New format approved for notifications of controlled transactions

A list of key changes is presented in the table below together with an indication of the implications of those changes for taxpayers.
 

The Draft also proposes a number of other technical changes to the new Notification form which should not have a substantial impact on the process of preparing a Notification. For example, the “Comments” fields in Section 1A have been removed, as has the “Place of shipment of goods” field in Section 1B and the “Taxpayer code” field in Section 2. At the same time, the new form will require the name of the registration number identifier to be entered in the “Identifier name” field, while the address of a counterparty in Section 2 will have to be broken down into address elements.

There are major changes to the Notification form regarding controlled transactions involving foreign trade in goods which feature in one or more of the commodity groups specified in clause 5 of Article 105.14 of the Tax Code (“Commodity Transactions”), namely: 

• Oil and goods manufactured from oil
• Ferrous and non-ferrous metals
• Mineral fertilizers and
• Precious metals and precious stones

According to subsection 7 of clause 3 of Article 105.16 of the Tax Code, which entered into force from 1 January 2024, in the case of transactions between related parties, taxpayers must disclose in the Notification details (“Details of the valuation creation chain”) concerning:

• Subsequent sales and (or)
• Preceding purchases of goods
• The end buyer and (or)
• The origin of goods
• Prices and
• Commercial and (or) financial terms

A field 4.3 “Code of type of transaction provided for in subsection 7 of clause 3 of Article 105.16 of the Code” is to be inserted in Section 1A of the Notification form for the purpose of identifying such transactions, while the following sections are to be added to the form for the purpose of providing information about those transactions:

• 1C “Details of subsequent sales or preceding purchases of goods”
• 1D “Details of associated services pertaining to a transaction from Section 1B” and
• 4 "Details of the end buyer and (or) origin of goods (details of the value creation chain)".

The details of the value creation chain should include information on all consecutively concluded transactions between persons that acquire goods and carry out intermediary functions associated with the acquisition or sale of goods, up to and including the final unrelated buyer or related manufacturer.

According to the position set out in Letter No. ZG-2-13/11134@ of the Federal Tax Service dated 2 August 2024, the value creation chain must be disclosed up to the level after which related parties of the taxpayer are not involved in it. Thus, the tax authorities will gain access to information not only about an individual transaction, but about the entire value creation chain.

Under the new wording of Article 129.4 of the Tax Code, with effect from 1 January 2024, a fine of 100,000 rubles will be imposed for failure to submit a Notification on time and for the incorrect completion of individual fields of the Notification.

The changes proposed by the Draft indicate that the tax authorities are intent both on improving the process of analyzing information supplied in Notifications and on obtaining more detailed information on transactions concluded by taxpayers, especially commodity transactions. In this regard, the sanctions applicable for failure to provide accurate information have become significantly more severe.

In view of the above, to ensure the submission of properly completed Notifications B1 advises taxpayers:

1. To determine the perimeter of controlled transactions and carefully analyze transactions concluded in 2024 to determine whether they should be classed as commodity transactions
2. To organize internal business processes to ensure the timely collection of all necessary information, and to prepare internal accounting systems to collect information which must be provided in a Notification
3. To determine in advance the pricing methodology for transactions concluded in order to ensure that information supplied in the Notification matches information that will be supplied in TP documentation supporting the arm’s length nature of controlled transaction prices
4. To bring automated solutions used to prepare the Notification XML schema into line with the technical requirements for the new Notification form

The B1 team would be happy to assist you in addressing the following issues relating to the preparation and submission of Notifications:

• Preparing a Notification in XML format using B1’s specially developed program based on data downloaded from a company’s accounting systems
• Reviewing and modifying a Notification in XML format generated by a company independently based on automated accounting systems, and reviewing and modifying a company’s automated systems which are used to generate Notifications from the point of view of methodology and for the purposes of compliance with the new technical requirements
• Developing a methodology for collecting data and preparing Notifications taking account of legislative requirements, relevant case law and specific characteristics of a company’s business activities and accounting systems
• Assisting with the development of internal processes and controls needed for data collection and the preparation of Notifications taking account of specific characteristics of a company’s business activities and accounting systems
• Providing methodological support to a company preparing a Notification independently (including in the 1C system with the module for the preparation of controlled transaction notifications)
• Checking the consistency of information contained in the Notifications of all parties to controlled transactions where separate Notifications are prepared by multiple group companies
• Support in identifying and reviewing controlled transactions and those treated as controlled, including transactions with unrelated counterparties registered in countries included in the “blacklist” of the Ministry of Finance of Russia
• Providing support with the preparation of other TP documentation, including master and local files

Authors: B1 team