Numerous amendments to the Russian Tax Code came into force on 1st January, mostly related to the issuance of Russian Federal Law 401.FZ dated 30th November last year, which introduced some new concepts and clarified the existing taxation rules. The most important changes that may have impact on foreign investors are outlined as follows:
Third Party Tax Payment Permitted
The revised Tax Code now allows third parties to pay taxes of a taxpayer. This will solve several problems faced by corporate taxpayers. It will be useful for example in cases when a taxpayer’s account is frozen in connection with the revocation of its bank’s licence or if the account is blocked by the tax authorities. Similar problems also occur with payments of taxes when an organisation, which is liquidated, closes its accounts, and unpaid taxes are discovered in the course of preparation of its liquidation balance sheet. It should, however, be noted that third parties who have paid taxes of another person will not be entitled to a refund of the amounts paid from the public funds.
Late Payment Penalties Increased
Taxpayers should pay attention to the increase in the size of penalties for organisations in case of payment of taxes and fees at a date later than that provided by the Tax Code. This means that when a tax payment is overdue by more than 30 days, the interest rate from the 31st day will be 1/150th of the Russian Central Bank’s key rate (this rate is currently 10%) for each day of delay. For commercial entities for the first 30 days of the delay, the old rules will apply – 1/300th of the Central Bank’s key rate for each day of delay. The increase in the size of the penalty will make it unprofitable for taxpayers to “borrow” from the state by failing to pay their taxes and fees on time.
Restrictions on Permitted Operational Losses
The new amendments also implement the Ministry of Finance’s initiative to limit the recognition of the losses generated in the previous tax periods. Under the new rules, from 2017 to 2020 inclusive, the amount of recognized losses cannot exceed 50% of the tax base of the current period. Meanwhile, the ten-year limit for carrying the losses forward has been abolished.
Transfer Pricing Regulations Loosened
Transactions to provide independent guarantees between related parties (including between non-credit organisations) will not, from now on, be subject to the transfer pricing rules. Moreover, it is now expressly stipulated that the provision of independent guarantees to non-credit institutions is not subject to VAT. In addition, the provision of interest-free loans between Russian related companies is no longer subject to control within Russia’s transfer pricing framework.
Tax Hikes for Alcohol, Tobacco & Fuel
In addition, the rates of excise duties on petrol, alcohol and tobacco products have increased from the beginning of the year. This will impact many Russians directly and in the case of petrol, businesses with large haulage bills.
In light of the numerous amendments to the Tax Code, we recommend taxpayers to assess the possible impact of these developments on their activities, and if necessary, make the appropriate changes to the internal policies of their organisations. Please email to firstname.lastname@example.org for assistance or clarification on these matters.
- Implementing Internal Policies in Russia
This issue of Russia Briefing discusses internal audit, covering topics including health and safety standards, compliance, HR standards, and security regulations. A couple of years ago, legislation introduced obligatory internal controls for each and every company operating in Russia. An internal audit is the ideal tool for checking whether a company has not only set up such rules, but also adheres to them in its daily business operation.