To What Extent Business Restructurings Fall within the Scope of Transfer Pricing Regulations in Russia?

Abstract

While Russia's new transfer pricing rules regulated in Chapter V.1 of the Tax Code definitely provide improvements to several transfer pricing issues, many interesting and timely transfer pricing questions, in particular business restructurings, still remain unsolved in the Tax Code. As transfer pricing of business restructurings has not been directly discussed in the Russian case law either, the current legal state in this respect should be considered very ambiguous. In this article, I will discuss to what extent business restructurings may fall within the scope of transfer pricing regulations in Russia. One of the main questions is should the business restructurings be examined as transfers of a going concern or should all the assets transferred in the course of business restructuring be reviewed separately. In addition, while the Tax Code's new transfer pricing rules are to a large extent based on the OECD Transfer Pricing Guidelines, it has its own peculiarities which may be considered troublesome especially from the view point of business restructurings. For instance, the arm's length principle regulated in the Tax Code is applied only to controlled transactions where commodities, services and/or work are being transferred between related parties. As it is very common in business restructurings that intangible assets, e.g., trademarks, goodwill and know-how, are transferred from one company to another, the Tax Code's provision cannot easily be applied to business restructurings.