Monday, January 14, 2008

Retrospective Adjustments of Intercompany Prices for Goods Sold into Russia

Excerpt from Russia Eurasia Executive Guide by Kurban Nepesov and Natalia Volkovskaya (KPMG)

In general, transfer pricing in Russia is not particularly complex, although for those importing goods from a related party, the balancing act between Russian customs and their local tax inspectorate can be challenging -- the two authorities are driven by opposing fiscal interests. For example, an increase of intercompany prices at which the Russian subsidiary purchases goods from its foreign affiliate should in principle lead to an increase of customs duty and import VAT and, therefore, to a decrease of its Russian profits tax liabilities (as the increased expense erodes the margin) for the importer. Thus, adjustments to established intercompany prices can lead to disputes with either the Russian customs or tax authorities -- or both!


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