Currently, group taxation legislation and regimes are not available in Belarus. Each Belarusian entity is regarded as a separate taxpayer and may not deduct tax losses of any other group entity. The Belarus Tax Code does not allow the deduction of foreign losses from domestic taxable income or domestic losses from foreign taxable income.
The Tax Code empowers tax authorities to carry out transfer pricing control. Taxpayers should be aware of the following:
- The tax authorities of Belarus are entitled to apply the market price of the transaction for tax purposes in case of:
- Selling or acquisition of immovable property/real estate, as well as housing bonds, committed with a related party or by the taxpayer applying special tax treatments.
- Entering into foreign trade transactions with a related party or a party located in an offshore zone, including the transactions performed with the participation of an intermediary under certain conditions, as well as entering into a transaction with an interdependent Belarusian tax resident, who is allowed not to calculate and pay CIT (is exempt from CIT), when the transaction price (price of a number of transactions with one person during the period of a calendar year) exceeds BYN 2 million (for large taxpayers) and BYN 400,000 (for other taxpayers).
- Entering into foreign trade transactions on purchasing/acquisition of goods included into the list of strategic goods determined by the Belarusian government, when the transaction price (price of a number of transactions with one person during the period of a calendar year) exceeds BYN 2 million.
- The following transactions do not fall upon transfer pricing rules:
- Transactions on sale or purchase of goods (works, services) or property rights if the price of the transaction is determined in an international treaty signed by the Republic of Belarus.
- Alienation of the pledged real estate to the bank.
- Operations with securities and financial future instruments that are traded on the organised stock market.
- Revenue derived from the sale of goods (works, services), as well as expenses for production and sale of goods (works, services), is to be defined for the purposes of the application of transfer pricing rules.
- Taxpayers are obligated to:
- Inform the tax authorities, by means of electronic VAT invoices, of the transactions that fall under the transfer pricing control.
- Submit transfer pricing documentation in the established form. This means that Belarusian companies belonging to multinational groups should prepare separate transfer pricing documentation completed in accordance with the Belarusian rules in addition to, e.g., the OECD Master/Local file.
- Upon the request of the tax authorities, submit the transfer pricing documentation with regard to (i) foreign trade transactions on purchasing/acquisition of goods included into the list of strategic goods determined by the Belarusian government, and (ii) the foreign trade transactions performed by the entities included into the list of largest taxpayers, when the transaction price (price of a number of transactions with one person during the period of a calendar year) exceeds BYN 2 million.
- Upon the request of the tax authorities, submit the economic justification of the price applied with regard to other transactions falling under the transfer pricing control and not listed as (i) and (ii) above.
- To determine the CIT base on the basis of a market price, the tax authorities are entitled to apply the following methods:
- Comparable uncontrolled price (CUP) method.
- Resale price method.
- Cost plus method.
- Transactional net margin method.
- Profit split method.
The updated transfer pricing rules, which came into force on 1 January 2019, provide for the possibility of concluding Advance Pricing Agreements (APAs) with the Ministry of Taxes and Duties of the Republic of Belarus. The conclusion of such APA between tax authorities and taxpayers is widely used in the world practice of transfer pricing. The right to enter into an APA is granted exclusively for (i) the largest taxpayers and (ii) taxpayers that performed controlled transactions in excess of BYN 2 million.
Subject to thin capitalisation rules, deductibility of controlled debt may be, in certain circumstances, restricted for Belarusian CIT purposes if:
- it arises under the contract with a foreign shareholder (who directly or indirectly owns more than 20% of the Belarusian company), its related party, or other entity where the foreign shareholder or the related party is the guarantor with regard to the controlled debt, and
- the amount of the controlled debt exceeds:
- the difference between the Belarusian taxpayer’s assets and liabilities for taxpayers producing excisable goods, or
- the difference between the Belarusian taxpayer’s assets and liabilities by three or more times for other taxpayers.
The following expenses are regarded for thin capitalisation rules as controlled debt:
- Borrowing expenses (i.e. interests).
- Expenses for engineering services, marketing services, consulting services, information services, management services, intermediary services, and services involving searching for and employment of staff, as well as the fee for the transfer of property rights to objects of industrial property rights.
- Expenses for penalties (fines) and the amount payable as a result of other sanctions, including as a result of damages for breach of contractual obligations.
Moreover, since 1 January 2019, Belarusian tax law has established unified rules to determine controlled debt before Belarusian and foreign shareholders (their affiliates). Accordingly, controlled debt structures and limits are the same for Belarusian/foreign shareholders (their affiliates). Under renewed rules, debt structure and the debt-to-equity ratio (3:1) that applied to debts for foreign shareholders/their affiliates before 2019 are extrapolated to any controlled debt. Peculiarities of controlled debt types in Belarus have remained; not only interest, but also expenses for certain services (e.g. marketing, management, outsourcing), royalties, and penalties/other contractual sanctions, are subject to thin capitalisation rules. When calculating capitalisation coefficient, controlled debt is calculated as the aggregate of all debts before all creditors. Under the Tax Code, controlled debt includes currency differences that emerge when re-evaluating debts denominated in foreign currency.
The thin capitalisation rules are not applied by (i) banks, (ii) insurance companies, and (iii) companies (lessors and finance lessors) as a result of receiving rent remuneration that does not exceed 50% of total income from sale of goods (works, services) or property rights and income from rent (finance rent) as of 31 December of the reporting tax period.
Controlled foreign companies (CFCs)
There are no provisions in relation to CFCs in Belarus.