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29.04.2025

Сhanges in transfer pricing and notifications of controlled transactions

Dear colleagues,

 

A year earlier we have informed you of major changes in transfer pricing effective from 01.01.2024 (link). We kindly remind you the main aspects and inform of the recent innovations:

 

1. Withholding tax on services of foreign related parties

We kindly remind you that withholding tax of 15% shall on mandatory basis be withheld from services of foreign related parties – residents of the country with which the DTT has been suspended.

 

On April 7, the Ministry of Finance officially updated the list of countries with relevant information of current DTTs, in particular, the information on the termination of the DTT with the UK on its initiative was added, in which regard a separate information message was also published.

For transactions with companies from countries with continuing DTTs, it is necessary to study the terms of the international agreement.

 

2. New format for notification of controlled transactions

On December 28, 2024, the Federal Tax Service issued the Order No. ED-7-13/1088@ “On approval of the form, procedure for filling out and format for submitting a notification of controlled transactions in electronic form” dated December 02, 2024, and on March 13, 2025, the Tax Service issued clarifications (Letter of the Federal Tax Service of Russia dated March 13, 2025 No. ShYu-4- 13/2827@* (ШЮ-4-13/2827@) on ensuring the proper application of the Letter of the Federal Tax Service of Russia dated May 25, 2022 No. ShYu-4-13/6384@* (ШЮ-4-13/6384@).

 

One of the key points is that for transactions proceeded after January 01, 2024, the taxpayer is to specify in the notification of controlled transactions (and in the documentation submitted at the request of the Federal Tax Service of Russia or in accordance with the paragraph 8 of the Article 105.15 of the Code) the applied transfer pricing method (as provided for in the Chapter 14.3 of the Code or a combination thereof) used to justify the market price level in the controlled transaction.

 

The changes also imply the disclosure of more information about controlled transactions, including prices in transaction chains (applicable to previous purchase / subsequent sale) for certain categories of transactions (for instance, exchange goods).

 

We kindly remind that for transactions proceeded in 2024, the notification in the new format is to be submitted not later than on May 20, 2025.

 

Non-submission by a tax payer to the tax authority within the prescribed time limits a notification of controlled transactions proceeded within one calendar year, or submission by a taxpayer to the tax authority of a notification of controlled transactions including unreliable information, shall entail a fine of RUB 100,000. Non-submission by a taxpayer to submit documentation regarding a specific transaction (group of similar transactions) within the prescribed time limits shall entail a fine of RUB 500,000.

 

3. Verification of transactions with a foreign “unrelated” counterparty

We kindly remind that since January 1, 2024, transactions with “unrelated” companies registered in countries in the offshore zones list may be automatically classified as controlled transactions for transfer pricing purposes (since July 1, 2023, the list of offshore zones was expanded to 91 jurisdictions by the Order of the Ministry of Finance of Russia dated June 05, 2023 N 86n and includes, for example, the countries of the European Union, Great Britain, Japan, the USA).

Regardless of the actual interdependence of the parties, the transaction will be recognized as controlled transaction if the income for the calendar year exceeds the limit of RUB 120 million.

 

Exceptions are being made for transactions, where one of the counterparties is a resident or a tax resident of a foreign state with which the Russian Federation has a DTT, the effect of which was suspended by the Decree of the President of the Russian Federation, when:

  • transactions were concluded before March 1, 2022,

  • the procedure for determining prices and (or) pricing methods (formulas) applied in such

    transactions remain unchanged after March 1, 2022,

  • transactions are not recognized as controlled transactions in accordance with the criteria in

    effect as of March 1, 2022.

 

4. Updated list of countries which tax authorities conduct an automatic exchange of information

On December 20, 2024, the Federal Tax Service published an Order No. ED-7-17/915@ dated October 30, 2024 “On approval of the List of foreign states (territories) whose competent authorities automatically exchange country-by-country reporting”.
We kindly remind that the effective order of the Federal Tax Service of Russia dated December 20, 2022 No. ED-7-17/1226@ became void with the adoption of the above-mentioned document.

 

The current version specifies 45 countries and 10 territories with which automatic exchange is carried out, which is amended compared to the previous list in terms of the exclusion from this list of a number of “unfriendly” European countries, which have ceased to carry out automatic exchange of country-by-country reporting with the Federal Tax Service of the Russian Federation (for example, Germany, France, Luxembourg, Italy, Spain, Greece and other countries).

 

We kindly remind that subsidiaries – residents of the Russian Federation, which parent companies are registered in jurisdictions with which automatic exchange has ceased, may have to submit a country-by-country reporting upon request from the tax authorities.

