Transfer pricing · 5 min

Transfer pricing has long been a significant compliance area for international groups with Russian operations. Russia's TP regime — introduced in 2012 and broadly aligned with OECD principles, though with important local deviations — requires that transactions between related parties be priced at arm's length and supported by annual documentation and notifications to the tax authorities.

The 2024 reforms significantly raised the stakes. A new secondary adjustment mechanism — which taxes the non-arm's-length portion of intercompany prices as a deemed dividend subject to 15% withholding tax — has made TP compliance a direct cash cost rather than a theoretical risk. Combined with the expanded powers of the Federal Tax Service to request documentation outside the audit cycle, international groups need to treat their Russian TP position as a live compliance priority, not an annual filing exercise.

Not all related-party transactions are subject to TP control in Russia. The rules apply to controlled transactions — a defined category that determines which transactions require notification, documentation and arm's-length pricing.

Transactions with foreign related parties are controlled where the annual value exceeds RUB 120 million (approximately USD 1.3 million at current rates). This threshold applies regardless of the nature of the transaction — goods, services, licences, loans or other payments.

Following the 2024 reforms, transactions conducted through independent intermediaries with limited functionality — for example, a trading intermediary in a CIS country that merely arranges the transaction without assuming risk — are also treated as controlled. This is particularly relevant for groups that restructured their supply chains through third-country entities.

Transactions with entities in jurisdictions on Russia's offshore list (утверждённый Минфином перечень офшорных зон) are treated as controlled regardless of the relationship between the parties, provided the annual value exceeds RUB 120 million. The list includes a number of commonly used holding locations — British Virgin Islands, Cayman Islands, Cyprus (removed from the list in 2023 but worth checking the current version), and others.

Certain domestic transactions — between Russian related parties — are also controlled, subject to higher thresholds (RUB 1 billion per year). These include transactions involving special tax regimes, loss-making parties and transactions with certain natural resource companies.

Many international groups restructured their Russian supply chains after 2022, routing transactions through intermediaries in Kazakhstan, UAE, Turkey or other countries. The 2024 reforms specifically address this: where an intermediary has limited functions and risks (a "pass-through" arrangement), the transaction may still be treated as a controlled transaction between the original related parties. Groups that rely on such arrangements should review their TP analysis.

The most consequential change introduced in 2024 is the secondary adjustment mechanism. Where the FTS determines that transfer prices deviate from arm's length — through a TP audit adjustment — the difference by which the Russian taxpayer's taxable income was understated is treated as a deemed dividend and subjected to withholding tax at 15%.

This applies without the possibility of applying a reduced treaty rate, even where a double tax treaty is in force. The combination of a primary TP adjustment (additional corporate income tax at 20%) and the secondary adjustment (withholding tax at 15%) means that the effective cost of a TP challenge can be very significant.

The secondary adjustment (withholding tax) does not apply if the foreign counterparty returns the non-arm's-length portion of the payment to the Russian entity. In practice, this means that where a TP adjustment is made, the group can avoid the WHT by having the foreign entity make a corresponding repayment. This requires advance planning — the mechanism needs to be built into intercompany agreements.

Russian TP documentation requirements broadly follow the OECD three-tier framework but with important local characteristics. Documentation must be prepared in Russian and submitted to the FTS on request.

Taxpayers with controlled transactions must file an annual notification with the FTS by 20 May of the year following the reporting year. The notification covers all controlled transactions and — from 2024 — must specify the TP method used for each transaction type. Notifications are submitted electronically only.

Documentation does not need to be filed proactively — it must be submitted within 30 days of an FTS request. However, the 2024 reforms allow the FTS to request documentation outside the formal audit process, as part of a pre-inspection analysis. This means documentation needs to be ready at any time, not just when an audit commences.

For transactions involving commodities (нефть, металлы, зерно and other listed commodities), TP documentation must now be submitted simultaneously with the controlled transaction notification — i.e. by 20 May. As a transitional measure, documentation for 2024 commodity transactions can be submitted by 1 December 2025. Groups with commodity-related intercompany transactions should note this shorter timeline.

Russia accepts the five OECD transfer-pricing methods, with a sixth available in narrow cases, but it does not let the taxpayer simply pick the most appropriate one. Russian law imposes a strict statutory hierarchy, and applying the wrong method — or skipping a higher-priority one without justification — is itself a ground for the FTS to reject your analysis.

The five methods are:

A sixth, independent-valuation method is permitted only for one-off transactions where none of the five can be applied.

The hierarchy is the part foreign groups underestimate. The CUP method has priority in all cases except the resale of goods to unrelated parties without processing, where the Resale Price Method ranks first. If the priority method cannot reliably be applied, you move down the order — CUP, then Resale Price or Cost Plus, then the comparable-profitability method, then Profit Split — and you have to be able to show why the higher-priority method did not fit.

In practice, the comparable-profitability method dominates audits and case law for distribution and manufacturing structures, because clean comparable prices are rarely available. The CUP method, by contrast, is the FTS's preferred tool for commodity exports — oil, fertilisers, metals — where it uses quoted prices such as Platts as comparables. The Uralkali and Dulisma cases established that the authorities can reject a taxpayer's profitability benchmarking and re-test commodity pricing against those quotes.

Documentation is required for each controlled transaction above the threshold, and the file has to justify the method chosen against the hierarchy, not just present a convenient result. A benchmarking study that ignores the statutory order is one the FTS can set aside — which is why method selection, not just the numbers, is where a Russian TP position is won or lost.

Related service: Transfer pricing →