Vladimir Putin has proposed amendments to the Tax Code. The prime minister advised companies to pay their taxes and not get carried away with offshore arrangements, quoting Alexander Pushkin and Adam Smith to make his case.
Vladimir Putin summoned his subordinates to talk about "a subject that makes everyone yawn" – taxes, or transfer pricing to be more precise.
"As you no doubt remember, Eugene Onegin, one of Alexander Pushkin's most memorable characters, used to read Adam Smith. Smith understood how nations accumulate wealth, what a country lives on, and why it needs no gold if it has a simple product," the prime minister said, quoting the original text with a great deal of accuracy.
Russia, which abounds in 'simple products', including crude oil and natural gas, does not taken in sufficient tax revenue from their sale. The reason is the transfer pricing scheme used, which almost all companies in the world uses. The scheme allows for the provision of goods and services below market prices, which is legal. Minimising expenses, including taxes, is a natural way to do business. "What creates problems for the government is when there are abuses, when goods are sold at reduced prices on the domestic market and then resold at the same prices to affiliated companies in some tax haven or foreign offshore zone. The goods are then sold there at normal market price," Putin noted. Thus the transfer pricing scheme causes damage to the country, society, and the budget.
The Tax Code is supposed to regulate this, but it is ineffective. Prime Minister Putin said "the price edge should not exceed 20% when selling goods to affiliated companies." This formula was included in a bill proposed by the Finance Ministry. The bill, which was was approved in the first reading by the Duma in February, maintains the "presumption of market prices", meaning that it is up to the tax agencies to prove that prices are not market-based.
"And what is market price? This has not been properly formulated, so we need to figure it out," Vladimir Putin said.
Anastasia Savinykh