 

Non-submission a country-by-country reporting within the within the prescribed time limits either submission of a country-by-country reporting including unreliable information entails a fine of RUB 100,000 for periods before 01.01.2024 and a fine of RUB 1,000,000 for periods starting from 2024 (the fine may be applied to one calendar year).

 

We have been working with transfer pricing for many years and are engaged in preparing documentation for our clients.

We will gladly support you in the process of preparing documentation and answer questions that arise in connection with the changes specified.

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Your contacts on this topic:

Olga Kireeva

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07.04.2025

Regular (annual) general meeting of LLC participants

Dear Colleagues,

please note that in accordance with Article 34 of the Federal Law dated February 08, 1998 No. 14- FZ “On Limited Liability Companies” it is necessary to hold an ordinary (annual) general meeting of LLC participants in the period from March 01 to April 30, 2025 to approve the results of the previous year (annual reports and annual accounting (financial) statements).

 

Penalties may be imposed for failure to convene a meeting within the specified deadline. According to clause 11 of Article 15.23.1 of the Code of Administrative Offenses of the Russian Federation, unlawful refusal to convene or evasion from convening a general meeting, as well as violation of the requirements to the procedure for convening, preparing and holding general meetings of LLC participants shall entail the imposition of a fine. For officials (general directors) it ranges from 20,000 to 30,000 rubles, for legal entities – from 500,000 to 700,000 rubles.

 

Previously we informed you about changes in the procedure for holding meetings of participants of Russian LLCs starting March 01, 2025. We would like to remind you that the legislation establishes a prohibition on holding the ordinary general meeting of participants as an absentee meeting. During the COVID-19 pandemic, absentee voting at the annual meeting was possible, but the prohibition is now back in force.

 

In 2025, it is permitted to hold an annual general meeting of participants through combining absentee voting by ballot with a physical meeting (with some of participants present in person).

 

We will be glad to support you in preparing and holding an ordinary meeting to approve the results of the year by the general meeting of LLC participants, as well as to prepare the relevant minutes of the meeting or a resolution of the sole participant of the company.

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Your contacts on this topic:

Maria Matrossowa

Nadezhda Maskaeva

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10.03.2025

Information on participants of a foreign organization for 2024 – submit before 03/28/2025

Dear Clients,

 

please pay attention that the term for submission of information on the participants of a foreign organization for 2024 expires on March 28th, 2025.

 

All foreign organizations and foreign structures without formation of a legal entity registered with tax authorities in the Russian Federation are obliged to inform the tax authorities of all direct participants and beneficiaries regardless of the share of participation, as well as of indirect participation of an individual or a public company (if their share exceeds 5%). 

 

The above-mentioned information is to be submitted to the tax authority not later than on March 28th each year. An exception is foreign organizations that are registered with a Russian tax authority only for provision of services in electronic form.

 

Non-submission or late submission of the information entails a fine of RUB 50,000.

 

You can find our earlier publications on this issue here and here.

 

We will gladly support you in preparing and submitting information on the participants/beneficiaries of a foreign organization to the tax authorities.

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Daria Pogodina spoke at a joint meeting of the Legal Affairs Committee, the Accounting Group and the Controlling Group with a report “FSBU 27/2021 and new sanctions restrictions in terms of their impact on the IT sector. Review.” During her speech Daria  highlighted the key changes in the accounting of intangible assets in accordance with the FSBU 27/2021 and analyzed the impact of new sanctions on the IT sector. Practical aspects of implementing new standards in the context of sanctions restrictions were considered and solutions to minimize risks were proposed. The report was useful for specialists working with IT companies and in the field of accounting.

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22.03.2024

Review article “CHANGES IN 2024: Double Taxation Agreements (DTAs), Transfer Pricing, Offshoring and other news”

Exclusively for the Russian Business Guide magazine, Daria Pogodina, Managing Director of swilar presented a review article “CHANGES IN 2024: Double Taxation Agreements (DTAs), Transfer Pricing, Offshoring and other news” providing detailed step-by-step analysis of the changes and their consequences.

You can read the article online in Russian or English, or download two-language article in pdf-format by clicking the “Download ru” button below the message.

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24.10.2023

Online Seminar Sterngoff Audit

PROGRAM

DIT. Suspension. Mitigation. Comments. Consequences.

Daria Pogodina

 

Accounting for intangible assets under FASB 14/2022, IAS 38 and HGB: differences and convergence

Eugenia Chernova

 

ABOUT THE SEMINAR

Daria Pogodina spoke at an online seminar organized by Sterngoff Audit with a report on “DIT. Suspension. Mitigation. Comments. Consequences”. As part of her speech, the speaker analyzed the current state of the system of restrictive measures in relation to transactions with foreign entities, explained the legal nuances and possible consequences for companies. The report aroused great interest, as it touched upon issues that are critical for international business.

