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As compared with the corresponding period of the previous year, in the first quarter 2009 the external demand for Russian goods decreased, according to the data of the Ministry for Economic Development of the Russian Federation, by 45.4% (down to USD 60.billion) in terms of value and by 10% in terms of physical volume. Import of goods reduced by 36.2% and reached USD 38.4 billion, the foreign trade balance making USD 21.7 billion (USD 49.9 billion in the 1st quarter 2008).It is assumed at the same time that the Russian economy may liven up at the end of the year, which will be assisted by the growth of export earnings and the expansion of import substitution due to ruble devaluation.

At the same time the given forecast can be regarded as quite optimistic. On one hand the expansion of export will mainly be defined by the presence of the favorable situation (increase of prices) for the main kinds of the Russian export, which, in the environment of the global recession, does not seem self-evident. On the other hand, the dramatic drop of export at the beginning of the year was accounted for by the undefined situation in the dynamics of the investment and consumer demand in the country for the import goods. In the nearest future it is possible that the import by many trading positions will enhance, including due to the various forms of the government support for enterprises and organizations, which cast a doubt on the thesis of the considerable development of the import substitution.

The effect of devaluation can also be lower than expected taking into account the positive effect of such a process at the end of the 90-ies on the development of the domestic industry. It seems that the processes currently going and against ruble exchange rate decreasing in the environment of current economic crisis have not had a positive effect on the situation of the Russian economy and the dynamics of its foreign economic connections yet. The conclusion that follows is that without deep structural modernization Russia will not be able to solve the strategic challenges it faces, including those in the field of external economy. These reforms are to be started immediately taking into account the fact that many countries will come out of the crisis with renovated and more competitive economies, which will result in the change in the positions in the world trade with goods and services.

Table LEADING EXPORTERS AND IMPORTERS IN WORLD TRADE WITH GOODS IN 2008 (AS USD BILLION AND AS PERCENTAGE) Change Change on the Importing on the Exporting countries Volume Share Volume Share previous year countries previous year 12 3 4 5 6 78 1 Germany 1465 9.1 11 1 USA 2166 13.2 2 China 1428 8.9 17 2 Germany 1206 7.3 1 On current situation in the economy of the Russian Federation as a result of the 1st quarter 2009, Ministry of Economic Development of the Russian Federation, April 27, 2009, p.5, www. economy.gov.ru 2 For more details see V. Mau Devaluation in 1998 and 2009: different conditions, Vedomosti, April 17, RUSSIAN ECONOMY: TRENDS AND PERSPECTIVES Table 3, contd 12 3 4 5 6 78 3 USA 1301 8.1 12 3 China 1133 6.9 4 Japan 782 4.9 10 4 Japan 762 4.6 5 Netherlands 634 3.9 15 5 France 708 4.3 6 France 609 3.8 10 6 UK 632 3.8 7 Italy 540 3.3 10 7 Netherlands 574 3.5 8 Belgium 477 3.0 10 8 Italy 556 3.4 9 Russian Federation 472 2.9 33 9 Belgium 470 2.9 10 UK 458 2.8 4 10 Republic of Korea 435 2.7 11 Canada 456 2.8 8 11 Canada 418 2.5 12 Republic of Korea 422 2.6 14 12 Spain 402 2.5 13 Hong Kong, China 370 2.3 6 13 Hong Kong, China 393 2.4 - export supplies of - import for inter17 0.1 - 98 0.6 domestic goods nal consumption - re-export 353 2.2 14 Singapore 338 2.1 13 14 Mexico 323 2.0 - export supplies of 176 1.1 domestic goods - re-export 162 1.0 15 Saudi Arabia1 329 2.0 40 15 Singapore 320 1.9 - import for internal consumption 2 157 1.0 Russian Federa16 Mexico 292 1.8 7 16 292 1.8 tion17 Spain 268 1.7 6 17 India 292 1.8 18 Taiwan (China) 256 1.6 4 18 Taiwan, China 240 1.5 19 United Arab Emirates 1 232 1.4 28 19 Poland 204 1.2 20 Switzerland 200 1.2 16 20 Turkey 202 1.2 21 Malaysia 200 1.2 13 21 Australia 200 1.2 22 Brazil 198 1.2 23 22 Austria 184 1.1 23 Australia 187 1.2 33 23 Switzerland 183 1.1 24 Sweden 184 1.1 9 24 Brazil 183 1.1 25 Austria 182 1.1 11 25 Thailand 179 1.1 26 India 179 1.1 22 26 Sweden 167 1.0 United Arab Emir27 Thailand 178 1.1 17 27 159 1.0 ates 28 Poland 168 1.0 20 28 Malaysia 157 1.0 29 Norway 168 1.0 23 29 Czech Republic 142 0.9 30 Czech Republic 147 0.9 20 30 Indonesia 126 0.8 Total for Total for 30 countries4 13120 81.4 countries4 13409 81.7 World import, World export, total4 16127 100.0 15 16415 100.0 total1) Import for Singapore internal consumption is import deduced by re-export 2) Estimation by WTO Secretariat 3) Import in FOB prices 4) Including considerable re-export or import with the purpose of re-export Source: WTO Secretariat, Press release, PRESS/554, Geneva 24 March 2009, p.(Appendix table 3 Merchandise trade: leading exporters and importers, 2008) RESULTS OF WORLD TRADE WITH GOODS AND SERVICES...

