The Ministry of Finance and the Federal Tax Service are discussing new amendments to the Tax Code. In particular, it is proposed that the penalty under Article 129.3 of the Tax Code should be calculated from the amount of an adjustment to the tax base rather than from the amount of unpaid tax.

Sergey Ivanov, tax consultant at Tax Compliance, talks about these and other planned innovations.

WHO'S CONCERNED?

The changes may affect:

• Companies that purchase goods or services from foreign Group companies;
• Companies that purchase goods or services from Russian companies of the Group;
• Companies that perform transactions with independent persons in respect of goods from the list of the Ministry of Industry and Trade (oil, metals, fertilizers, etc.)
• Companies that transact with independent persons from unfriendly countries or offshore zones.

WHAT HAPPENED?

The Ministry of Finance and the Federal Tax Service are discussing a stricter approach to control over pricing within holding companies, namely:

200% penalty is the result of possible changes in the Tax Code.

It is proposed that the penalty for a violation of the TCO rules should be assessed on the amount of the adjustment to the tax base (currently, on the amount of unpaid tax). Example:

Thus, the fine can increase 5 times.

In addition, the plan is to:

• The amount of the deviation of the price from the market price will be recognized as a hidden dividend. With respect to it, withholding tax at the rate of 15 percent should be paid;
• Increase the fine for failure to provide notification of controlled transactions by 200 times - up to 1 million rubles (now - 5 thousand rubles);
• Increase the depth of tax audit on TCO by 2.5 times - up to 5 years (now - 2 years);
• Apply the median value (now the market price interval) as the reasonable price. Example:

In such a situation, there could be about a 50% increase in additional charges as a result of making median adjustments compared to using an interval (if the lower end of the interval is used for the adjustment).

WHAT'S A BUSINESS TO DO?

Businesses should:

1. Identify transactions that may fall within the scope of the planned changes, including past transactions;
2. Review the price level in transactions to ensure that they are in line with market levels;
3. Discuss with the tax authority the current policy on TCO for tax risks;
4. Discuss with the tax authority the pricing methodology in relation to the transactions performed.

Contact us for a consultation.