 

Evgenia Chernova presented a report at the same seminar on “Accounting for intangible assets under FASB 14/2022, IAS 38 and HGB: differences and convergence”. The speaker compared approaches to accounting for intangible assets in the Russian, international and German systems, focusing on the differences in recognition, valuation and write-off. Participants received practical recommendations on unifying accounting and preparing reports in transnational structures.

 

Evgeniya Chernova spoke at a meeting of the Finance Committee with a report on the topic “Expansion of the list of offshore jurisdictions. Mitigation. Comments. Consequences.” As part of her speech, the speaker analyzed the latest changes in the list of offshore jurisdictions, explained approaches to applying the new rules, and discussed potential tax and legal consequences for Russian companies. Particular attention was paid to possible measures to reduce risks and adapt business practices to the changed conditions.

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12.10.2023

General introduction to local specifics: taxes, visa regulations, legal aspects

Daria Pogodina spoke at an online seminar on the specifics of doing business in Kazakhstan. As part of the topic “General introduction to local specifics: taxes, visa rules, legal aspects”, the speaker gave an overview of the key requirements and regulatory conditions that foreign companies face. Participants received a basic understanding of the tax system, visa registration and legal environment of the country.

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25.08.2023

Certain provisions of taxation agreements with unfriendly countries were suspended by the Decree of the President of the Russian Federation No. 585 dated 08.08.2023.

Certain provisions of taxation agreements with unfriendly countries were suspended by the Decree of the President of the Russian Federation No. 585 dated 08.08.2023.
The Decree lists 38 DTTs and names the clauses of the treaties that are subject to suspension.
The Decree entered into force from the moment of its publication, thus, from August 8, 2023, certain provisions of the articles on the avoidance of double taxation will not apply. 

Among the main consequences for foreign subsidiaries:

  • royalties from the Russian Federation to these countries will be subject to taxation at a rate of 20% instead of the previously applied preferential zero rate,
  • tax on dividends will be 15% instead of the previously used rate of 5%-10%.

Moreover, non-resident legal entities and individuals may expect for an increase in the amount of taxes on income in the Russian Federation (for example, interest on deposits, bond coupons).

What else may be affected by the adoption of the Decree:

  • Taxes under agreements for the provision of international transportation services
  • Taxes under forwarding agreements
  • Taxation from the sale of property/shares in the Russian Federation, etc.
  • Taxation of the transfer of expenses of the head office to a permanent establishment, etc.

The adoption of the decree entails less impact for individuals in terms of employment – the provisions for income from employment are suspended, but the possibility of offsetting tax on income from employment of residents of the Russian Federation against Russian personal income tax remains, since rates on income abroad are often higher than Russian ones. There will also be no impact on the taxes of remote employees, personal income tax rates for them having been set at 13–15%, regardless of resident status.

At the same time, some of the provisions of the current treaties remain in force – Elimination of double taxation (possibility of offsetting taxes), cross-country exchange of information, mutual agreement procedures.

As a legal basis for the suspension, the Government of the Russian Federation refers to Article 60 of the Vienna Convention on the Law of Treaties.

The full repercussions for business have yet to be assessed – the Decree provides instructions for the Government to submit a draft of the relevant Federal Law to the Duma. Also, of course, more detailed explanations will be provided by relevant departments.

On August 11, the Ministry of Finance published the first clarifications in connection with the adoption of the Decree: when paying income in the form of interest to export credit agencies and banks located in unfriendly countries, tax agents have the right to continue not to calculate and not to withhold income tax at the source (provided that such foreign organizations (agencies) have the actual right to the income received).

The relevant amendments to the Tax Code of the Russian Federation are expected to be adopted during the autumn session of the State Duma in 2023.

 

The reaction of countries with DTTs to the suspension

To date, most countries whose international treaties with the Russian Federation have been unilaterally suspended refrain from official actions and comments. However, the business community expects a response that is likely to involve mirror measures.

Earlier we wrote that Denmark initiated the suspension of the agreement on its part, subsequently the corresponding note dated June 19, 2023 No. 27/23 was received by the Government of the Russian Federation, thus the application of the Convention shall be suspended from January 1, 2024.

The government of Japan regrets Russia’s decision to suspend tax treaties with a number of countries and on 09.08.2023 sent a protest through diplomatic channels with the demand to cancel the developments.

We are following the situation.

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Contacts: 

Eugenia Chernova

Senior Project Manager of SWILAR LLC

eugenia.chernova@swilar.ru +7 495 648-69-44 (ext. 310)

Olga Kireyeva

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02.06.2023

Overview: Double taxation avoidance agreements – what has been changed

Here is a consolidated overview of the latest developments in double taxation avoidance agreements (DTAAs).

