Social insurance contributions administered by the Federal Tax Service

By Elena Rybnikova, Head of Quality Control and Methodology

The consequences of late payment of social insurance contributions to the state budget were until recently negligible. Only a fine of 1/300 of the refinancing rate was imposed for such delay so the payment of social insurance contributions was often “postponed”.

Elena Rybnikova
Head of Internal Audit, Expertise and Methodology Department
As a result, social insurance contributions were accrued, and reports on social insurance contributions were submitted, but their payments were not transferred to the budget (source - Federal Tax Service, Pension Fund, Ministry of Finance, Vedomosti):
  • Contributions to Social Insurance Fund: RUR 3,9 billion
  • Contributions to Pension Fund: RUR 218,6 billion
  • Personal Income Tax: RUR 83,1 billion
Given that social funds have practically no leverage to collect contributions, the Russian Government has transferred the right and obligation to administer social insurance contributions to the Federal Tax Service. As a result, amendments have been introduced to the Russian Tax Code, and social insurance contributions are now treated as tax payments.

Part I and II of the Russian Tax Code has thus been amended by Federal Law N 243-FZ dated July 03, 2016 to transfer to tax authorities the authority to administer contributions for compulsory pension, social, and medical insurance.

Since January 01, 2017 the following contributions have been administered by the Federal Tax Service:

  • Insurance contributions for compulsory pension
  • Contributions for compulsory social insurance in case of temporary incapacity to work and maternity
  • Contributions for compulsory health insurance
The Social Insurance Fund will continue administering the contributions for compulsory social insurance against work-related accidents and occupational diseases (injuries) (contributions from which sick leave benefits are paid).

The insurance contribution rate has not changed and will remain at 30% (excluding injuries) until 2018 inclusive. Insurance contributions will continue to be collected from payroll (taxable payments and remuneration accrued by payers of social insurance contributions for individuals over an accounting period).

On June 07, 2017, the State Duma also adopted some clarifications to Federal Law On Compulsory Pension in the Russian Federation setting out that Russian IT organizations entitled to apply reduced rates will continue to benefit from the reduced rates for compulsory pension contributions until 2023 inclusive
The Russian Government had planned to increase the rate of compulsory insurance contributions to the Pension Fund from 22% to 26% from 2019 onwards. This would have increased the tax burden on companies but would have permitted a complete pension reform. However, given that the application of reduced rates has been extended for IT companies, it is doubtful that the rate will increase for other industries in the near future.

The administration of social insurance contributions was transferred on January 01, 2017, but this does not mean that everything before that date will not fall within the competence of the Federal Tax Service. The provisions of the Russian Tax Code are not applied retroactively, but they set out that tax audits consider accrued and paid taxes, as well as the reporting of such taxes for the three years preceding any tax audit. Upon receipt of data from the funds, the Federal Tax Service is therefore fully entitled to audit the accrual and payment of insurance contributions for 2014, 2015, and 2016.

It follows that companies with significant discrepancies in databases for personal income tax and social insurance contributions will be at risk of tax audit.

Heads of companies with arrears of social insurance contributions could have their bank accounts blocked and could be subject to heavy fines for non-payment of taxes as, unlike funds, the Federal Tax Service is entitled to impose such penalties. The transfer of information about arrears from funds to the Federal Tax Service is rather slow and far from smooth. Information is transferred erroneously, and arrears “appear” for payers with no arrears and “disappear” for payers who failed to pay the contributions when due.

Recommendation

Heads of companies should find out from their accounting department the amounts of social insurance contributions owed or overpaid before January 01, 2017. They should also take steps to update the data recorded in the tax accounting system of the Federal Tax Service, and if there are any arrears, pay off the amounts owed.

If arrears of social insurance contributions cannot be settled, companies should submit an application for debt restructuring to the Federal Tax Service.