Zadorozhnaya, A.I. The Balance of Private and Public Interests in Regulating Tax Control of Transfer Pricing in Russia

Abstract: In her article Zadorozhnaya analyzes guidelines for tax control of transfer pricing in Russia as amended effective of January 1, 2012, from the point of view of their conformity with the principle of the balance of public an dprivate interests. The author analyzes both general conformity of involuntary adjustment of taxable base by tax authorities when rules of tax control over transfer pricing are applied and particular aspects of the subject matter (definition of transaction for the purposes of tax control over transfer pricing as well as competences of tax authorities when checking the calculation and payment of taxes resulting from transactions between related parties). The author has applied theoretical legal approaches to the definition of the 'balance of private and public interests' in relation to effective rules regarding tax control of transfer pricing in Russia. The author has also analyzed judicial and administrative practice on the matter. The main conclusion of the present research is that adjustment of a taxpayerв' taxable base based on the rules of tax control of transfer pricing does not distort the balance of public and private interests because it does not mean that the taxable base is not created in the place where it has never been before (i.e. during transactions between related parties) but the recorded profit 'hidden' by the other party is 'requalified' as part of the taxable base that has been formed as a result of transaction performed by the party which should have recorded it. These rules are based on the principles of taxation equality, 'substance over form', preservation of an appropriate taxable base and prevention of double taxation, economic justification and fair taxation. At the same time, the author states that there are some guidelines in the Tax Code of the Russian Federation (herein after TC of the RF) that need to be reviewed. Thus, provisions of Clause 11 of Article 105.7 of the TC of the RF significantly decrease the level of certainty and predictability in relations between taxpayers and tax authorities and this is why cannot be considered to be adequately restricting taxpayers' rights. Moreover, the term 'transaction' used in Section V.1 of the TC of the RF is narrow and less accurate than it is needed for the purposes of efficient tax control over transfer pricing which distorts the balance of public and private interests and does not allow to control the relations that should be controled (such as labor relations, debt conversion, etc.) while sets control over the relations which cannot be controled. According to the author, if not limited by the requirements of Section V.1 of the TC of the RF, control of transfer pricing by territorial tax authorities during tax audits creates unequal conditions for taxpayers depending on the type of transaction performed.

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