Putin Hints At Transfer Pricing Crackdown

by Tatiana Smolenskaya, Tax-News.com, Moscow

01 August 2008

Russian Prime Minister Vladimir Putin has hinted at a crackdown on transfer pricing abuses after accusing one industrial company of using foreign affiliates to illegally boost its profits.

According to reports in the Russian media, Putin has accused Mechel, the coal and steel company, of profiteering and tax evasion by using offshore affiliates to buy coking coal at below market prices, before selling it back in Russia at the prevailing market rate.

The reports emerged following a discussion of the issue at a recent cabinet meeting, although Putin did not name the company he was talking about in subsequent reports. However, he was quoted by Prime-Tass as saying that "a metallurgical company" was selling coking coal to Swiss offshore companies at a price of RUB1,100 (USD47) and re-selling it at the prevailing market rate of USD323 per tonne.

"It is a reduction in the tax basis inside the country. It's not paying taxes, it's creating a shortfall on the domestic market, which means an increase in the cost of metals production," the Prime Minister said in televised comments.

Putin believes that similar practices are occurring in the food markets, and he has revealed that the government is working on new laws to tighten transfer pricing rules, which could be completed by September.

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