Russia Publishes Draft Procedure for Bilateral APAs

Tax Alert


On 17 March 2017 the Ministry of Finance of Russia (MoF) posted a draft order on the procedure for conclusion of bilateral advance pricing agreements (APAs) with the authorised bodies of foreign states. This draft order fills in a legal gap in Russian administration of transfer pricing rules and treaty obligations with foreign states. Although conclusion of APAs is generally provided for in the Russian Tax Code (specifically by item 2 of Article 105.20 of the Russian Tax Code) for major taxpayers since 2012, it is only through this draft order that the procedure for conclusion of bilateral APAs has been established.

Key Features

Under the draft order, it has been clarified that taxpayers will be able to request for the conclusion of bilateral APAs on transfer pricing matter with states that have effective double tax treaties with the Russian Federation. In fact, APAs can be concluded by Russia with one or more competent authorities of foreign states at the same time i.e. on a multilateral basis.

According to the proposed draft, APA applications shall commence with an optional (but advisable) preliminary negotiation stage (pre-filing), which allows tax authorities to weigh the prospects of a successful conclusion of the APA. The pre-filing discussion shall be held within three months from the date when the Federal Tax Service of Russia (FTS) receives an application from the Russian taxpayer. For the purposes of preliminary negotiations the FTS may consult with local representatives of the competent authority of the foreign state, if necessary. The results of these preliminary negotiations are not binding; they just allow the taxpayer to have a general understanding of whether the authorised bodies are willing to negotiate so the taxpayer is able to assess the likelihood of success.

Technically, the procedure for bilateral APAs is initiated by submitting a formal application in the prescribed form, together with all the necessary documents. MoF has drawn up a recommended list of necessary documents that taxpayers need to provide. In addition to the general information on the group companies, controlled transactions, and financial performance the documents that have to be submitted shall contain information on the outcome of the application of the proposed pricing method, using as an example the most recent three years for which factual information is available.

During the application review stage FTS will assess whether the proposed pricing method and the other assumptions and circumstances vital for conclusion of a particular APA are reasonable; specifically, whether the APA contributes to eliminating double taxation and whether there is a risk that the taxpayer would gain an "unjustified tax benefit".

Based on the results of the application review FTS may decide either

  1. To refuse to initiate the APA negotiations
  2. To require the draft APA agreement to be amended
  3. To notify the taxpayer that negotiations with the competent authority of the foreign state has commenced

The competent authorities involved may communicate subsequently during the stage of negotiations. The communication between competent authorities can be either in writing or in person. If the competent authorities reach mutual agreement on a particular APA, the agreement shall be formalized by a written document.

Based on the results of negotiations with the competent authorities of the foreign state, FTS shall make one of the following decisions:

  • To conclude the bilateral APA as agreed with the competent authorities of the foreign state
  • To amend the draft APA, subject to the provisions of mutual agreement between the competent authorities
  • To refuse conclusion of the APA if mutual agreement with the competent authorities of the foreign state is unreachable - in this case the taxpayer has the option to enter into an agreement with FTS on a unilateral basis

The decision shall be made by FTS within six months, with an option for FTS to extend this deadline to nine months, from the date of filing of the application by the Russian taxpayer.

The taxpayer may be actively involved in the review of its own APA application through discussions that may be initiated both by FTS and by the taxpayer. Moreover, in extraordinary circumstances, provided that the standard procedures set out in the draft order are followed, the taxpayer may participate in the negotiations directly or it may be provided with information on the progress of negotiations between the competent authorities.


Since 2012, the authorised body in Russia has received 82 draft APA agreements and concluded 25 of those on a unilateral basis (i.e. an agreement between FTS and the Russian taxpayer) with may major Russian taxpayers including OAO Gazpromneft, OAO NK Rosneft, PAO Aeroflot and AO DONAVIA. There has been debate since then whether bilateral APAs can already be initiated in Russia based on the mutual agreement procedure (MAP) under an applicable tax treaty. The new procedures set out in the draft order confirmed this possibility, in line with international standards.

The draft order also provides some useful guidelines for foreign taxpayers with Russian operations looking to conclude APAs with FTS. The proposed procedure for conclusion of bilateral/multilateral APAs has been released for consultation and review in a draft form, and therefore may be amended subsequently. However, this version can be a reference point for taxpayers interested in concluding APAs with FTS in Russia.

It is important to stress that, under the proposed draft, FTS will not enter into APA negotiations unless it has received an application filed by the Russian taxpayer involved in the cross-border transactions. For example, it seems that FTS will not enter into negotiations with the competent authorities of a foreign state in situations where the foreign counterpart involved in the transactions initiated an application with the competent authority of the foreign state. To engage with FTS, a corresponding application has to be filed by the Russian taxpayer.

We also note that the draft note contains a practical obstacle, as FTS has to make an assessment concerning 'unjustified tax benefit' when processing the APA applications. The concept of 'unjustified tax benefit' in the application review stage will pose a significant practical concern to many taxpayers, as it is a subjective area that is based around domestic anti-abuse concepts in Russia. Needless to say, in support of an APA application, a careful assessment around facts and circumstances should be made in order to demonstrate to the FTS that the transactions related to the APA application contain no unjustified tax benefit.

Overall, this draft order represents a positive step in the development of Russian transfer pricing practice. Bilateral APAs are increasingly being sought by taxpayers looking to obtain certainty over their transfer pricing policies, particularly in the current international tax environment.