1. Transfer pricing in Russia and international trends 20 June 2013 Steven Cawdron, Ernst & Young Moscow

2. Страница 2 2 International trends

3. Страница 3 Changes in TP today – tax enforcement and controversy Ernst & Young’s 2012 Tax Risk & Controversy survey ► Dramatic effect of globalization ► Tax administrators have become more aggressive and focused ► High pace of legislative change ► Growing disclosure and transparency requirements ► Expansion into emerging markets brings uncertainty ► A new breed of tax activism has emerged

4. Страница 4 2012 Ernst & Young Global Transfer Pricing Tax Authority Survey ► The 2012 Transfer Pricing Tax Authority Survey covers 50 tax authorities across the Americas, Asia Pacific, Europe, the Middle East and Africa ► Key survey results ► Increase in tax authority staffing ► Resilience of the arm’s length standard ► Expanding geographic scope of transfer pricing legislation ► Specific industries and countries under scrutiny ► Increase in the imposition of penalties ► Increase advance pricing agreement availability

5. Страница 5 OECD and United Nations influences and factors ► New OECD proposals ► Simplication of tax/transfer pricing administration ► Safe harbors ► Intangibles ► BEPS ► UN engagement with emerging markets ► Lack of comparables ► Seen as a practical manual for the preparation of TP documentation in developing countries ► Being used to drive the political agenda by the BRICS (in particular, Brazil, India and China).

6. Страница 6 Audit topics, triggers and managing audits ► More exchange of information activity between governments and international matching of transactions to see if TP is correct ► TP documentation comparables becoming the weak link ► Intangibles, intangibles, intangibles ► Higher-profile disputes ► Reputational, financial, and even personal risk ► Penalty exposure ► Expectation for taxpayers to comply with both the spirit and the letter of the law

7. Страница 7 7 Russian Transfer Pricing

8. Страница 8 New Russian Transfer Pricing Rules ► New rules became effective from 1 January 2012 ► Transition rules 2012-2013 ► Primary focus is on related parties transactions ► Although domestic transactions are also subject to control if certain thresholds are reached ► It has introduced: ► the arm’s length principle, i.e. substance over form ► new Transfer Pricing methods, akin to the OECD ► TP reporting / documentation requirements ► TP audits & penalties ► APA’s

9. Страница 9 Developments in 2012 and 2013 ► Taxpayers have sought guidance from the ministry of finance on a number of issues, including: ► Grouping of transaction, calculation of the threshold for control, application of the rules to financing transactions, application of penalties, preparation of documentation, data permitted for us as comparables, etc ► The Tax authority is directing resource at certain industry sectors ► Increasing exchange of information, and experience, between the Russian Tax Authority and Foreign counterparties ► First APA’s concluded, albeit with state companies and only on transactions priced with CUP

10. Страница 10 Significant issues still exist ► The introduction of TP rules has helped the Russian tax system move closer to international standards ► However, significant practical issues still exist ► More needs to be done to address: ► Year-end pricing adjustments ► Intellectual property charges ► Service charges and models ► Compliance burden ► Interaction with other taxes – customs & indirect

11. Thank you!