Bill on three-tier transfer pricing documentation and the automatic exchange of information sent to State Duma

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1 Tax Flash Report by PwC experts Bill on three-tier transfer pricing and the automatic exchange of information sent to State Duma July 2017 / Issue No. 36 In brief The State Duma will consider a bill that requires the provision of three-tier transfer pricing. 1 The bill states that organisations s should provide three-tier reporting to tax authorities (country-by-country reports (CbC), global and national ). Tax authorities will automatically exchange the CbC reports of such s to prevent abuses of the tax code. It should be noted that tax authorities can already exchange information on transfer pricing matters under the current DTTs and in accordance with the OECD's Convention on Mutual Administrative Assistance in Tax Matters. For the purpose of the bill, an is defined as a group of organisations (foreign structures with no separate legal identity), related through ownership and/or control, for which financial statements are prepared and with at least one company being a tax resident or a foreign company that is subject to taxation in Russia due to the incorporation of its permanent establishment in Russia. We reviewed the bill during public discussions 2 and analysed its business impact. During both public discussion and its consideration by the Government, the bill was subject to revision. Thus, the bill available on the State Duma website also differs from the version previously published on the federal portal for draft laws and regulations. We believe the following key amendments to the bill are worth mentioning: The effective date of the law has been revised. The law will apply from 2018 (in respect to financial years beginning in 2018) instead of from this year. Yet companies have the possibility of voluntarily disclosure of information regarding prior periods that began before 2018 (this might even be required, e.g. if a CbC report must be prepared and submitted under the laws of a foreign jurisdiction where the 's subsidiaries are located starting from periods before 2018). The deadline for the submission of documents (global ) has been revised. Failure to provide transfer-pricing entails penalties for RUB 100,000 for any type of (failure to provide notification of being a constituent entity of an entails a penalty of RUB 50,000). The new requirement will apply to s with a total revenue over RUB 50 billion under financial statements for the previous financial year, whose ultimate parent entity is a tax resident, or to s whose revenues are over a certain amount set out by the laws of the foreign country in which the ultimate parent company is a tax resident. The new requirements for submitting three-tier on transfer pricing to tax authorities are outlined below. In detail The bill stipulates that organisations should provide three-tier information on transfer pricing. An is a group of organisations (foreign structures with no separate legal identity) related through

2 ownership and/or control, provided that at least one company is a tax resident or a foreign company that is subject to taxation in Russia due to the incorporation of its permanent establishment in Russia, and financial statements are prepared for this. The requirements for the content of three-tier are in line with the OECD guidelines published as part of BEPS Action The bill sets out the following requirements for the provision of three-tier for s: Notification about membership in an CbC report Global (Master File) National (Local File) Who should file? taxpayers (one notification with information about all members of can be submitted by the ultimate parent entity or an of, as well as by an member that is a resident on which such an obligation has been imposed) An s ultimate parent entity or an A taxpayer that is a member of an taxpayers taxpayers Submission Deadline Within eight months of the end of a financial year of an 's ultimate parent company Within 12 months following the end of a financial year or the last day of a period for which financial statements of an would be prepared. requested no earlier than three months after the date of the request receipt by the taxpayer in the cases stipulated by the bill Within three months of receiving a request from the Federal Tax Service, but no earlier than 12 months and no later than 36 months following the end of a financial year or the last day of a period for which financial statements of an would be prepared requested after 1 June of the year following the calendar year when the controlled transactions were performed Exemption of members from submitting of the reporting When the ultimate parent entity, an or an member on which such an obligation has been imposed submits a notification in regard to an member When the ultimate parent entity or an authorised member submits a CbC report, provided there is an automatic exchange with the relevant jurisdiction (if applicable), etc. Contents Name of organisation, OGRN, INN, address, details on the ultimate parent entity and the, date of the financial year-end of the ultimate parent entity, etc. 1. Summary information on members in one jurisdiction: revenues (with a breakdown into transactions with members and associated enterprises, and transactions with other parties); pre-tax profit (loss); income tax assessed and actually ownership structure, a description of its activities (including a description of the supply value chain), information on intangible assets, on intercompany financial activities and other Information on a member's activities, a description of the controlled transaction, including the estimated market price range, data on functions of the transaction parties (assets and risks) and en.htm

3 Financial data source Form Notification about membership in an Electronic (the format is approved by the Federal Tax Service) CbC report Language paid; charter capital; accumulated earnings; number of personnel; amount of intangible assets 2. Identification information on each member with specification of the main types of business activity Consolidated financial statements or accounting and/or tax records generated in accordance with the rules set out in the country of an member's tax residence, or any other information that ensures complete and reliable data in CbC reports Electronic (the format is approved by the Federal Tax Service) Global (Master File) information, including financial statements and information on pricing agreements and/or rulings received from the tax authorities Any National (Local File) other information stipulated by Article of the Tax Code. The following information should be provided as well: the taxpayer's management structure, activity and market strategy; the rationale behind agreeing to a certain market price; the auditor's opinion on financial statements; etc. Any provided in a foreign language if the ultimate parent entity is not a tax resident in Russia A taxpayer can also provide a document in a foreign language in addition to a document in provided in a foreign language in addition to a document in A taxpayer can also provide a document in a foreign language in addition to a document in Currency of reported cost indicators Cost indicators may be reported in the currency of the statements Cost indicators may be reported in the currency of the statements Cost indicators may be reported in the currency of transactions Penalty for failure to provide information (not applicable to cases identified in relation to ; except for TP prepared under Article of the Tax Code) RUB 50,000 (the penalty also applies when inaccurate information has been provided) RUB 100,000 (the penalty also applies when inaccurate information has been provided) RUB 100,000

4 We will monitor the discussion on the bill and give you updates on any amendments. The takeaway Please note that new requirements for the provision of three-tier on transfer pricing will soon come into effect for members. We think it is reasonable to review the new regulations and prepare for filing global and national, and drafting CbC reports.

5 Contacts We would be happy to answer any questions you may have. TLS Financial Ekaterina Lazorina CEE Tax and Legal Leader Vladimir Burov TLS Consumer and Industrial Products and (CIPS) Enrika Schevchenko Natalia Kozlova Natalia Sherbakova (St Petersburg) Energy, Utilities and Mining (EU&M) Denis Gorin Galina Naumenko Ekaterina Malygina Stefano Tonetti Tax Management and Accounting (TMAS) Ekaterina Ryabova Government and Public Sector International Tax Structuring Natalia Kuznetsova Mikhail Filinov Indirect Taxation and Customs Vladimir Konstantinov Mergers & Acquisitions Tax Ekaterina Koropova HR Management Consulting, Individual Taxation Kirill Nikitin Legal services Karina Khudenko Alla Romanchuk TLS Communications, Technology, Entertainment and Media Natalia Vozianova Private Company Alina Lavrentieva Yana Zoloeva Russia and CIS Tax and Legal Leader Maxim Kandyba Transfer Pricing Andrey Kolchin Svetlana Stroykova All rights reserved. PwC and PricewaterhouseCoopers refer to OOO PricewaterhouseCoopers Advisory or, as the context requires, other member firms of PricewaterhouseCoopers International Limited, each of which is a separate legal entity. The information contained herein does not constitute professional advice. PwC assumes no responsibility for any damages caused to any parties if their actions/omissions have resulted from reading of this report. For assistance with specific matters, we recommend that you contact a PwC professional in the respective line of service.