© 2012 Central Asian Tax Research Center Vladimir Tyutyuryukov Central Asian Tax Research Center 3 February 2012 Transfer Pricing Regulations in Customs Union Member States

© 2012 Central Asian Tax Research Center Content Overview of global practice Overview of transfer pricing regulations in Customs Union Member States Kazakhstan: three years of experience with new TP rules Pricing for customs and VAT purposes in Kazakhstan Potential issues in transactions in Customs Union

© 2012 Central Asian Tax Research Center Global experience OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations China Choice of method: traditional methods have a priority; additional methods could be used Nine special reporting forms, obligatory documentation, APA available South Korea Choice of method: traditional methods have a priority Three special reporting forms, obligatory documentation, APA available European Union Countries generally follow OECD Guidelines (available methods, priority of CUP or traditional methods) Obligatory documentation, in many cases special disclosures in annexes to the tax returns, APAs available Overview of global practice

© 2012 Central Asian Tax Research Center Belarus No special transfer pricing regulations Pricing in general is regulated Kazakhstan Law “On transfer pricing” dated 5 July 2008 (with subsequent changes), relevant by-laws Russia Special section of the Tax Code of RF, relevant by-laws Laws affecting pricing in some industries Common Market Agreements of general nature Overview of transfer pricing regulations in Customs Union Member States

© 2012 Central Asian Tax Research Center Controlled transactions Application mechanism Methods Cross-border transactions: ‒ Export and import of goods ‒ Transactions with non- residents involving works and services ‒ Transactions between residents concluded abroad Certain transactions within Kazakhstan, if they are connected with cross-border transactions Transactions between non-related parties may be controlled Strict hierarchy: ‒ Comparable uncontrolled price (CUP) ‒ Cost plus ‒ Resale price ‒ Profit split ‒ Net profit ‒ CUP is based on price range, adjustments (“differential”) are to be considered ‒ Other methods are based on margin range for relevant activity Sources of information Stipulated in the law: ‒ Officially recognized sources (as per list by the Government) ‒ Commodities and sock exchanges quotations ‒ Information from authorized bodies on prices, differential etc. ‒ Databases, information from parties to the transactions etc. Kazakhstan: three years of experience with new TP rules

© 2012 Central Asian Tax Research Center Kazakhstan: three years of experience with new TP rules Comparison of transaction price with the market (i.e. arm’s length) price: “Price range” and “margin range” are used (the ranges are not limited by quartiles) Under CUP method the transaction price is adjusted by “differential” – the expenses incurred in connection with the sale of goods, works or services “Differential” may include: Expenses on transportation insurance etc., which are justified and supported with the relevant documents; Conditions of the transaction influencing its price (volume of transaction, season price fluctuations, broker’s fee etc.); Quality of goods, works or services.

© 2012 Central Asian Tax Research Center Kazakhstan: three years of experience with new TP rules Documentation requirements: Description of company’s operations, the controlled transactions and objects involved, reference to transaction documents Methodology of transfer pricing (applicable method, source of information, differential, estimated market price, other relevant information) Order of Ministry of Finance No 62 dated 12 February 2009 – special reports for import and export operations, 50 positions in each Reporting requirements: Only taxpayers falling under monitoring of activity must file the reports on an annual basis (300 largest taxpayers as per the list of the Government) Only transactions involving goods, works or service from the special list of the Government should be included into these reports Other companies must keep the documentation and submit the reports to the tax authorities at their request

© 2012 Central Asian Tax Research Center Pricing for customs purposes Pricing for VAT purposes Stipulated by Code on Customs Procedures of Kazakhstan Based on international agreements Accepted methods: ‒ Based on price of imported goods; ‒ Based on price of identical goods; ‒ Based on price of analogous goods; ‒ Method of subtraction of price; ‒ Method of addition of price; ‒ Reserve method. If import from outside of Customs Union – customs pricing If import from Customs Union countries – special Rules of adjusting the amount of taxable import within Customs Union (Decree of the Government of Kazakhstan No 1249 dated 28 November 2010) Features: ‒ Another list of controlled transactions; ‒ Only one method based on weighted average price is available (procedure similar to CUP); ‒ Data on prices from customs authorities is actively used Result: ‒ Import price for VAT differs from arm’s length price for CIT purposes Pricing for customs and VAT purposes in Kazakhstan

© 2012 Central Asian Tax Research Center Potential issues in transactions in Customs Union Kazakhstan: No detailed guidelines on application of TP rules TP documentation requires lots of efforts No Advance Pricing Arrangements was actually concluded Special rules for pricing for VAT purposes for transactions within Customs Union Cross-border transactions Different approaches in different countries for determination of the price for tax purposes – hierarchy of methods, sources of information Will there be Advance Pricing Arrangements? Different approaches for determination of the price for tax and customs purposes

© 2012 Central Asian Tax Research Center Suggested solution: Harmonization of pricing rules

© 2012 Central Asian Tax Research Center THANK YOU FOR ATTENTION!