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Today's paper. Last Updated: 02/10/2012

Transfer Pricing Law Aims at Tax Evasion

Stricter regulations on transfer pricing will be introduced this fall to help cut back on corporate tax evasion, government officials said Monday.

The practice, under which assets and services are transferred within an organization, is a major concern for fiscal authorities as multinational companies use the mechanism to reduce taxable profits. The announcement comes as the government is scrambling for ways to increase revenue without unduly burdening business with heavier taxes, including more efficient collection.

"Foreign companies are taking the money they earn in Russia and trying to transfer the maximum amount possible to their parent companies overseas so they don't have to pay taxes here," Stanislav Voskresensky, a deputy economic development minister, said at a conference of the Russian Union of Industrialists and Entrepreneurs, or RSPP. "We want to make the regulations on transfer pricing stricter."

Russian companies also use transfer pricing to shift their tax bases from region to region or offshore, he said.

"We expect the law on transfer pricing to be adopted by the fall, " Sergei Shatalov, a deputy finance minister, said at the same conference.

The two ministries have drafted a bill that would define the principles of pricing and set the list of the transfer deals within the companies that should be regulated. The bill will also make it obligatory to report deals worth more than 100 million rubles ($3 million), a sum that will eventually be decreased.

Vedomosti reported Monday that proposed changes would also let holding companies declare profits or losses for the entire group rather than individual units. A size limit, which has not yet been decided, will limit how many holdings are affected.

Shatalov said the Finance Ministry had suggested measures to prevent companies from merging with unprofitable firms solely to reduce their tax payments. Those measures and other tax changes, including an acceleration of value-added tax refunds, will be discussed in the government in the next few weeks, he said.

"You have to talk honestly about your problems with your tax inspector, and you may get a delay on your tax payments," Voskresensky said, adding that the VAT would not be lowered this year.

Shatalov said there are regulations in place allowing firms to defer tax claims or pay them in installments. "We just have to make them work," he said.

RSPP, a big business lobby, on Monday released a list of tax initiatives that it will submit to the government later this week. They included the introduction of tax holidays on profit, land and property for enterprises that have not suspended their investment programs despite the difficulties with demand and liquidity.

Shatalov also said the Finance Ministry would expand a series of tax holidays on oil and gas deposits to include fields in the Okhotskoye and Black Seas.

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