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Transfer pricing 2016: extension of controlled transactions types and implementation of new liabilities of taxpayers

12 January 2016

REVERA continues its review of amendments into the tax legislation caused by effective Law of the Republic of Belarus as of December 30, 2015 N 343-3 “On introduction of amendments and additions into certain laws of the Republic of Belarus on enterprise and taxation” (hereinafter – the Law).  

The topic of the present article is regulation of transfer pricing in 2016. The article is not the full manual for use; it describes only late changes and types of controlled transactions in 2016.    

Analysis of main amendments:

1. Extension of controlled transactions types:

5 types of transactions are subject to control in 2016:

- real estate transactions;

- foreign trade transactions;

- transactions with related parties, which do not pay income tax; 

- transactions with enterprises engaged in realization (purchase) of strategic goods;

- large taxpayers transactions.

At that, the list of transactions, which fall into the relevant groups and consequently are the subjects to control, is extended due to qualification of the following agreements as controlled transactions: co-investment agreements; agreements of housing construction to housing bonds’ owners; sometimes housing bonds purchase and transfer agreements; loan agreement.    

Besides, if earlier all foreign trade transactions were subjects to control (if the sum limits are exceeded) now only those transactions are subjects to control where one part is:

- related parties;

- offshore zones’ residents;

- enterprises included in the list of large taxpayers;

- enterprise sell (purchase) strategic goods.

In another words no foreign trade transactions with common non-residents are subjects to control.

All types of controlled transactions in 2016 are defined in the following chart:

Group of transactions

Nature of transaction

Sum limits of transaction (transaction with one party)

Deviation of price from market value

Real estate transactions

Realization or purchase of real estate (its part)

Irrespective of transaction sum

More than on 20% of market value

Transfer of co-invested construction unit to the investor and of the domestic and (or) nondomestic premises to the housing bonds’ owner

Irrespective of transaction sum

More than on 20% of market value

Realization or purchase of housing bonds in the process of their circulation (except for emitters’ transactions with bonds of their own emission) performed after state registration of construction object.

Irrespective of transaction sum

More than on 20% of market value. The bond value compares with the value of identical (homogeneous) reals estate.

Foreign trade transactions

Foreign trade transactions with related party or offshore zones’ resident

Exceeds 1 billion Belarusian rubles during tax period

More than on 20% of market value

Foreign trade transactions with related party or offshore zone’s resident together with participation of third party – mediator, even if it is not a related party to another parties of the transaction and does not have any importance for the transaction nature.     

Important actions for the transaction nature are the following:

- perform functions different from simple organization of goods (works, services) realization by one party to another party recognized as the related one.

- use of assets for goods (works, services) realization by one party to another recognized as the related one.

Exceeds 1 billion Belarusian rubles during tax period

More than on 20% of market value

Transactions with parties, which do not pay income tax 

Transactions on realization or purchase of goods (works, services) performed with the related party – tax resident of the Republic of Belarus (including third party-mediator) if this related party does not pay income tax on legal grounds. For example in the case of application of simplified tax system, pursuit of activities of the territory of small cities etc.   

Exceeds 1 billion Belarusian rubles during tax period

More than on 20% of market value

Foreign trade transactions with special parties members

Realization or purchase of goods (works, services) due to foreign trade activity of the enterprise engaged in realization (purchase) of strategic goods included in the list defined by the Government of the Republic of Belarus.

Exceeds 1 billion Belarusian rubles during tax period

More than on 20% of market value

Realization or purchase of goods (works, services) due to foreign trade activity of the enterprise included in the list of large taxpayers. The enterprises are informed by the tax authorities on adding to the list of large taxpayers to January 1 of the year when the enterprise will be regarded as large taxpayer.   

Exceeds 10 billion Belarusian rubles during tax period

 

More than on 20% of market value


2.
The list of deals which are not subjects of control is defined:

- transactions on realization or purchase of goods (works, services) if the transaction cost (price) is stipulated by the International Treaty of the Republic of Belarus;

- banking transactions defined by the list stated in the Bank Code of the Republic of Belarus;

- transactions in securities and financial futures instruments traded on established securities market. 

3. Extension of controlled transactions due to change of definitions 

Starting from 2016 not only transactions on realization of goods, works, services are the subjects of control, but also transactions on realization (purchase) of property rights, another property, assignment (receipt) of rights to property use.  That means that agreements on the cession of exclusive rights and even loan agreements are the subjects to control.

4. Implementation of a new method for taxation base definition

The Law implemented the fifth method of determination of the tax base – profit split method.

Profit split method is used when other four methods cannot be used (comparable uncontrolled price method, resale price method, cost plus method, comparable profits method) because the Tax Code stipulates the principle of continuous application of methods.

Profit split method lies in comparison of actual split between the parties of analyzed transaction (transactions), received total profit with this profit split between the parties of compared transactions according to the Law.

5. Liabilities of the taxpayers

While execution of transactions which are subjects to control judging from their nature and subject matter irrespective of under and over pricing the taxpayer shall:  

- inform the tax authority about executed transactions by filling the proper information in online invoice and sending it to the relevant tax authority via  web portal of online invoices – information resource of the Ministry of Tax and Duties of the Republic of Belarus (informing is performed due to the Law);

- provide with economic evaluation of supplied price and (or) documentations proving economic evaluation of supplied price. Submission of economic evaluation and (or) documentations proving economic evaluation of prices is performed in the term stated by tax authority while auditing. In other words if controlling bodies do not have any questions to transaction price submission of economic evaluation of price is not necessary.