UMMC: revised time limits for decisions to initiate transfer pricing audits

The initial version of paragraph 2, Article 105.17 of the Russian Tax Code prescribed a two-year time limit for the Federal Tax Service to decide to undertake a TP audit. Strictly speaking, this meant that, if an audit was not ordered within two years of submission of the notification of controlled transactions, the tax authority was no longer entitled to schedule an audit in respect of the transactions covered in the notification.

In practice, this led to uncertainty about the implications of filing an amended notification. The tax authorities’ view is that, in the case of an amended notification of controlled transactions, the two-year period starts from the date of filing the amendment. Therefore, the period open for an audit would start anew even if the amendments were immaterial, or were made to correct clerical errors in the original notification.

The Russian Constitutional Court highlighted the issue in itsRuling No. 41‑P[1] of 14 July 2023 and called on the lawmakers to introduce changes removing uncertainty. The new Federal Law No. 39‑FZ, which was passed on 26 February 2024 and came into force on 26 March 2024, removed any reference to the two-year limit on TP audits. From that date, the only time limit that applies is the general three-year limit set in paragraph 5, article 105.17 of the Russian Tax Code, whereby TP audits should be restricted to transactions completed during the three-year period preceding the year in which the decision to order a TP audit was made.

In December 2024, the Federal Tax Service issued a decision to order a TP audit of the Company’s controlled transactions completed in 2021. The Company submitted the relevant TP notification before 20 May 2022. 

To put that in context, at the time the Company filed its TP notification in May 2022, the two-year limit on ordering a TP audit set by the then-applicable paragraph 2, Article 105.17 of the Russian Tax Code was still in force.

In the taxpayer’s view, the two-year period available for ordering a TP audit expired on 20 May 2024, and therefore the decision of 28 December 2024 to order a TP audit had no legal basis.

The Company successfully challenged the Federal Tax Service’s decision, both at first instance and on appeal, on the grounds that the deadline for ordering a TP audit expired on 20 May 2024. 

Both courts upheld that the increase in the time limit for ordering a TP audit had a detrimental effect on the taxpayer’s position, and that the new legislation might not apply retrospectively.

The cassation court determined the two-year time limit on ordering a TP audit (the previous version of paragraph 2, Article 105.17 of the Tax Code) to be a procedural rule. Procedural rules apply as they stand at the time the relevant procedural step is taken, i.e., the date of the decision to order a TP audit. Consequently, the repeal of the two-year time limit does not constitute a “detrimental effect on the taxpayer’s position” within the meaning of Article 5 of the Tax Code.

Federal Law No. 39‑FZ of 26 February 2024, that removes the two-year time limit, came into force on 26 March 2024. On 28 December 2024, when the Federal Tax Service decided to order an audit, the old rule was no longer in force, and as such could not be legally invoked.

Paragraph 5, Article 105.17 of the Tax Code that was in force both at the date of submitting the notification and at the date of issuing the decision to order an audit authorizes TP audits of transactions completed within the three calendar years preceding the year in which the decision to order a TP audit was issued. Since the decision was issued in 2024 and the underlying transactions occurred in 2021, the three-year time limit has been observed, and the Federal Tax Service has acted in compliance with the legislation currently in force.

The district court ruling can be appealed to the Supreme Court of the Russian Federation. Failing that, the emerging practice of classifying the two-year limit as a procedural rule will be extended to similar disputes, including those over transactions for which decisions ordering a TP audit were issued after March 2024.

Our experts will continue to closely monitor judicial developments in this area to help businesses stay abreast of relevant changes.

• Ruslan Radzhabov, Partner, Transfer Pricing and Operating Model Effectiveness Leader
• Vasilii Anishchenko, Partner, Transfer Pricing and Operating Model Effectiveness
• Oleg Aliev, Manager, Transfer Pricing and Operating Model Effectiveness
• Valeriya Andrusenko, Advanced Staff, Transfer Pricing and Operating Model Effectiveness