Following a mutual exchange of relevant notes in June-August 2022, the double taxation avoidance agreement between Russia and Ukraine is terminated as of 01.01.2023. Relevant changes should be considered with respect to withholding taxes and other taxes for tax periods beginning on or after January 1st, 2023.

Decree 668 of September 26th, 2022 suspended the double taxation avoidance agreement with Latvia, which had previously suspended DTAA in its turn from May 16th, 2022.

Strictly speaking, the Agreement does not provide for a “suspension” option, it is assumed that it can be terminated or denounced, and The agreement was later denounced by Federal Law No. 40-FZ of 28.02.2023.

As it was – as it has become:

  • interest, dividends from Russia to Latvia, paid by Russian tax agent at a rate of 5% to 10% – 20% tax on interest, royalties, 15% tax on dividends;
  • it was possible to offset tax paid by a tax agent of one country in another country – now the tax must be paid in both countries as required by local law.

Another country with which the Agreement could be suspended or terminated is Denmark (see information in our Telegram Channel).

A relevant bill has been submitted to the local parliament. If adopted, the changes would come into force on January 1st, 2024. The consequences would be similar to the abolition of the Agreement with Latvia.

At the same time, the Russian Federation has initiated a review of agreements with some “friendly” countries – the United Arab Emirates, Turkey, Malaysia and Oman. In this case, it is announced that the purpose of the revision is to create comfortable tax conditions for attracting direct investments in the Russian economy – thus, favourable changes for investors should be expected in the agreements with these countries.

The latest initiative concerns the suspension of Agreements with “unfriendly” countries (EU countries, Switzerland, UK, USA, Canada, Australia, New Zealand, Singapore, Japan and South Korea). The proposal was made by the Russian Ministry of Foreign Affairs and the Ministry of Finance in response, among others, to Russia’s inclusion in the EU “blacklist”. The initiators proposed that the agreements be suspended unilaterally. The suspension should be based on a Russian presidential decree.

The decree is expected to be signed at the end of June this year. However, no exact dates have been given.

Until the text of the document is published, there is also no complete clarity about the expected effective date of the new rules – according to general logic, the changes should not be applied before 2024, according to the beginning of the new tax period (for profit tax and personal income tax) from which all tax innovations under the Russian Tax Code usually apply.

At the same time, the press release of the above initiative states that in case the proposal of the Ministry of Foreign Affairs and the Ministry of Finance of Russia is supported, the application of reduced withholding tax rates (tax exemptions) in respect of income covered by double taxation agreements will be suspended from the date of issuance of the relevant Decree.

We are following the development of events.

For the purpose of applying the current agreements – we recommend reading the letter of the Federal Tax Service dated March 9th, 2023 No. SY-4-13/2691@ “On Taxation of Foreign Organisations Receiving Income from Sources in the Russian Federation, and the Procedure for Applying the Provisions of DTAAs”.

We remind you that, as before, as before, in order to use the preferences provided by the current DTAA, you must obtain in advance from the counterparty the necessary package of documents (usually a  certificate of residency  and proof of right to income).

 

We will be happy to answer your questions!

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Contacts: 

Eugenia Chernova

Senior Project Manager of SWILAR LLC

eugenia.chernova@swilar.ru +7 495 648-69-44 (ext. 310)

Olga Kireyeva

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26.03.2023

Online Seminar Sterngoff Audit

PROGRAM

FAQ FOREIGN SUBSIDIARIES

Daria Pogodina

 

Distribution and payment of dividends. Solution in the current conditions

Eugenia Chernova

 

SINGLE TAX PAYMENT from 01.01.2023 Practical advice for an accountant

Eugenia Chernova

 

ABOUT THE SEMINAR

Daria Pogodina spoke at the online seminar “FAQ of Foreign Subsidiaries” organized by the company “Sterngoff Audit”. She analyzed in detail the typical issues faced by subsidiaries of foreign organizations in Russia: from accounting and taxation to compliance with legal requirements. The seminar became a useful platform for sharing experiences and discussing current practical cases.

Eugenia Chernova, as part of her speech, considered current restrictions affecting cross-border distribution of profits, and also gave recommendations for developing solutions considering the current regulations. The report aroused great interest among participants working in international companies.

One of the topics of the seminar was “Single tax payment from 01.01.2023. Practical advice for an accountant.” During her speech, Eugenia covered the procedure for applying the new mechanism of the Unified Tax Payment, spoke about the rules for distributing payments, common mistakes and ways to prevent them. Particular attention was paid to real cases and recommendations for accountants working in companies with different forms of ownership. Participants noted the practical benefit and relevance of the report.

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