On November 28, 2017, Russia published Federal Law No. 340-FZ, implementing the BEPS Action 13 documentation requirements (i.e., CbC reporting, master file, and local file).
The measures entered into force on November 27, 2017, will apply from that date, and will be included in Article 105.16 of the Russian Tax Code.
Federal Law No. 340-FZ requires Russian taxpayers who are members of an international group, whose total revenue for the preceding fiscal year was at least RUB 50 billion, to submit annual CbC reports to the Russian tax authorities (Federal Tax Service or FTS). The CbC reporting requirements apply retroactively from January 1, 2017.
Taxpayers will be allowed to voluntarily file CbC reports in Russia for the 2016 reporting period.
The following taxpayers must submit a CbC report:
- Parent company of a multinational group (member that directly or indirectly participates in the capital of other group members).
- Authorized participant (authorized by the parent company, referred to as a “surrogate parent” as defined in the BEPS Action 13 final report).
- Member of a multinational group whose parent company is not required under domestic law to submit a CbC report, or which is a tax resident of a jurisdiction that does not have an international agreement with Russia on the automatic exchange of CbC reports.
Federal Law No. 340-FZ defines a “member of an international group” as (1) an organization whose financial statements are included in the consolidated financial statements of the international group or would be included if the securities were publicly traded or (2) an organization whose financial statements are not included in the consolidated financial statements of the international group due to size or materiality of data.
“International group” is defined as related companies, and includes at least one Russian tax resident entity and one non-Russian tax resident entity, or an entity that is tax resident in one state and is liable to tax from a permanent establishment in an EU member state.
Except for CbC reports filed by foreign-parented groups, CbC reports, master files, and local files must be filed in Russian.
MNE taxpayers will have to notify the FTS of their participation in the group within eight months from the end of the group’s fiscal year. The notice must be filed by the ultimate or surrogate parent if they reside in Russia. Otherwise, each Russian constituent entity (or a designated entity) must submit the notice.
Failure to notify or submitting false information will incur a penalty of RUB 50,000.
CbC Report Content
The CbC report must include the following information for each country in which the group operates:
- Income (revenue) from transactions between related and independent parties.
- Income (loss) before income tax.
- Corporate income tax paid by a foreign organization.
- Corporate income tax accrued in the current year by a foreign organization.
- Share capital.
- Retained profit.
- Number of employees.
- Value of tangible assets, excluding cash and cash equivalents.
- Identification information of each MNE group member.
Failure to submit a CbC report, master file, and local file, or submitting false information, will incur a penalty of RUB 100,000.
The penalties discussed above (i.e., Notification Requirements) will not apply until the 2020 tax year.
CbC Reporting Deadline
Reports must be submitted within 12 months from the end of the relevant financial year. CbC reports are to be submitted for financial years starting from January 1, 2017. Reports for prior years may be submitted on a voluntary basis.
Master and Local Files
Federal Law No. 340-FZ introduces master and local file requirements for Russian resident entities that are members of a MNE group in Article 105 of the Russian Tax Code. The filing threshold for the master and local files is RUB 50 billion.
The master file requirements apply retroactively from January 1, 2017. The local file requirements will apply from January 1, 2018.
The master file requirements apply for all Russian constituent entities, and the local file must be submitted by all constituent entities located in Russia that have had transactions with foreign related parties.
The local file must list all related-party contracts and transactions (e.g., advance pricing agreements (APAs)), unlike the BEPS Action 13 recommendations that require a listing of material related-party contracts and transactions. The local file requirements do not replace current Russian transfer pricing documentation requirements.
The master and local files must be filed within twelve months of any request by the FTS, and no later than 36 months after the end of the fiscal year at issue.
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