Table LEADING EXPORTERS AND IMPORTERS IN WORLD TRADE WITH SERVICES IN (AS USD BILLION AND AS PERCENTAGE) Change on Change on Exporting Importing Volume Share the previous Volume Share the previous countries countries year year 1 USA 522 14.0 10 1 USA 364 10.5 2 UK 283 7.6 2 2 Germany 285 8.2 3 Germany 235 6.3 11 3 UK 199 5.7 4 France 153 4.1 6 4 Japan 166 4.8 5 Japan 144 3.9 13 5 China 152 4.4 6 Spain 143 3.8 11 6 France 137 3.9 7 China 1 137 3.7 - 7 Italy 132 3.8 8 Italy 123 3.3 12 8 Spain 108 3.1 9 India 1 106 2.8 - 9 Ireland 1 103 3.0 Republic of 10 Netherlands 1 102 2.7 8 10 93 2.7 Korea 11 Ireland 1 96 2.6 8 11 Netherlands 1 92 2.6 Hong Kong, 12 91 2.4 9 12 India 1 91 2.6 China 13 Belgium 1 89 2.4 16 13 Canada 84 2.4 14 Switzerland 74 2.0 15 14 Belgium 1 84 2.4 Republic of 15 74 2.0 20 15 Singapore 76 2.2 Korea Russian 16 Denmark 72 1.9 17 16 75 2.2 Federation 17 Singapore 72 1.9 3 17 Denmark 62 1.8 18 Sweden 71 1.9 13 18 Sweden 54 1.6 19 Luxemburg 1 68 1.8 5 19 Thailand 46 1.3 20 Canada 62 1.7 2 20 Australia 45 1.3 21 Austria 62 1.7 12 21 Brazil 44 1.3 Russian Hong Kong, 22 50 1.3 29 22 44 1.3 Federation China 23 Greece 50 1.3 16 23 Norway 44 1.3 24 Norway 46 1.2 13 24 Austria 42 1.2 25 Australia 46 1.2 15 25 Luxemburg 1 40 1.2 26 Poland 35 0.9 20 26 Switzerland 37 1.1 United Arab 27 Turkey 34 0.9 22 27 Emirates1 35 1.Taiwan, 28 34 0.9 8 28 Saudi Arabia 34 1.0 (China) Taiwan, 29 Thailand 33 0.9 11 29 34 1.0 -(China) 30 Malaysia 30 0.8 5 30 Poland 30 0.9 Total for 30 Total for - countries4 3135 84.1 countries4 2835 81.World export, World imtotal4 3730 100.0 11 port, total4 3470 100.estimation by WTO secretariat Source: WTO Secretariat, Press release, PRESS/554, Geneva 24 March 2009, p.(Appendix table 5 Leading exporters and importers in world trade in commercial services, 2008) RUSSIAN ECONOMY: TRENDS AND PERSPECTIVES SOME ASPECTS OF IMPROVEMENT OF MEASURES TO CONTROL TRANSFER PRICING N.Kornienko The article was prepared on the basis of the OECD Guidelines on Transfer Pricing, also taking into account the legislation and the practical experience of other countries.

This article can be of interest for anyone making foreign-trade operations and operations with the companies interdependent with it, that is with the entities it controls or the entities that control it really or legally. In 2007 the Ministry of Finance of the Russian Federation promulgated the bill suggesting the significant change made to the statements of articles 20 and 40 of the Tax Code of the Russian Federation. The text of the bill was simultaneously published at the site of the Ministry of Finance of the Russian Federation for all concerned persons to discuss. The changes continued to be made in the bill up to April 2009 and the debates on it were rather heated. The present article considers the changes in the control of transfer pricing suggested by the Ministry of Finance of the Russian Federation comparing them with the existing statements of articles 20 ad 40 of the Tax Code of the Russian Federation and with the leading world experience in this sphere.

