• Service: Tax & Legal, Transfer Pricing Services
  • Type: Regulatory update
  • Date: 8/5/2013

Preparing notifications on controlled transactions 

Notifications on controlled transactions for 2014 should be submitted no later than 20 May 2015. In 2014 the threshold for recognizing transactions as controlled transactions was reduced, As a result the number of controlled transactions increased. In this regard, companies are still confronted by a number of issues related to the completion of the standard notification form on controlled transactions. Furthermore, the need to prepare notifications will now arise for other companies that had previously not been required to submit notifications.


We provide below some comments on the preparation of such notifications.

How can the Russian tax authorities check whether the notification on controlled transactions has been completed accurately?

Based on our experience, we have identified the two most common ways used by the tax authorities to review notifications:

  • If the controlled transactions were performed between taxpayers that are residents of the Russian Federation, the tax authorities
    • compare the notifications submitted by both taxpayers to the tax authorities;
    • check whether information is represented identically in both notifications;
    • ask the taxpayer questions about the reasons for discrepancies where applicable.
  • If the controlled transactions were performed between taxpayers, one of which is not a resident of the Russian Federation (cross-border transactions), the tax authorities compare the information on the analysed transactions reported in the notification using the following sources of information:
    • transaction passports;
    • the information of the customs authorities (cargo customs declaration);
    • bank account statement;
    • information held by the Bank of Russia.


In addition, the tax authorities use different ways to try and identify controlled transactions that were not reported by taxpayers and question why these transactions were not included in the notification.

Is it anticipated that changes will be introduced to the format of the notifications, thereby making it easier to complete the form?

The notification form on controlled transactions is established by Order No. MMV-7-13/524@ of the Federal Tax Service of Russia dated 27 July 2012.


Companies preparing notifications encounter various practical and also theoretical difficulties. In particular, the tax authorities require the disclosure of information on each transaction with a breakdown by product item, which necessitates the processing of a significant volume of data.


Currently, amendments to the notification form and the option of consolidating data on Section 1B are being discussed. However, even if the amendments are finalized and approved, they will come into force no earlier than next year (in other words, they will come into effect for the filing of notifications for 2015). Accordingly, we recommend preparing the notification based on the current requirements and seeking professional advice and assistance as and where necessary.


What problems and sanctions can companies face if they submit an incomplete or inaccurate notification? What do companies need to take into account?

According to Article 129.4 of the RF Tax Code, the fine for failing to submit a notification, or for providing false information, is RUB 5,000 per taxpayer (approximately USD 130). While the size of the fine is immaterial, it is highly likely that the taxpayers that submit notifications without providing the details required by the tax authorities, or submit notifications containing errors, will be key targets for transfer pricing audits. Therefore, when preparing a notification, it is important to find the “golden mean” between the level of detail disclosed on controlled transactions and the time spent by accounting specialists on preparing the notification.


Based on our own experiences from communicating with clients, we also understand that a company’s officials (general director or chief accountant) could potentially be held administratively liable and fined RUB 300 to 500 in accordance with Article 15.6 of the RF Code of Administrative Offenses if the notification was not submitted to the tax authorities or the submitted form was incomplete or incorrect. While the fine is small, it can cause reputation damage for the officials of the company and also for the company-taxpayer in general.


Can a company submit a duly adjusted notification and thereby avoid payment of the fine?

Yes, in accordance with Federal Law No. 52-FZ dated 2 April 2014, if the taxpayer submits an adjusted notification before learning that the tax authorities had identified unclear information in the notification on controlled transactions, the taxpayer is exempted from liability under Article 129.4 of the RF Tax Code.


How can a company that is part of a larger group simplify the procedure for submitting information on large numbers of transactions?

Various software solutions are available for automating the preparation and submission of electronic notifications to the tax authorities in a special XML format.


We recommend initially verifying that the accounting software used by the company supports the electronic generation of notifications on controlled transactions. If it does, the company’s existing accounting software can be used.


If it does not, the following options are available:

  • Use a standardized system (accounting software) together with the existing software solution to generate the notification;
  • Use a special software conversion program based on MS Excel or MS Access to generate the notification. Such conversion programs are developed and offered by KPMG and other consultants.


In practice, using software tends to simplify the preparation of notifications in cases involving large numbers of transactions. The operating principle of such software includes three steps: (1) uploading data from the current accounting system, (2) processing the data and adding details on controlled transactions and (3) subsequently converting the data into a special format that is accepted by the tax authorities.


However, the accounting system does not contain all the data that are required for the notification. A tax or accounting specialist will have to input additional details on the terms of the transaction (for example, by configuring relevant directories or manually in MS Excel). As a result, software automation is only partial.


When should companies automate the preparation of notifications?

All cases should be assessed on an individual basis, as demonstrated by the following example. If the core business activities of the company involve a small number of controlled transactions during the year (for example, the provision of services for which transfer and acceptance certificates are produced on a monthly basis), it is highly likely that automation would turn out to be a more expensive option than the manual completion of the notification form.


What are the main documents that should serve as guidance for the completion of notifications on controlled transactions?

As a rule, companies encounter practical difficulties related to the filling of notifications. In this regard, we have compiled a list of documents that provide recommendations on how to complete notifications, which might prove useful to taxpayers when submitting notifications on controlled transactions:

  • Order No. MMV-7-13/524@ of the Federal Tax Service of Russia dated 27 July 2012 “On Approving the Form of the Notification on Controlled Transactions, the Procedure for the Completion Thereof, and also the Format of the Submission of the Notification on Controlled Transactions Electronically and the Procedure for the Submission by the Taxpayer of the Notification on Controlled Transactions Electronically”. It contains the notification form and instructions on how to complete it.
  • Letter No. OA-4-13/11860@ of the Federal Tax Service of Russia dated 2 July 2013 "On the Completion of the Notification on Controlled Transactions". In the letter the Federal Tax Service notes that groups of similar transactions may be compiled in the notification, explains how to complete notifications on transactions relating to construction contracts, transactions denominated in a foreign currency, on the reimbursement of damages due to the improper fulfillment of obligations under a transaction, transactions involving the gratuitous transfer of property, and also provides advice on the rounding of quantitative and qualitative indicators reported in the notification.
  • Letter No. OA-4-13/19652@ of the Federal Tax Service of Russia dated 1 November 2013 “On Completion of the Notification on Controlled Transactions”. In the letter the Federal Tax Service clarifies how to complete the notification on a group of similar securities transactions and also the notification on controlled transactions where the price is expressed as a percentage, and how to report in the notification transactions with foreign currencies and precious metals carried out by credit institutions.
  • Letter No. OA-4-138583@ of the Federal Tax Service of Russia dated 30 April 2014 “On OKTMO Codes”. In the letter the Federal Tax Service explains how to complete the field for the OKATO code.
  • Letter No. OA-4-13/7549@ of the Federal Tax Service of Russia dated 18 April 2014 “On Completion of the Notification on Controlled Transactions”. In the letter, the Federal Tax Service explains, inter alia, how to complete Section 1A of the Notification (points 210, 211), 1B (points 020, 030, 040, 043, 045, 070.090, 100, 110, 120, 130, 140), how to complete the notification on insurance contracts and also provides recommendations on how to submit the notification in the event of the liquidation of the taxpayer.


Should you have any questions on how to complete notifications, we would be delighted to discuss them with you in detail and assist you with the completion of notifications either on paper or electronically.



Natalia Valkovskaya


+7 (495) 937 44 77


Ilarion Lemetyuynen


+7 (495) 937 44 77