1. Russian Cooperative compliance program – Tax monitoring Ivan Rodionov Head of Tax Performance Advisory, Russia and the CIS

2. Page 2 Overview of Russian Tax monitoring regime ►Applicable to Large/Medium taxpayers, meeting the following PY financial criteria: ►Income exceeds 3 bn. RUR (approx. 40MEUR) ►Assets exceed 3 bn. RUR (approx. 40MEUR) ►Taxes paid in PY exceed 300 MRUR (approx. 4 MEUR) ►Voluntary regime – by application, subject to approval by Tax authorities (starting 2016 tax year) ►Period -1 calendar year (expected to be prolonged to 3 years) ►Covers all taxes ►Formalized in a separate Law and regulations ►Taxpayers administered by the largest industry tax inspectorates under supervision of FNS Cooperative Compliance program for large taxpayers in Russia – Tax Monitoring

3. Page 3 - Key benefits, constraints and challenges ►No field and in-house tax audits ►Early discussions and opportunity to clear UTPs through “Motivated opinion” mechanism ►Conducting tax audit procedures on the tax authority’s site (rather than the taxpayer’s site); ►Ability to demonstrate reliance on tax internal controls, that allows to to reduce the volume of procedures and documents for inspection ►Direct supervision by FTS Key Benefits ►“Motivated opinion” applies only to positions already taken (not a tax ruling) ►No “Clean Slate” ►Tax audits can still take place ►Transfer pricing out of scope ►No clear methodology and basis for TCF assessment and control reliance ►Level of qualification of client teams at Tax authorities ►Lack of business awareness and audit experience at Tax authorities Key Constraints/Concerns +

4. Page 4 Russian tax monitoring regime: recent developments ►Russian FNS has announced a plan for Tax Monitoring development. Key points: 1) Project strategic goals ►Key role of Tax Control Framework ►Motivation of taxpayers for transparency and compliance ►Development of IT-culture ►Reduction of the number of tax audits and administration costs ►Consistency and predictability of tax environment 2) Project roadmap developed ►2016 – standardization of methodological approaches ►2017 – 2018 – automation of TM business processes 3) Tax audit model for Tax Monitoring approved Step 1: TCF assessment Step 2: Development of risk-based approach to tax audit Step 3: Motivated opinions (rulings) Cooperative Compliance program for large taxpayers in Russia – Tax Monitoring

5. Page 5 Russian tax monitoring regime: recent developments 4) IT-strategy ►Tax authorities are agnostic to the company approach ►Available options: ERP direct access, electronic format, electronic service, standard audit files 5) Interaction with taxpayers ►Regular meetings ►Evaluation of the different approaches to TCF in 2016 Cooperative Compliance program for large taxpayers in Russia – Tax Monitoring

6. Page 6 Russian tax monitoring regime: recent developments Tax Control framework – detailed approach Entity Level Controls (ELC) Tax return items’ risks and controls Process controls (K) Control procedures Tax return risks and controls mapping Tax return TCLC-1 TCLC-N TCLC-2 ControlsRisks TCLC-1 TCLC-2 … … TCLC-N … К-13 … К-26 … … … К-28 Completeness Accuracy Valuation Tax Control Framework

7. Page 7 Lessons for other emerging economies from Russian experience 1.Even in immature environment and in absence of certain pillars cooperative compliance program can be launched 2.It does make sense to “run ahead of the train” and launch the pilot cooperative compliance program in emerging markets as this provides an opportunity to actively shape and customize the program to the country environment 3.In the environments with inherent lack of trust cooperative compliance tends to get very formalized and regulated 4.Key risks for the cooperative compliance in the emerging markets are: ►Lack of impartiality and independent public oversight of the program ►The risk of abuse of the participants’ transparency by tax authorities ►Lack of Tax Control Framework assessment methodology at tax authorities ►Lack of resources on Tax Authorities side Cooperative Compliance program for large taxpayers in Russia – Tax Monitoring

8. Page 8 Ivan Rodionov Partner Head Tax Performance Advisory Services in Russia and the CIS +7 (495) 755-9719 ivan.rodionov@ru.ey.com Contacts Tax Control Framework