The proposed bill follows the guidelines of the Organization for Economic Cooperation and Development (further, OECD).1 The legislation on the control over transfer pricing of the majority of the countries, including the major trading partners of the Russian Federation (EU countries, Kazakhstan, the USA etc.) was developed taking into account these guidelines.

The following can be regarded as main characteristics of the bill:

Defining of interdependent persons;

Introduction of closed list of the controlled deals;

Change in the methods for estimation (transparent and detailed methodology, introduction of interquartile range, list of methods is supplemented by two methods based on the profit;

Introduction of preliminary agreements on pricing;

Granting the right to prove the applied method of pricing by documents;

Introduction of new system of the tax-payers responsibility.

When the control over transfer pricing is mentioned, several questions normally arise.

When should the statements on transfer pricing be applied What is the meaning of the control as a legal term and what does the category interdependent/dependent/ controlled parties mean How should one search for comparable figures How should one apply the methods based on the analysis and estimation of the profit According to the international practice it is mainly the principle, according to which for the taxation bodies to be able to re-calculate the taxes in order to prevent evasion from taxes or to duly reflect the real sum of incomes the deals are to be made between the interdependent entities. This principle is used by the existing versions of articles 20 and of the Tax Code of the Russian Federation, and it is also preserved in the bill suggested 1 Transfer pricing Guidelines for multinational enterprises and tax administrations), approved by the Committee on Fiscal Affairs, June 27, 1995 (hereinafter, Guidelines) SOME ASPECTS OF IMPROVEMENT OF MEASURES...

by the Ministry of Finance. At the same time the bill specifies and enhances the concept of interdependence, introducing, for instance, the right for the tax-payer to recognize itself as interdependent as counteragent, if there are grounds for it in case they are not envisaged directly in the article of the bill.

Usually the foreign legislation follows several criteria for recognition of the entities as interdependent for the purposes of taxation. The most widely spread criterion of the interdependence of the entities is the participation in the stock capital. In case there is no participation in the stock capital the parties can be recognized as interdependent if two or more persons act in coordination towards the organization they own together but do not control and/ or one of the entities in fact controls the other. For this purpose the legislation of the country usually includes a legal concept for recognition of interdependent/ controlled/ dependent entities, which account for the practical concepts of interdependent/ controlled/ dependent entities. Normally it is the fact of existence of controlling/ interdependent relations that has the crucial significance rather than the form of their realization. For instance, the following examples of ownership are regarded as factual joint control:

Stocks, directly or indirectly belonging to the corporation, society or trustee fund are considered to belong to stockholders, participants or beneficiaries in proportion to the share of participation of each in the corporation, society or trustee fund;

Natural person is regarded as an owner of stocks directly or indirectly belonging to his family (for example, brothers, sisters, spouse, relatives in the line of the ascent and direct descendants);

One or more chains of corporations connected by the participation in stock capital with one associated company, on condition that more than N% of stocks of each corporation belong to one or more other corporations etc.

It should be noted that the volume of the ownership can differ from country to country from 5% to 100%.

However in contrast to widespread international practice the bill is not limited by the control only over the deals between the interdependent entities, it also suggests closed list of the controlled deals, which, on the one hand, will narrow the sphere of control when compared with the existing version of article 40 of the Tax Code of the Russian Federation, but enhances it when compared wit the international practice. The matter concerns the ability of taxation bodies to control the correctness of prices in the majority of foreign trade deals, for which type of the deals the deals with the world exchange goods, intellectual property as well as trade with services are ascribed. The deals with the jurisdiction of the lowered taxation which are to be defined according to the list approved by the Ministry of Finance of the Russian Federation call for special attention. It should be noted that the introduction of the deals with the off-shore jurisdiction in the list of controlled deals is somewhat a support for the joint efforts of OECD member countries to struggle against the withdrawal of the incomes in the zones of the lowered taxation.

Undoubtedly, the abolition of the total control over all the deals whose price deviate by 20% to some direction will somewhat alleviate administrative and taxation burden on both the tax-payers and the taxation bodies.

The question on what deals are to be controlled with regard to the correct pricing is solved differently in different countries. Even within the association of OECD member countries there is no single solution to this problem. There are various combinations, some countries control not only the deals between the interdependent, but also between the independent entities but with exchange goods. However there is a unanimous intention to control the deals with off-shore jurisdictions.

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