Transfer Pricing and Operating Model Effectiveness

• Analyzing the existing mechanism of setting transfer prices for controlled transactions. Evaluating the applicability of TP methods
• Analyzing whether market indicators published by international and Russian pricing agencies can be used as comparables for each type of product in controlled transactions
• Analyzing approaches to the selection of a quotation period and whether adjustments should be made to market indicators, including adjustments (premium to quotes) for arm’s-length compensation of the tested company
• Adjusting the current calculation of the arm’s-length price range or developing a template to determine arm’s-length prices and arm’s-length ranges for controlled transactions, given the established quotation period and required adjustments

• Providing support to companies during pre-audit processes or a TP audit
• Preparing responses to the tax authorities’ requirements. Reviewing documents received from the tax authorities
• Preparing comments for the tax authorities on the methodologies that underlie the calculation of the arm’s-length range of prices/margins from the perspective of the Russian Tax Code. Providing comments on potential methodological options
• Preparing company representatives for meetings with the tax authorities, including outlining a possible negotiation strategy, elaborating potential questions regarding the submitted documents/information and preparing responses with the necessary emphasis
• Accompanying company representatives at meetings with the tax authorities

• Developing operating procedures and functional responsibility matrices relevant to the conclusion and performance of import/export transactions. The operating procedures will outline the process of communication among business and functional units in carrying out import/export transactions
• Describing business processes involved in the conclusion and performance of import/export transactions in the form of a flow chart in accordance with the target operating model
• Amending existing job descriptions to eliminate duplicated roles in import/export transactions with foreign companies. If necessary, developing standard job descriptions for employees that coordinate interactions with foreign companies
• Developing a TP policy that will determine algorithms and a procedure for verifying the arm’s-length level of transaction prices for tax purposes as well as a procedure for making adjustments to ensure the arm’s-length level of transaction prices for tax purposes. The TP policy will also cover profit splitting in intra-group transactions

• Conducting an in-depth analysis of the operating model used by business and functional units for interaction during the conclusion and performance of import/export transactions
• Interviewing employees involved in concluding and carrying out such transactions, and analyzing current business processes to identify circumstances that may entail TP risks
• Reviewing documents that relate to product sales/purchases, including standard supply contracts, transport and logistics contracts, standard shipping documents, department regulations, communication procedures and job descriptions of employees involved in concluding and carrying out such transactions

• Designing and implementing a target operating model for a group of companies
• Analyzing the main tax implications of relations that are planned or have been established within the group
• Reviewing the target approach to profit splitting under the operating model and developing an appropriate TP policy
• Developing a tax-effective IP ownership and use structure for a group of companies
• Providing support during the implementation of a new structure

• Preparing a notification of controlled transactions
• Selecting the most appropriate TP method, depending on the type of controlled transaction
• Conducting an economic analysis based on publicly available information
• Preparing/updating documentation on controlled transactions. The documentation will contain all essential information under Russian TP requirements, i.e., an industry analysis, an overview of the taxpayer’s  business, a description of controlled transactions, a functional analysis, a basis for selecting the TP method and an economic analysis

• Developing a strategy for entering into an APA (including agreeing the strategy with company management and a foreign related counterparty) and a roadmap
• Holding preliminary meetings with the tax authorities: drafting materials for such meetings and responses to questions that may be raised by the tax authorities, etc.
• Official filing: preparing a full documentation package for an APA and filing it with the tax authorities
• Providing follow-up support: assistance in elaborating arguments and strategies for interacting with the tax authorities and preparing responses to questions they raise, participation in meetings with the tax authorities to discuss the APA, etc.

• Preparing a Master File*
• Preparing a Local File**
• Preparing a Country-by-Country Report***
• Preparing a notification of participation in an international group of companies
• Reviewing regulatory requirements for country reporting in countries where the group has a presence
• Adapting Country-by-Country Report
• Providing support in analyzing BEPS-related risks

* Overall information on the group’s activities, ownership structure, TP policies, global profit splitting and allocation of activities, advance pricing agreements (APAs), intangible assets, financing activities and other information specific to countries where the group has a presence.
** TP documentation covering transactions on the local market, including intra-group payments and sales of goods/services, license and interest payments, etc.
*** Overall information on jurisdictions where group companies operate, as well as the splitting of profit and income and the distribution of employees and assets within the group.

• Reviewing the company’s existing IT landscape
• Developing a statement of work implementing import/export business processes and policies in the company’s ERP system, and introducing a mechanism to monitor prices and margin levels in transactions throughout the supply chain
• Training employees to use the new ERP system

• Preparing a defense file to demonstrate that IGS meet six tests:
  • Reality test
  • Benefit test
  • Duplication test
  • Documentation test
  • Shareholder Activity test
  • IGS Market Price test
     
• Providing support during tax control activities performed by the tax authorities and during the pre-audit stage
• Providing support in negotiations with a foreign counterparty in a transaction, including in interpreting the outcomes of the tests and explaining the intricacies of Russian tax law
• Providing methodological support in negotiations between group companies and the tax authorities in the respective countries of domicile, including for the purpose of advance pricing agreements (APAs) and/or a mutual agreement procedure (MAP)

• Reviewing and verifying the list, amount, and economic and legal owners of intangible assets
• Analyzing options for IA transfers, such as sale, licensing, establishing joint ownership, setting up a separate legal entity for holding IA, etc., as well as tax implications from a TP perspective
• Analyzing options for formalizing rights to hold and use IA, including a free-of-charge transfer, a license agreement providing for royalty payments, etc.
• Developing potential scenarios for a licensing structure and the consolidation of royalties within the group
• Analyzing the tax implications and risks of IA transfers, including specific tax treatment in various jurisdictions, such as an IP Box regime, approaches to withholding tax, the ease and transparency of doing business, etc.
• Exploring beneficial tax treatment opportunities for IA
• Carrying out a DEMPE* analysis

* DEMPE (Development, Enhancement, Maintenance, Protection, Exploitation) is an analysis designed by the Organization for Economic Cooperation and Development (OECD) to assess whether the returns received by parties to a transaction involving the use of IA are consistent with their contributions to the transaction.

• Analyzing the current structure or potential scenarios for a trading or procurement structure to sell finished goods and/or purchase raw and other materials
• Comparative analysis of jurisdictions for registering a trading company, based on applicable tax regimes and available tax benefits or special tax regimes
• Developing a tax-effective target operating model for export/import supplies, using one or more foreign jurisdictions
• Comparative analysis of general requirements for opening and using bank accounts in foreign jurisdictions
• Support in opening a bank account with a selected bank in a foreign jurisdiction
• Assistance in setting up or searching for independent trading and purchasing companies
• Identifying potential changes required in the current operating model for export/import supplies
• Reviewing opportunities for localization of production in foreign jurisdictions

• Developing standard contract templates
• Conducting training sessions and workshops, both online and offline, on compliance with TP regulations: preparation of TP documentation, overview of new regulatory requirements and court practices, recent global trends and other matters