The Russian tax system is currently undergoing material changes in different spheres crystallised in a number of new laws adopted during this summer, including Federal law No. 302-FZ* and Federal law No. 303-FZ*.
This analysis focuses on key changes relating to transfer pricing, VAT, corporate profits tax and property tax.
Most provisions introduced by the new laws will enter into force on 1 January 2019 with the exception of specific cases indicated below.
Law No. 302-FZ abolishes general transfer pricing control over domestic intragroup transactions, except for specific cases that includes transactions where:
- the parties apply different corporate profits tax rates;
- one of the parties benefits from specific tax regimes or certain types of tax incentives;
- one of the parties is the taxpayer of the mineral extraction tax.
The yearly threshold for domestic intragroup transactions to be recognised as controlled for transfer pricing purposes has been established at RUB 1bn (EUR 12.90m), instead of the previous thresholds of RUB 60m to RUB 100m (EUR 771,700 to EUR 1.29m), depending on the grounds for transfer pricing control.
Law No. 302-FZ also establishes the yearly threshold of RUB 60m (EUR 771,700) for cross-border intragroup flows between related parties to be recognised as controlled for transfer pricing purposes. (Previously, all cross-border intragroup transactions were subject to transfer pricing control in Russia, irrespective of their amounts.)
In practice, however, Russian tax authorities may still seek to exercise control over prices in intragroup flows that do not formally fall under transfer pricing control on other grounds, including the “unjustified tax benefit” concept, which can be a powerful tool for tax controls.
Law No. 303-FZ increases the general VAT rate from 18% to 20%. Accordingly, the estimated VAT rate will increase from 15.25% to 16.67%.
As a result of these changes, it is recommended that businesses conduct reviews of pricing terms in long-term contractual arrangements (noting fixed prices inclusive of VAT) in order to reduce the risk of disputes with Russian counterparties.
Other changes to VAT taxation implemented by Law No. 302-FZ coming into force on or before 1 October 2018 are aimed at amending VAT calculation and payment as well as VAT control procedures in Russia, and include:
- reducing the period for carrying out a desk audit to two months;
- increasing the term for filing documents for cross-audits at the request of the tax authorities;
- simplifying the procedure for justifying the 0% VAT rate on export operations;
- reducing the threshold amount from RUB 7bn (EUR 90.30m) to RUB 2bn (EUR 25.80m) for taxes paid in the three-year period granting the right for the declarative VAT refund procedure (accelerated refund).
Corporate profits tax
Regions of the Russian Federation lose their right to establish reduced corporate profits rates for certain categories of taxpayers unless special tax regimes prescribed under Russian tax law apply.
Reduced regional profits tax rates established before 1 January 2018 will apply until 2023 at the latest. Russian regions will also be entitled to increase the reduced corporate profits tax rates under pre-existing arrangements for the period 2019 to 2022.
These changes need to be taken into account for both planned and existing long-term investment projects in Russia.
Movable property is exempt from property taxation in Russia.
The full exemption of movable property from taxation is the ultimate step of Russia’s property tax simplification process.
These changes to Russian tax legislation, together with previously reported amendments (i.e. the tax on e-services and transfer pricing), create a new tax environment in Russia that introduces obligations for Russian taxpayers, but also enhances tax optimisation.
* In Russian