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First practice in application of new transfer pricing rules

12 October 2016

Since January 1, 2016 new transfer pricing rules have entered into force, and since July 1, 2016 payers have been required to notify the tax authorities of the related-party transactions made (controlled transactions). During first months of new rules being in force, the payers have faced a number of questions to which the Code does not provide direct answers.

Meanwhile, first official explanations of tax authorities on the application of  transfer pricing appeared. We will share them in this material.

1. Transactions with shares and stakes in statutory funds of companies are not subject to control in terms of transfer pricing

Article 30-1 of the Tax Code of the Republic of Belarus (hereinafter - the TC) provides for quite broad definitions of the goods and the sale of goods, in particular the goods also refer to “other property, property rights”. Such a broad interpretation of the terms for the transfer pricing norms entailed questions about applying transfer pricing rules to such special subjects of transactions as stocks and shares in the statutory fund.

However tax authorities explain as follows:

Clause 2 of Article 30-1 of the TC establishes a list of transactions that are not subject to the provisions of this article. The list includes, in particular, transactions with securities and term transaction financial instruments publicly traded in a regulated securities market.

The procedure for determining the profit (loss) from the alienation by the party of the share (part thereof) in the statutory fund (a stock (part of stock)) of the organization is defined by clause 6 of article 127 of the Civil Code, in which there is no rule for determining the price of the transaction subject to the provisions of Article 30-1 of the TC.

Considering the above mentioned, the provisions of Article 30-1 of the TC do not apply to transactions with shares and stakes in the statutory fund made in accordance with the law.


2. The companies created by two different next to kin individuals or individuals in legal relations are not considered related.

 The transactions with related parties are subject to transfer pricing control (subject to other criteria). In accordance with Article 20 of the TC relations creating interdependence include the following relations:

- between organizations if one party directly and (or) indirectly participates in these organizations and the share of such participation in every such organization is at least 20 percent;

- when individuals are in marital relationship in accordance with legislation, are next to kin, in legal relations, are an adoptive parent and adopted child, as well as a guardian, trustee and a person under care.

Moreover the presence of interdependence between two individuals does not create interdependence of two legal entities established by such individuals.

Thus, the tax authorities explained that in the absence of other criteria of interdependence, the legal entities are not interdependent, when each of them is established by different individuals, and these individuals are in marital relations, relations of close kinship or in legal relations, are an adoptive parent and adopted child, a guardian, trustee and a person under care.

For example, the company А and company Б will not be considered as related, if 100% shares in the statutory fund of the company A belong to one brother, and 100%  shares in the statutory fund  belong to another brother, or a father and a son, a wife and a husband and so on.

3. When making party-related transactions the place of supply of which is not the Republic of Belarus (for example, export sales of property rights to the intellectual property items, provision of marketing, consultation services to a non-resident), there is no need to notify a tax authority of the transaction performed.

In accordance with cl.8.1. of article.30-1 of the TC, the payer is obliged to notify of the transactions made by him during the tax period by submitting information about transactions that fall under the transfer  pricing control to the tax authority at the place of registration. Information about transactions is submitted to the tax authority by means of filling in the data about them into an electronic invoice by the payer (information is filled in the invoice, regardless of the amount of the sum of the transaction prices and price deviations applied by the payer from the market prices) and sending it by means of using the Portal of electronic invoices, which is an information resource of the Ministry for Taxes and Levies of the Republic of Belarus.

The application of this norm caused questions in the situation when the transaction complies with the criteria of article 30-1 of the TC and is subject to the transfer pricing control, however there are no turnovers on VAT on this transaction.

The tax authorities explained the following:

Article 106-1 of the TC establishes that an electronic invoice is a binding electronic document for all VAT payers who are required to provide the buyer of goods (works, services), property rights  with an electronic invoice or to send it to the Portal in respect of each turnover in sales of goods (works, services), property rights according to the procedure prescribed by this article. The buyer executes an electronic invoice in cases specified by clause 8 of Article 106-1 of the TC. There are no other cases for filling in the electronic invoice provided for by the legislation.

When making transactions, the place of realization of which is not the Republic of Belarus, an electronic invoice shall not be made, therefore there is no need to execute an electronic invoice for the control over transfer pricing.

The payers have to provide economic feasibility of the price used to the tax authorities only on the notice (request) of tax authorities.

4. The payers don’t have to notify the tax authorities of the related-party transactions made before July 1, 2016.

Article 30-1 of the TC entered into force on January 1, 2016 in its entirety, including clause 8, which establishes the obligation of taxpayers to notify the tax authority of the transactions made by means of including the information about them in an electronic invoice.

However article 106-1 of the TC that provides for an electronic invoice execution procedure and procedure for its submitting to the Portal, has entered into force only since July 1, 2016. The Portal itself also has begun functioning only since July 1, 2016. In this regard, it was not clear, whether taxpayers after July 1, 2016 should submit information to the Portal about transactions falling under the transfer pricing control and concluded during the period from January 01 till July 01 2016. And if they should, in what period of time?

The tax authorities explained the following:

The mechanism of functioning of electronic invoices in accordance with the tax legislation has been introduced since July 1, 2016.

The legislation does not require informing about the controlled (related-party) transactions in accordance with clause 1 of article 30-1 of the TC, completed prior to the entry into force of article 106-1 of the TC.

How we can help

REVERA experts are ready to help in determining whether your transactions are subject to tax control, as well as to advise on issues regarding building relations with counterparties in the context of the new game rules.
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