New transfer pricing rules in Belarus since January 2019

published on July, 19 2019 | reading time approx. 4 minutes

Although transfer pricing is still a relatively new topic in Belarus, it plays a greater role in tax audits from year to year. At the beginning of 2019, a new version of the Belarusian Tax Code (BTC) came into force. Significant changes mainly concerned transfer pricing regulations – for the first time there are now reporting forms and the possibility to conclude a transfer pricing agreement (also called APA) with the tax authority.

Types of reports

There are the following types of transfer pricing documentation reports in Belarus:

transfer pricing documentation (comprehensive)
transfer pricing documentation in simplified form (purely economic justification of the applied price)

In the following cases, taxpayers are obliged to prepare comprehensive transfer pricing documentation (in the form established by law) and submit it to the tax authority upon request (Par.2 Art. 97 of the BTC):

if the taxpayer is on the so-called list of large taxpayers and has conducted a foreign trade transaction with an affiliated person
if it is a foreign trade transaction for the purchase or sale of strategic goods (oil, oil products, gas, potassium, wood, iron, steel)

For all other controlled transactions, the tax authority may only require the taxpayer to provide economic justification for the price applied by submitting transfer pricing documentation in a simplified form as part of a tax audit.

The comprehensive and the simplified transfer pricing documentation are similar in content. Both reports contain the following:

Information about the transaction (or several similar transactions)
Information about the other transaction party
Information about the affiliation of the transaction parties
Description of the object of the transaction
Information on income and expenses from the transaction
Information on prices for identical goods (works, services), property rights or profitability of other companies carrying out comparable transactions (with reference to sources)

However, the comprehensive transfer pricing documentation is more extensive. In addition to the above, it contains the following:

Structure of the holding company (group of companies)
Description of the specifics of the sector
Description of the activities of the transaction parties
Information on the taxpayer's sales strategy, which affected the transaction price
Financial situation of the taxpayer
Method for determining the transfer price

Information on the adjustment of the tax base for corporation tax

The deadline for submitting transfer pricing documentation is set by the tax authority itself. Usually, the deadline is 2 to 10 working days after the request.

What's new since January 2019?

Prior to 2019, there was only an obligation to prepare transfer pricing documentation after being requested to do so by the tax authority.

Before, there have been no special forms regarding the preparation itself. The introduction of model reports has now led to substantial standardisation and simplification for taxpayers.

Since the beginning of the year, the tax authorities have also been entitled to require the taxpayer to submit transfer pricing documentation as part of a tax audit and at the earliest on 1 June of the year following the calendar year in which the transactions to be audited were carried out. (Par.3 Art. 97 BTC). Due to this very short deadline, we recommend that, in order to minimise risk, transfer pricing documentation should already be available if the relevant requirements are met, which then only needs to be submitted.

Certain taxpayers may be exempted from the obligation to prepare transfer pricing documentation if an Advance Pricing Agreement has been concluded with the tax authority for certain transactions. (Art. 98 BTC). Such a pricing agreement may be agreed by the following taxpayers:

taxpayers included in the so-called list of large taxpayers
taxpayers who have carried out transactions amounting to more than BYN 2,000,000.00 net (approx. 848,000 euros)

Advance Pricing Agreements (APA) – What's that?

An Advance Pricing Agreement is a written pricing agreement between the taxpayer and the Ministry of Taxes regarding the procedure for determining the price for tax purposes and/or the method for determining the transfer price. This eliminates the need for transfer pricing documentation.

An APA may be concluded for one (or more similar) transactions for a period not exceeding three calendar years and may be extended once for further two calendar years thereafter.

The taxpayer themself draws up the text of the APA on the basis of an established form and sends this document to the Ministry of Taxes for consideration.

The APA contains the following points:

Type of a controlled transaction (or several similar transactions)
Procedure for determining the market price
Market Price Margin or Profit Level Indicator
Methods for Determining Transfer Prices
Sources on which the determination of the market price margin (profit level indicators) is based

In particular, the choice of sources for determining the market price margin should be made with particular care. If an APA contains inaccurate or insufficiently substantiated information, there is a high risk that the Ministry of Taxes will refuse to conclude the APA.

For the consideration of an APA offer, the Ministry of Taxes charges an administrative fee of 500 basic units (approx. 5,400 euros).

If circumstances arise which prevent the taxpayer from fulfilling the conditions of the APA after the conclusion of the APA, he or she may apply to the Ministry of Taxes to amend the APA. Such circumstances include:

Changes in the law affecting the terms of transactions
Exchange rate fluctuations that have changed the terms of the transaction
Change in the taxpayer's market share
Changes in the taxpayer's organisational structure through transformation

During the term of an APA (minimum three years and maximum five years), the Ministry of Taxes will also annually verify the taxpayer's compliance with the APA. To this end, the taxpayer must submit the following documents and information to the Ministry of Taxes no later than 1 June of the year following the reference year:

Information on the prices applied (profit level indicators) in controlled transactions carried out during the year under review
Information on the fulfilment of the transaction conditions, including the type of transaction, information on the other party to the transaction, structure of the holding company/group of companies, description of the subject of the transaction
Copies of audit reports containing information regarding the determination of transfer prices (if available)
Copies of transfer pricing documentation (notices, documents, reports on international corporations, etc.) submitted in other countries (if available)

If it turns out that the taxpayer has failed to fulfil its APA obligations, the tax authority will recalculate the corporation tax or reduce the amount of tax-deductible costs.

A temporary grace period applies for the period 2019 to 2022: If the taxpayer has not applied market prices during this period, but later submits a corrected corporate income tax return and pays the due corporate income tax within five days, the taxpayer does not have to fear any surcharge for delay (Par.11 Art. 4 of Act No. 159-z of 30.12.2018).

This applies both if the corporation tax is adjusted on the taxpayer's own initiative and if the adjustment is made by the tax authority.

Conclusion of an APA vs. Preparation of transfer pricing documentation

Compared to classic transfer pricing documentation, an APA has the following advantages and disadvantages:

APAs are particularly lucrative for companies whose prices do not change significantly over long periods.

Regardless of whether an APA is a possible option for you or not, we recommend that you always keep all documents required for transfer pricing documentation up-to-date and bundled. In order to determine the transfer prices to be applied, access to commercial transfer pricing databases is necessary, since in most cases the optimal market price margin can only be determined via these databases.