TRANSFER PRICING – What transactions are controlled and how such transactions are reported

Transfer pricing control is the sphere of tax and other competent authorities control over prices different from transaction prices in market conditions. When setting such prices, the total profit of interdependent persons’ group is redistributed in favor of persons located in countries with lower taxes or persons who do not pay income tax.

Which transactions are under the market price compliance control?

1. Foreign trade transaction with related party*;
2. A transaction for the purchase or sale of goods (works, services), property rights with related legal entities – tax residents of the Republic of Belarus who do not calculate and pay income tax (are exempted from income tax) in the calendar year in which the transaction was made.

Among them:

• residents of FEZ (Free Economic Zone);
• payers applying special tax regimes;
• payers who operate in territories defined by legislative acts, residents of the HTP (Hi-Tech Park), the special tourist and recreational park “Augustovsky Canal”, China Belarus Industrial Park Great Stone;

3. A transaction made with related party, with a payer applying special tax regimes, on sale or purchase:

• immovable property (part of it), including transactions resulting in the transfer of a shared-equity construction object to a shareholder, the owner of housing bonds of residential and (or) non-residential premises;
• housing bonds in the process of their circulation (except for emitter’s own-issue bonds), committed after the state registration to create a construction object.

!!! Transactions are not subject to control, as a result of which an individual acquired ownership of a residential building where he permanently resided for at least 5 years.

4. A foreign trade transaction for the sale or purchase of strategic goods according to the list approved by Resolution of the Council of Ministers of the Republic of Belarus No. 470 dated June 16, 2016.

* Individuals and (or) organizations are recognized as related if there are relations between them that have and (or) may have a direct impact on the conditions and (or) economic results of their activities and (or) the activities of the parties they represent. A more detailed list of such relations is given in paragraph 1 of Article 20 of the Tax Code of the Republic of Belarus.

What other transactions are under control?

Transactions with a related party are equal to:

1. a set of transactions carried out with the participation (through mediation) of a third non-related party, provided that such person:

• does not perform essential functions in this set of transactions except of organizing the sale and (or) purchase of goods (works, services), property rights by one person to another recognized as related with this person;
• does not use any assets and (or) does not take risks to organize the sale and (or) purchase of goods (works, services), property rights by one person to another recognized as related with that person;

2. a transaction for the sale or purchase of goods (works, services), property rights with a resident of an offshore zone.

Cumulative criteria for transactions to be recognized as controlled

There are two of them – BYN 400,000.00 and BYN 2,000,000.00 (excluding VAT (Value Added Tax) and excise)

BYN 400,000.00 for the following transactions:

• foreign trade transactions with a related party for an organization not included in the list of major payers;
• for the sale or purchase of goods (works, services), property rights with a resident of an offshore zone.

BYN 2,000,000.00 for foreign trade transactions:

• with related party for an organization included in the list of major payers;
• for the sale or purchase of strategic goods.

The following transactions are not subject to control:

• for the sale or purchase of goods (works, services), property rights, if the price (value) of the transaction is determined by an international agreement of the Republic of Belarus;
• alienation of immovable property previously pledged to the bank in order to secure its claims for repayment of accounts payable;
• transactions with securities, financial instruments of fixed-term transactions traded on the organized securities market, with the exception of transactions specified in paragraph 3).
• concluded by organizations of the Republic of Belarus with payment system operators based on the use of VISA, MasterCard, American Express bank payment cards registered in offshore zones;
• interbank loans (deposits) for a period of up to 7 calendar days (inclusive);
• loans provided to organizations included in the list of agricultural organizations subject to pre-trial rehabilitation, or in the list of agricultural organizations in which it is necessary to conduct economic insolvency (bankruptcy) procedures. The lists were approved by Resolution No. 889 of the Council of Ministers of the Republic of Belarus dated 31.10.2016.

