Please see more details in our tax newsletter.

2 Transfer pricing As we mentioned in our previous newsletters, one of the most important amendments is extension of the reporting period for submission of the notification on controlled transactions for FY According to the Law the deadline for notification on controlled transactions to be submitted to the RF tax authorities for FY 2012 has been carried over from May 20 to November 20, The TP documentation on controlled transactions performed in 2012 now can be requested by the RF tax authorities starting from December 1, Correspondingly for half of the year (until June 30, 2014) has been moved the period within which the tax authorities have the right to conduct a tax audit in respect of controlled transactions for FY Furthermore the Law exempts from TP control transactions under the loan agreements concluded before January 1, 2012, i.e. the date when the new TP rules came into force. It should be noted that above mentioned amendments will also apply to trade and commercial credits, and also to pledge contracts and bank guarantees. However if the terms of loan agreements have been changed after January 1, 2012, the transactions are still under TP control.

3 VAT invoices Retro-bonuses and discounts The Law fully resolves the disputed issue of adjustments of supplier s VAT base and customer s VAT recoveries in the event bonuses and premiums are applied. Pursuant to the amendments to the RF Tax Code there is a direct provision stipulating that bonuses and premiums provided by a supplier to a customer for the fulfillment of certain contract terms, including the volume premiums, do not affect the VAT base. Accordingly, the supplier will not have to adjust the VAT base and the customer will not have to adjust VAT recoveries. As an exception the VAT base and VAT recoveries shall be adjusted if the contract directly provides that premiums and bonuses paid reduce the price of goods (services, work) supplied to a customer. Correction The amendments to the RF Tax Code provide legal grounds to perform a unified correction VAT invoice in the event of price changes of goods supplied (work performed, services rendered, and property rights transferred) which were documented earlier by a taxpayer on the basis of two or more original VAT invoices. Application of unified correction should considerably reduce the VAT compliance burden to taxpayers. According to the previous edition of the RF Tax Code taxpayers had to draw up separate correction in respect to each originally drawn up VAT invoice. Obviously the above mentioned amendments will entail necessary changes in other regulatory acts, in particular rules of correction drawing up, set by the RF Government Regulation 1137 as of "On forms and rules of drawing up documents applied in VAT settlements". Therefore subordinate tax legislation is expected to be emended correspondingly in the nearest future.

4 (work, services) The amendments also introduce new rules in cases when the of goods supplied (work performed, services rendered) increases, in particular due to an increase in prices and (or) an increase in the amount (volume) of the goods supplied (work performed, services rendered). In these cases taxpayers have to increase the VAT base for the tax period in which the primary documents determining an issues of correction were drawn up. According to the previous edition of the RF Tax Code an increase of the of goods supplied (work performed, services rendered) led to the necessity of adjustments in the tax period when the initial transaction took place and, therefore, submission of an adjusted VAT return.

5 The Law was officially published on April 8, The amendments relating to TP regulation will come into force from the day of its official publication and will apply retroactively to legal relations arising from January 1, Unfortunately, VAT amendments cannot be applied retroactively and therefore practical questions of VAT procedure in respect of premiums and bonuses paid before July 1, 2013 are still open-end. As regards the amendments to the VAT legislation, they shall come into force not earlier than one month after the date of official publication of the Law, and not earlier than the first day of the next VAT tax period. Therefore new VAT legislation will apply starting from July 1, 2013.

6 Our tax specialists will be happy to comment and clarify all possible issues of the above mentioned amendments as well as help with their practical implementation in your accounting system. Tax and Legal Department Alexander Sidorenko Tax and Legal Partner E alexander.sidorenko@ru.gt.com Alfiya Golovschinskaya Senior Tax Manager E alfiya.golovschinskaya@ru.gt.com The matters covered in this publication are intended as a general overview and discussion. They are not intended, and should not be used, as a substitute for taking legal advice in any specific situation. Maria Sotnikova Tax Manager E maria.sotnikova@ru.gt.com Alexander Larichev Tax Manager E alexander.larichev@ru.gt.com Grant Thornton ZAO. All rights reserved. Grant Thornton ZAO is the Russian member firm within Grant Thornton International Ltd (Grant Thornton International). Grant Thornton International is one of the world's leading organisations of independently owned and managed accounting and consulting firms. Grant Thornton International and the member firms are not a worldwide partnership. Services are delivered independently by the member firms.