The bill on changing the approach to assigning transfer price checks passed the first reading

The State Duma approved in the first reading draft amendments to the Tax Code (TC), designed to eliminate legal uncertainty when calculating the deadline for making decisions on transfer price checks. Currently, tax authorities have two years from the date of receipt of notification of a controlled transaction to schedule such an audit, but in practice this period is often counted anew when they receive additional information. The amendments eliminate this possibility – when monitoring the use of transfer prices, the general rule on conducting inspections for the last three years will be applied.

A bill changing the procedure for assigning checks when using transfer pricing (TP) in transactions between related parties passed its first reading in the State Duma yesterday. It was prepared by the government in pursuance of the decision of the Constitutional Court (CC) and submitted to the lower house in November last year (see Kommersant of November 20).

The need for changes arose due to the existence of legal uncertainty: now tax authorities can order a transfer pricing audit within two years from the date of receipt of notification of a controlled transaction, however, in practice, when taxpayers submit an updated notification (regardless of the significance of the changes – in the case considered KS, we were just talking about changing the numbering of contracts) the two-year period begins to count anew.

Deputy Head of the Ministry of Finance Alexei Sazanov explained to deputies that it is proposed to eliminate the need to take into account the date of receipt of the notification of controlled transactions when making a decision on conducting an audit, in order to “avoid situations where the fact that the taxpayer has provided an updated notification is used to unjustifiably increase the coverage of price verification periods.” With the abolition of this special procedure, the general regime for assigning inspections will apply – when control activities cover the last three years.

According to Olga Anufrieva, deputy head of the Duma Committee on Budget and Taxes, two options were considered to solve the problem: an approved approach or the establishment of evaluation criteria to determine the significance of the changes made to the notification. Let us note that the second option is generally close to the position of the Constitutional Court, which ordered the courts, before introducing changes to the Tax Code, to proceed from the fact that there are two years from the date of notification in which data on transactions are presented for the first time or contain significant changes (if the period is not significant counted from the date of first notification). However, Olga Anufrieva noted, this would entail a “heated discussion with business” of the question of what is considered a significant change, as well as a complication of regulation – it would be necessary to establish different decision-making procedures in the Tax Code for cases of filing an updated notification before the expiration of the two-year period and after . In addition, as Alexey Sazanov added, “the principle of materiality is constantly changing,” so there is no need to establish such criteria in the Tax Code.

Some deputies doubted whether the abolition of the current order would cause arbitrariness by the tax authorities. Alexey Sazanov assured that when applying the general requirement for verification over a three-year period, there is no unjustified extension of the verification period – we are talking about clearly regulated deadlines that apply to all taxes. Clarification in the bill, as the discussion showed, is required by the provision on the entry into force of innovations – the text so far indicates that the new procedure will come into force on January 1, 2024, but not earlier than a month after the official publication of the law. The Ministry of Finance will hold consultations on this matter, including with the Constitutional Court.

Evgenia Kryuchkova