Time Limit Changed for Ordering a Tax Audit of Transfer Prices
On February 26, 2024, Federal Law No. 39-FZ (the “Law”) was published that has changed the time limit for ordering a tax audit of transfer prices[1].
The Law has amended Article 105.17(2) of the Russian Tax Code by dropping the restriction whereby a decision to order an audit of transfer prices may be made within two (2) years after the date on which the Russian Federal Tax Services receives notice from a taxpayer, or notification from a territorial tax authority, of controlled transactions.
As it appears from the explanatory note, the Law has been adopted to implement Ruling No. 41-П[2] of the Russian Constitutional Court dated July 14, 2023. Please be reminded that this Ruling of the Russian Constitutional Court recognized as unconstitutional the first paragraph of Article 105.17(2) of the Russian Tax Code to the extent that it would allow the time limit for initiating an audit of transfer prices to be calculated from the date of receipt of an adjusted notice of controlled transactions when the new data contained in that notice are not significant to initiate an audit. In other words, the Russian Constitutional Court ruled that technical or other insignificant adjustments made to a notice may not serve as grounds for increasing the time limit for making a decision to conduct an audit. The Russian Constitutional Court ordered that the Russian legislature should make relevant changes to the Russian Tax Code.
But the Russian legislature decided to cut this Gordian knot by simply dropping altogether the restriction that was the subject of examination by the Russian Constitutional Court. As set out in the explanatory note, “It would allow any disputable situation relating to the calculation of the time limit for making <…> a decision to order an audit to be avoided.” When there’s no restriction, there’s no problem.
Accordingly, when the Law has taken effect, the conduct of an audit of transfer prices will be limited only to the depth of an audit—i.e., three (3) years (or five (5) years in certain cases) preceding the year in which a decision to conduct an audit was made[3].
Effective date
As set forth in the Law, it will take effect upon the expiration of one (1) month after the date of its official publication.
If you have any questions left or you would like to discuss something, please send an email to Anton Kabakov.
Sincerely,
[1] In terms of the Russian Tax Code, “an audit of the proper calculation and payment of taxes in connection with transactions between interdependent persons.”
[2] The Ruling in the case of an examination of the constitutionality of the first paragraph of Article 105.17(2) of the Russian Tax Code in connection with a complaint filed by Vimpel-Communications PJSC.
[3] Article 105.17(5) of the Russian Tax Code