Tax Consolidation

The law on tax consolidation, a special regime which treats a group of majority-owned companies as a single entity for tax purposes, has been adopted by the State Duma. The law seeks to mitigate the impact of the new law on transfer pricing for very large companies.

The eligibility threshold has been set so high that only few very large companies will be able to benefit from this new establishment.

To consolidate, a group must have paid at least 10 billion roubles ($3.5 billion) of federal taxes in the preceding year with revenue exceeding 100 billion roubles ($35 billion) and total assets in excess of 300 billion roubles ($100 billion).

Consolidation will concern corporate income tax only. Losses in one company can reduce income tax in the whole group, while gains in one company will affect the others. The proportion of taxes paid by each group member will depend on its headcount (payroll) and the proportion of the value of its assets in relation to the group as a whole.

Consolidation is optional and revocable.

The law, subject to approval by the Federation Council and the President, will enter into force on 1 January 2012.