Liniya Prava Law Firm is pleased to announce the brief review of the key tendencies in Russian tax policy for 2014 and for the target period of 2015 and 2016 published by the Russian Ministry of Finance.

Financial Transactions Taxation

  1. The Ministry of Finance resolved the issue on taxation of income from Eurobonds exempted prior to January 1, 2014. Foreign companies’ income both from Eurobonds and from Russian compulsory centrally- deposited corporate bonds shall be exempted from profits tax, provided that such a foreign company is the beneficial owner of the income and is not a tax resident of lowtax (offshore) jurisdictions;
  2. Income (losses) from securities transactions shall be determined on the basis of the actual deal value, while transfer pricing rules shall only apply to the transactions entered into by associated parties;
  3. Income (losses) from traded derivatives and securities transactions shall be aggregated with income (losses) derived from the main activities, while income (losses) from non-traded derivatives and securities transactions shall be accounted separately;
  4. The list of taxpayers able to aggregate income (losses) from non-traded derivatives and securities transactions with income (losses) derived from the main activities shall be expanded;
  5. REPO transactions shall be treated as sale (purchase) of securities in the case of failure to repurchase. In such a case income (losses) accounted as repo ones shall be adjusted in the period of such requalification of the transaction;
  6. A limiting deductible interest rate shall be established for profits tax purposes. In case an amount of interest exceeds such rate, transfer pricing rules shall apply. Otherwise, the respective rules shall not be applied, or the application shall be limited.

Trading Activities Taxation

It is being suggested setting up the conditions, when retail companies which provide consumers with a free access to the goods shall be able to deduct losses different from both natural loss of goods and losses caused by shoplifting.

The respective losses shall be deductible in case they do not exceed 0.75 per cent from the company’s sale revenue.

Our comments:

In September 2012, the Russian Constitutional Court clarified1 that the Russian Tax Code does not specify which documents shall confirm lack of persons found guilty of a taxpayer’s shortages for the purposes of deductibility of respective losses2.

Also, according to the Draft Law No 254686- 6 the expenses related to shortages revealed after an inventory shall be deductible provided that:

  • losses do not exceed 0.75 per cent from the company’s sale revenue;
  • revenue from the self-service sale of goods is not less than 70 per cent from the total retail revenue;
  • an audit firm confirms the company’s compliance with internal requirements on inventories accounting and control;
  • an inventory shortages report is prepared. However, please note that the State Duma Tax and Budget Committee recommended to reject the respective Draft Law.

Cost Sharing

MNCs shall be able to deduct intra-group expenses on the basis of cost sharing agreements. The respective rules shall be developed based on OECD Guidelines3.

Corporate Property Taxation

A regional corporate property tax establishing a cadaster value as a tax base shall be implemented

Anti-Offshore Tax Avoidance

  1. Development of legislation on both CFC and beneficial ownership concepts shall be continued.

Our comments:

Please note that OECD is to revise Commentary to Model Tax Convention regarding a definition of beneficiary by 2014.

  1. A Model Intergovernmental Agreement on exchange of tax information between Russia and offshore jurisdictions shall be developed, and relevant negotiations shall be held. The Agreement shall provide an opportunity for Russian tax authorities to participate in tax audit procedures abroad, and the same opportunity shall be provided to the representatives of tax authorities of foreign jurisdictions on a mutual basis.
  2. New definition of tax residency shall be implemented in the Tax Code;
  3. Rules on taxation of income from sale of stock (shares) in Russian real estate companies shall be modified.

Pension, Medical and Social Insurance Contributions

Most of social security contributions payers shall continue to apply 30% rate till 2016. Also, some payers shall lose a right to some respective benefits applicable at the moment.

Tax Administration

  1. Export and domestic input VAT offset procedures shall be unified;
  2. For VAT purposes, the place of supply of telecommunication services including ones related to acceptance, processing, maintenance, transfer, delivery of telecommunication messages shall be determined as the place of a buyer’s business activity rather than of a supplier, as set forth at the moment;
  3. Tax authorities powers shall be expanded with respect to the cases of conducting desk tax audits of profits tax returns reporting on losses, or amended VAT returns reporting on reduce of respective amounts to be paid;
  4. For the purposes of conducting desk tax audits of amended tax returns reporting on reduce of tax to be paid, which were filed in two years since filing an initial tax return, tax authorities shall be able to request for primary documents supporting such a reduce of tax;
  5. Rules on tax registration of mutual investment fund management companies and companies responsible for a tax consolidated group shall be specified;
  6. For the avoidance of doubts, rules on VAT offset shall be specified in accordance with rules on limiting expenses deductible for profits tax purposes (e.g., advertising, maintenance of workers' and constructions camps, etc.).