Review of changes in the Tax Code

By Oksana Bocharova, Deputy Chief Operating Officer

Below you will find a review of the changes in the Russian Tax Code. Many amendments will become effective already in September and October this year (Federal Law N 302-FZ dated August 03, 2018).

Oksana Bocharova
Deputy Chief Operating Officer

Amendments effective from September 2018

1. Faster VAT refund

The term for conducting desk audits has been reduced from three to two months. Tax returns submitted after September 04, 2018 will be verified rapidly. Tax authorities will still be able to extend the audit term by one month if they suspect that a taxpayer has failed to comply with the law.

2. More detailed information on what is to be verified in case of repeat field audit

The current provisions in the Tax Code limits only the period reviewed by tax inspectors in case of repeat audit. What tax inspectors are entitled to verify has now been determined. Inspectors will be able to determine whether tax has been calculated properly based on the indicators adjusted by revised tax returns, and they will verify the indicators decreasing the amount of payable tax or increasing losses.

This amendment entered into force on September 03, 2018.

3. Inspectors to hand in a copy of interview minutes to witnesses

If, from September 03, 2018 onwards, your employees are interviewed as witnesses, ask them to get a copy of the interview minutes. Inspectors are currently not required to provide a copy of interview minutes to witnesses even if they request it. Obtaining such copy will allow to better prepare for disputes with tax authorities, if any.

This amendment entered into force on September 03, 2018.

4. Inspectors repeatedly request the same documents

The law sets out how to proceed when inspectors request yet again the same documents and information. In such case, tax authorities should be notified that the documents have already been submitted. Such notification must be done within 10 working days of receipt of the request from tax authorities. Where the requested documents were submitted and the details of the document with which you sent them should be specified in the notice.

This amendment entered into force on September 03, 2018.

5. More time to submit to tax authorities the documents for a specific transaction

The time period for submission of documents for a specific transaction has doubled, from 5 to 10 working days. This time period is calculated from the date of receipt of the request from tax authorities. If no documents and information are available, this should be reported to tax authorities within the same time period.

This amendment entered into force on September 03, 2018.

6. What inspectors find with additional measures of tax control will be easier to understand

Inspectors will have to draw up a document in addition to tax audit reports when they apply additional measures of tax control (document request, witness interview and expert examination). Inspectors do not currently draw up such document so it is difficult to understand exactly the claims they make.

Inspectors will have to submit this additional document to taxpayers within 5 working days of its issuance. They will also be required to attach to this document the materials they found after using additional measures of tax control.

Objections to this additional document may be submitted within 15 working days of its receipt.

These new rules will apply to inspections completed after September 03, 2018.

7. Review of materials from audits and additional measures of tax control before their examination

This amendment should exclude the cases where tax authorities offer to review documents on the date of examination of materials. Now, if taxpayers are not given the opportunity to review evidence before it is examined, it will not be considered during the examination.

These new rules will apply to inspections completed after September 03, 2018.

Amendments effective from October 2018

1. No VAT on prepayments for transfer of property rights

The payment of VAT on prepayments for transfer of some property rights (for example, transfer of rights to residential buildings, garages and parking spaces) is currently a disputed issue. The Ministry of Finance insists that VAT must be calculated on the full amount of prepayment received, and tax paid on the transfer of property rights cannot be deducted but can only be refunded or set off.

Some experts consider that VAT should not be charged on such prepayments and should be paid only once upon transfer of property rights.

This issue has now been settled, and prepayments will be subject to VAT. The tax base will consist of the difference between the prepayment and the expenses incurred to acquire rights rather than the entire prepayment. The amount of expenses will be determined in proportion to the prepayment share.

The VAT paid on prepayments for transfer of property rights will be deductible.

This amendment will enter into force on October 01, 2018.

2. Zero-rate VAT can be confirmed by a contract with a Russian organization

At present, it is necessary to have a contract or copy of contract with a foreign organization to confirm zero-rate VAT. This requirement is difficult to fulfill when goods are shipped to foreign separate subdivisions of Russian legal entities.

This problem will be resolved as it will be possible to confirm zero-rate VAT by submitting a contract or a copy of contract with a Russian company. Such contract should provide that goods are to be delivered to a company’s separate subdivision located outside the Eurasian Economic Union.

This rule will apply to goods sold for export from October 01, 2018.

3. No need for shipping documents to confirm zero-rate VAT upon export

It will be easier for exporters to confirm zero-rate VAT as it will not be necessary to submit documents confirming the export of goods from Russia. It will be possible to do so upon export to the Eurasian Economic Union if import applications and payment of indirect taxes are made electronically. Tax authorities will liaise with customs authorities to get information on export. Shipping documents, however, should be kept and stored as tax authorities could still request them.

This rule will apply to goods sold for export from October 01, 2018.

4. No need to re-submit contracts for confirmation of zero-rate VAT

If a contract has already been submitted to tax authorities to confirm zero-rate VAT for previous tax periods, then it will not be necessary to re-submit it, but in such case, a notice should be sent to tax authorities instead. This notice should specify the details of the document with which the contract was submitted and the tax office to which it was sent.

This rule will apply to goods sold for export from October 01, 2018.

General

1. No need to pay tax on movable property

Movable property will no longer be taxed from 2019 onwards. Each region will now decide whether or not tax will be imposed as well as the tax rate.

2. Fewer controlled transactions

The number of controlled transactions will be decreased:

  • Domestic transactions worth over RUB 1 billion are no longer subject to transfer pricing rules;
  • The 60 million and 100 million thresholds for domestic controlled transactions will be raised. Transactions with revenues exceeding RUB 1 billion will be deemed controlled transactions;
  • Controlled transactions through intermediaries and transactions with related foreign parties will be controlled if their annual revenues exceed RUB 60 million. Such transactions are currently controlled regardless of their revenue amount.

From 2019 onwards, it will not be necessary to report revenues and expenses for the transactions listed above regardless of the date of conclusion of the contracts for these transactions.

3. More organizations will be eligible to apply for VAT refund

The amount of taxes paid by organizations to be eligible for VAT refund will decrease from RUB 7 to RUB 2 billion. This requirement will also apply to guarantors. The amount of liability under guarantee will increase from 20% to 50% of net asset value. This is will be a positive change for guarantors who will be able to issue more guarantees.

These amendments will apply to the tax returns for the 4th quarter of 2018.

4. Some companies will have to pay more profit tax to regional budget

It will be possible to pay tax at the reduced rates set by regional authorities before January 01, 2018 until the end of the validity term for those rates, but no later than January 01, 2023. Regions will be able to raise tax rates before.

From 2019 onwards, regions will no longer be able to set reduced tax rates, and they will be able to do so only in certain cases (for example, for special economic zone residents).