Amendments in the Republic of Belarus legislation
Transfer pricing amended and revised in 2019.
The 2019 Tax Code of the Republic of Belarus defines in more detail the procedure for applying transfer pricing. The procedure for applying transfer pricing is provided for in Chapter 11 of the Code.
Transfer pricing rules have been revised significantly.
1. The obligation to inform the tax authorities of the as to reasonableness of the price applied
As before, the Code provides for the obligation of payers to provide, at the request of the tax authorities, an economic justification for the price applied.
The payer is obliged to draw up , documentation confirming the economic feasibility of the price applied (hereinafter referred to as the documentation) for the relevant analyzed transactions (paragraph 2 of Article 97 of the Code), that is, the organization must have an economic justification, since the tax authority has the right to request the economic justification of the price applied for the analyzed transactions (paragraph 5 of Article 97 of the Code).
It should be borne in mind that for the purpose of applying methods of determining market prices, calculating profitability indicators, and informing tax authorities, two or more analyzed transactions can be combined into a group of analyzed homogeneous transactions, provided that such transactions are interconnected or have a continuous or regular nature and functions performed by the party(s) of transactions coincide with respect to such transactions, as well as the risks assumed, and the assets used.
The aforementioned norm allows to significantly simplify the process of documents preparation by payers for purposes of submission to tax authorities.
The 2019 Code determines that economic feasibility and documentation will be submitted to the tax authorities in the prescribed form.
The Documentation and the Economic feasibility Forms were approved by the Decree of the Ministry of Taxes and Duties of 03.01.2019 No. 2 'On the calculation and payment of taxes, fees (duties), other payments' (Attachment 23 to Resolution No. 2).
2. Extension of the list of related persons
As before 2019, the list of related persons is provided for in Article 20 of the Code.
Since 2019, the following persons are also recognized as related:
Thus, due to the extension of the list of the related persons, the number of controlled transactions is increasing.
3. Change in the audited (reporting) period
Since since 2019, payers are required to provide, at the request of the tax authority, an economic feasibility of the price applied, documentation confirming the economic feasibility of the price applied in relation to the transaction being analyzed in the tax period (calendar year), therefore, audits regarding issues of transfer pricing can only be done for a full year.
4. Transfer pricing methods (Articles 92-96 of the Code)
In case it is possible to apply:
If it is impossible to use the method of comparable market prices, the subsequent sale price method, one of the following methods is selected:
- The method of comparable market prices
The method of comparable market prices is to compare the price in the transaction analyzed with a range of market prices for identical (if they are not available – homogeneous) goods (works, services), property rights applied in comparable transactions.
If there is no information on comparable transactions in the tax period being verified, and if such information is available for other tax periods preceding the tax period being verified, market price data for such previous tax periods are accepted with their adjustment to price indices determined by the National Statistical Committee of the Republic of Belarus, or for the change of the official exchange rate of the Belarusian ruble established by the National Bank of the Republic of Belarus in relation to other currencies.
In case the analyzed transaction is concluded on the basis of a forward or futures contract, prices are compared based on information about forward or futures prices on the date closest to the date of concluding of the relevant forward or futures contract.
When using exchange quotes, the range of market prices is determined on the basis of transaction prices, the subject of which are identical (if they are missing – homogeneous) goods registered by the relevant exchange, based on information published or received upon request from the relevant exchange.
It should be borne in mind that if the terms of the contract for the sale of goods stipulate the use of a quotation period, then the price of exchange and non-exchange goods, the prices of which are entailed to quotations for exchange goods, is determined taking into account such a quotation period, the duration of which cannot exceed thirty calendar days, as the arithmetic average of daily quotations for the quotation period, taking into account the differential.
- The subsequent sale price method
The subsequent sale price method is to compare the gross profitability for the subsequent sale of goods (works, services), property rights acquired (received) in the analyzed transaction (a group of similar homogeneous transactions), with a range of profitability trading multiples for comparable transactions (in their absence – organizations engaged in comparable activities).
The subsequent sale price method is applied in the occurrence of one or more of the following circumstances:
the person reselling does not own and, therefore did not use intangible assets that could have a significant impact on the level of its gross profit margin;
when reselling the goods, operations that could affect its characteristics, were not carried out. Such operations include pre-sale preparation (dividing goods into batches, forming shipments, sorting, repackaging, etc.), mixing goods, if the characteristics of the final product (semi-finished products) do not differ significantly from the characteristics of the mixed goods.
- Cost method
The cost method is to compare the gross cost-effectiveness index of gross profit margin of the party to the transaction under analysis with the range of profitability trading multiples made up of the gross profit margin indicators in comparable transactions (in their absence – organizations engaged in comparable activities).
The cost method is used when:
performing works (rendering services), apart from cases, when intangible assets are used to perform works (render services) that have a significant impact on the level of cost-effectiveness of the works performer (services provider);
provision of cash management services, including operations in the securities market and (or) the foreign exchange market;
sale of raw materials or semi-finished products to a related person;
sale of goods (works, services), property rights under long-term agreements between the related persons;
manufacturing products from customer-furnished raw materials.
- The method of comparable profitability
The method of comparable profitability is to compare one of the profitability indicators specified in the fourth, - eighth paragraphs of paragraph 8 of Article 91 of the Code, with profitability index formed in the party to the transaction under the analyzed transaction with the range of market profitability indicators made up of the corresponding profitability indicators in comparable transactions (in case there are no such – organizations engaged in comparable activities).
- Profit distribution method
The Profit distribution method is to compare the actual distribution between the parties to the analyzed transaction, of the total profit (loss) acquired (suffered) by all parties to this transaction, with the distribution of profit between the parties to comparable transactions.