Global Tax Alert (News from Transfer Pricing) | 17 November 2017

Russian State Duma adopts draft law on BEPS Action 13 implementation

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Executive summary

On 16 November 2017, the Russian State Duma adopted draft legislation, Concerning the Introduction of Amendments to the Tax Code of the Russian Federation (in Connection with the Implementation of the International Automatic Exchange of Financial Account Information and Documentation for Multinational Groups of Companies), in the third reading. Before being enacted, the draft law needs to be additionally approved by the Federal Council and then signed by the President.

This Alert summarizes the key changes as compared to the previous version of the draft law submitted to the State Duma for the first reading.1

Detailed discussion

The following is an overview of the key changes as per the current version of the draft law:

  • The Law would come into force from the day of its official publication (the previous version had indicated that it would come into effect from 1 January 2018), and its provisions – relevant for country-by-country (CbC) reporting and the Master file – would apply to financial years commencing on or after 1 January 2017 (rather than the previous version, which stated financial years commencing on or after 1 January 2018). An exception is made for the BEPS Action 13 Local file, which should be required only for fiscal (calendar) years starting from 2018.
  • There is still an option for multinational groups to voluntarily submit the CbC report for financial years starting within 2016 (parent surrogate filing), but it is now clarified that the voluntary submission applies only to CbC reporting and notification (thereby clearing up the issue of whether the voluntary submission of CbC reporting may require preparation of Master file and Local file for financial years starting in 2016).
  • There are several changes made regarding the information that should be presented in the notification (for example, the notification should now contain information on whether a taxpayer or its parent entities are on the Russian strategic enterprises list, in which case sharing of the CbC reporting for such a group should first be approved by the respective Russian regulatory bodies).
  • A number of clarifying provisions have been added with regard to the CbC reporting. For example, it is now specified that the amounts reported by members of a multinational group may be translated into the parent company’s currency according to the applicable accounting standards of such parent company (unlike the OECD Guidelines2 which propose that all amounts, including balance sheet items, should be translated using the annual average exchange rate of a foreign currency to the parent company’s currency).
  • There are also certain changes made to the content of the CbC reporting itself, for example, according to the current provisions: (1) income (revenue) from transactions with associated companies (other than constituent entities of the multinational group) must be treated as income from transactions with other (unrelated) persons; (2) the amount of capital to be presented in the CbC reporting may not be limited to the stated capital.
  • The Master file requirements have now been more aligned with the OECD Guidelines. For example, it is now stated that information on “major” intra-group service transactions and business restructuring is to be presented, while previously all service transactions and business restructurings had to be disclosed. At the same time, there are still some differences remaining for the Master file as compared to the OECD Guidelines, for example, a brief functional analysis must be provided for members of a multinational group which have influence on the financial performance of the group, while the OECD Guidelines refer to material influence.
  • As regards to the content of the Local file, the provisions have remained largely unchanged. The main changes concern the periods starting from which the Local file may be required – now for fiscal (calendar) years, starting from 2018. Additionally, there are transitional rules introduced regarding the Local file timing: for 2018 and 2019 the Local file may be requested starting from 31 December 2019 and 2020, respectively, while for any subsequent years the tax authorities may request the Local file starting from 1 June of the year following the reporting fiscal year.
  • Penalty provisions have remained unchanged. As before, the draft law provides for a transitional period for the first three years after the law’s introduction (from 2017 through 2019), during which no penalty should be imposed.

As regards to the voluntary submission of CbC reporting by Russian parented groups for 2016 (parent surrogate filing), the following is important. According to the OECD Guidelines on the Implementation of CbC reporting, where surrogate filing (including a parent surrogate filing) is available, there should not be local filing obligations for a multinational group in any jurisdiction which otherwise would require the local filing, if certain conditions are met. In order to enable the parent surrogate filing in Russia for 2016, the following conditions would be critical to consider:

  • The Ultimate Parent Entity should notify the Russian tax authorities and make available a CbC report that conforms to the requirement of BEPS Action 13 to the Russian tax authority by the filing deadline. Currently, there is no filing mechanism (notification form, templates of the report, XML schema, filing instructions, etc.) in place in Russia which would enable the parent surrogate filing for 2016. We expect that the mechanism will be made available to taxpayers shortly after the law is enacted, although it remains to be seen if such mechanism will be available by 31 December 2017.
  • By the first filing deadline of the CbC reporting, Russia must have its laws in place to require CbC reporting. This condition is likely to be met in Russia by 31 December 2017 assuming the law is enacted shortly.
  • By the first filing deadline, a Qualifying Competent Authority Agreement must be in effect between Russia and the local jurisdictions of the constituent entities of the multinational group. Although Russia signed the CbC reporting Multilateral Competent Authority Agreement on 26 January 2017, it has yet to activate the exchange relationships with other partner countries for the transmittal of CbC reports for 2016. There are strong indications that such relationships are likely to be activated shortly after the law becomes effective and before 31 December 2017.

In view of the above, it therefore remains an open question whether it will actually be possible for Russian multinational groups to submit CbC reporting in Russia for 2016 so that it releases other members of the group from local filing obligations.

Future Alerts will report on any further developments with respect to BEPS Action 13 legislation.


1. See EY Global Tax Alert, Russian Government submit draft law on BEPS 13 and CRS implementation to State Duma, dated 27 July 2017.

2. Guidance on the Implementation of Country-by-Country Reporting: BEPS Action 13, updated September 2017.

For additional information with respect to this Alert, please contact the following:

Ernst & Young (CIS) B.V., Transfer Pricing and Operating Model Effectiveness, Moscow
  • Evgenia Veter
  • Maxim Maximov
Ernst & Young LLP, Russian Tax Desk, New York
  • Kirill Lukyanets

EYG no.06590-171Gbl