Efficiency Analysis of Russian Transfer Pricing Rules with Relation to Conflict of Interests Between Government and Corporations

Abstract

This paper examines the problem of optimal transfer pricing in Russian corporations and a conflict of interests between tax authorities and corporations based on the impact of optimal transfer pricing behavior on corporate tax burden. Authors elaborate economical model and use game theory approach in its analysis. This model considers the most important specific rules of Russian transfer pricing regime, such as a possibility of transfer price 20% deviation from the «arm’s length rule» and existence of priority rules in application of transfer pricing methods. Authors analyze a basis of confrontation between corporations and tax authorities and try to reveal internal deficiencies of current transfer pricing regime in Russian Federation.