Informing tax authorities about transactions

Article 97 of the Tax Code of the Republic of Belarus provides that informing tax authorities about transactions subject to control is carried out in the following forms:

• by designing documentation to confirm the economic validity of the applied price;
• by preparation economic justification of the applied prices;
• by entering information about such transactions into the electronic invoice and sending it to the electronic invoice Portal, regardless of the transaction price and price deviation from market prices.

* Prepared for each transaction under analysis (group of homogeneous transactions under analysis).

The payer has the right to provide other information confirming the commercial and (or) financial terms of the transaction performed by him correspond to those that took place in comparable transactions.

Electronic invoice and sections where the information is contributed

Information on transactions under control provide profit tax payers  in electronic invoice.

Features of filling out the electronic invoice transactions under control are set out in paragraph 22, 23 of the Instructions on the procedure for creating (including filling out), issuing (sending), receiving, signing and storing the electronic invoice, approved by the Resolution of the MIA (Ministry of Internal Affairs) dated 04.25.2016 No. 15.

So, in accordance with the specified rules of the Instruction, the following sections are filled out by:

• the Supplier – section 2 of the electric invoice “Details of the supplier”, paragraphs 6.1 – 6.4.
• the Recipient – section 3 of the electric invoice “Details of the recipient”, paragraphs 15.1 – 15.4.

Marks are being made in mentioned paragraphs (6.1 – 6.4, 15.1 – 15.4) according to following features*:

• related party;
• transaction with a resident of an offshore zone;
• foreign trade transaction with strategic goods;
• organization included in the list of major payers.

* Multiple topics may be filled simultaneously.

Moreover, in selecting the Supplier/Recipient status in electronic invoice section 2, paragraphs 6 and section 3.15 following facts should be considered:

Those payers who indicate the status of the recipient (under the agreement / contract) “Commission Agent” in paragraph 15.1 of section 3 of the electronic invoice, do not put down a sign of relativity.

Please note that if the payer has no obligation to design and send an electronic invoice to the Portal, but the transaction is considered to be under control the electronic invoice, in accordance with Article 131 of the Tax Code of the Republic of Belarus:

1. is directed to the Portal not later that the 20^th day of the month following the expired one on which the date of the transaction falls;
2. is established for each transaction with indication of the transaction date:

-for purchased (imported) goods (works, services), property rights the date will be the acceptance of them for accounting;

– for shipped goods (performed works, services rendered), transferred property rights the date will be the reflection of proceeds from their sale in accordance with Article 168 of the Tax Code of the Republic of Belarus;

3. is created on the results of each month within the framework of one recipient (supplier) in terms of transactions names, indicating as the date of the transaction the last calendar day of the expired month – when banks of the Republic of Belarus, the NBFI (non-bank financial institution) of the Republic of Belarus perform operations specified in subparagraph 1.37 of paragraph 1 of Article 118 of the Tax Code of the Republic of Belarus;
4. is created on the results of each month within the framework of one supplier in terms of transactions names, indicating as the date of the transaction the last calendar day of the expired month – when organizations purchase services for the carriage of goods by road, freight forwarding services, the place of sale which is not recognized as the territory of the Republic of Belarus.

Liability for failure to report about transactions that are subjects under control

For not providing the information about transaction under control the administrative responsibility is established according to article 14.6 of Administrative Offences Code of the Republic of Belarus.

For not providing documents or other information required to submit in accordance with tax legislation, an international treaty of the Republic of Belarus, or at the request of a tax authority for tax control, including those committed by an official of a legal entity or individual entrepreneur in terms set by payer, tax agent, other person of the tax authorities, entails the imposition of a fine in the amount of up to 20 basic values.

If this affected, or in the circumstances in which the violation was committed, could affect the correctness of the application of tax legislation by the tax authority, the fine will be in the amount of 2 to 30 basic units.

However, the fact above doesn’t constitute as an administrative offense if:

• the delay submission of documents or other information is not more than 1 working day;
• the electronic invoice is placed to the buyer or sent to the Portal before the deadline for submission of the tax return (calculation) on VAT for the relevant period.

For additional consultations about transfer pricing please call: + 375 29 107 66 02