Automotive News

March 2019 Table of contents

Introduction 4 Background

Government support initiatives 5 Government support By 2024, industrial companies will receive RUB 258 billion in concessional loans 6 initiatives

The Ministry of Industry and Trade released amendments to the Government Recycling fee resolution that regulate the extension of subsidies to exporters to compensate their transportation costs 6 Customs regulations New regulation of subsidies to Russian car makers to partially compensate the costs of production of wheeled vehicles and associated components 6 Track and trace SPIC 2.0 projects might be suspended 6 (T&T) and paperless procedures Ministry of Industry and Trade and GAZ Group sign SPIC to produce new models 7

The Ministry of Industry and Trade signed a SPIC with AVTOVAZ. The parties to Other federal the SPIC include companies of the Renault-Nissan-Mitsubishi alliance, Lada legislation news Izhevsk, and the governments of Samara Region, the Udmurt Republic, Moscow, Saint Petersburg, and Kaluga Region 7 Court practice (precedent cases) The Ministry of Industry and Trade signed a SPIC with Hyundai Motor Manufacturing Rus 7 Deloitte’s periodicals The Ministry of Industry and Trade called for refining the national strategy for car component industry 7 Contacts Dmitry Medvedev chaired the meeting on fostering agricultural machinery industry held at CLAAS machinery plant on 18 January 7

The Ministry of Industry and Trade calls for granting discounts to users of construction equipment and utility vehicles 8

The Ministry of Industry and Trade includes high-tech agricultural machinery into subsidised goods’ list 8

Recycling fee 9

A new bill adding environmental tax and recycling fee to the Tax Code is developed 10

Customs regulations 11

New rules for declaring goods illicitly imported in the EAEU 12

Track and trace (T&T) and paperless procedures 13 Background

EEC meeting on e-passports 14 Government support T&T for tyres 14 initiatives

Other federal legislation news 15 Recycling fee

Property tax exemption for movables 16 Customs regulations VAT rate increase to 20 percent & electronic services 16

Warranty repairs 16 Track and trace (T&T) and paperless procedures Court practice (precedent cases) 17

VAT refund (upon expiration of three years) 18 Other federal legislation news Recovery of VAT on spare parts used for creating a prototype 18

Property tax benefits for non-residential buildings of the High energy efficiency Court practice class 18 (precedent cases)

Treatment of expenses to advertise cars in car races 19 Deloitte’s periodicals

Lower withholding tax on interest reclassified into dividends 19 Contacts Use of the five-percent threshold for VAT on expenses from VAT exempt operations 20

Recovery of VAT on parts used for warranty repairs 20

Deloitte periodicals 21

Contacts 22

The end of 2018 saw a number of important changes in the regulatory environment, which primarily Background concerned the government support measures. From now on, concessional loans will replace the subsidies to industrial companies. Funds will be allocated to industrial exporters under the International Cooperation and Export projects via the Russian Foundation for Technological Government support Development, the Russian Export Centre, the Industry Development Fund, and the relevant financial initiatives institutions. The measures are implemented as part of the so-called “competitive growth programmes”, a long-term export-driven corporate development initiative. Despite the changes, a number of subsidies will remain, e.g. those compensating the industrial Recycling fee producers’ transportation costs, and a package of subsidies to partially compensate the electricity costs, warranty obligations, and workplace maintenance costs. In its subsidy policy, the Government specifically focuses on boosting production of the Russian Customs regulations agricultural machinery. Learn more about the new subsidy rules in the “Government support initiatives” section. Another Government’s plan calls for formalising the recycling fee in the Russian Tax Code: a bill to Track and trace that effect is currently pending with the lawmakers. For more details, please refer to the “Recycling (T&T) and paperless fee” section. procedures The enactment of amendments to Resolution of The Supreme Eurasian Economic Council No. 72 of 29 May 2014 “On applicability of the complete knock-down (CKD) regime in the Customs Union and Common Economic Space member states”, setting limits on the distribution of CKD vehicles with a Other federal localisation rate below 50 percent after 1 July 2018, was postponed indefinitely. To learn about the legislation news developments, please refer to the “Customs regulations” section. Priority measures ensuring introduction of electronic vehicle passports in the EAEU were approved. Court practice The national segments of the e-passport system are planned to have been tested by 1 November 2019, after which the system must go live across the EAEU. The Government also approved the (precedent cases) track-and-trace and labelling systems. Learn more in the “T&T and paperless procedures” section.

Deloitte’s periodicals Tatiana Kofanova Director Tax&Legal Contacts Automotive Group Leader [email protected]

Government support initiatives Government support Recycling fee initiatives Customs regulations Track and trace (T&T) and paperless procedures

Other federal legislation news

Court practice (precedent cases)

Deloitte’s periodicals

Contacts

Government support initiatives

By 2024, industrial effective measures. Over 2017- The subsidies will compensate companies will receive RUB 2018 (as at 1 December 2018), up to 90 percent of CKD Recycling fee 258 billion in concessional over 230 industrial producers acquisition costs (net of VAT), loans with average supplies exceeding incurred since 1 January 2018. RUB 408 bln were supported, Customs regulations According to the recent updates with an average multiplier effect The costs compensated through to the government support of the subsidies amounting to the programmes supporting policies introduced by the 1/19 (volume of exports per Euro IV- and Euro V-compliant Track and trace Ministry of Industry and Trade, vehicle manufacturers will be out each rouble spent). (T&T) and paperless such loans will replace the of the scope of these subsidies. subsidies to industrial However, due to the high procedures companies. Funds will be demand for the subsidies, the The Ministry of Industry and allocated to industrial exporters following rules were introduced: Trade is currently working on under the International a respective resolution for 2019. Other federal • sectoral limits Cooperation and Export projects SPIC 2.0 projects might be legislation news via the Russian Foundation for • limits per producer per suspended Technological Development. financial year Deputy Prime Minister Dmitry Court practice Allocation-wise, 40 percent of all • provision of subsidy is Kozak proposed suspending (precedent cases) loans will go to the mechanical conditional on meeting the work on the new special engineering companies with supply commitments investment contracts’ regime nearly a third of them, or 12 (including the new exports) (SPIC 2.0), advocated by the Deloitte’s periodicals percent of the entire and the previous subsidies’ Ministry of Industry and Trade, programme’s volume, effectiveness limiting their availability to the designated for the automotive car manufacturers that signed manufacturers. • minimum multiplier effect SPICs. Contacts requirements The Ministry of Industry and The current document is viewed Trade released amendments • additional incentives for as an interim version that might to the Government resolution achieving a particular either be turned down or that regulate the extension of multiplier effect value and subsequently replaced by subsidies to exporters to using the Russian the previous version, featuring compensate their transportation companies. a scoring system and R&D transportation costs New regulation of subsidies requirements, which the The amendments to Government to Russian car makers to manufacturers deem Resolution No. 496 of 26 April partially compensate the impracticable. Nevertheless, 2017 were developed in line with costs of production of the requirements to use the Government’s International wheeled vehicles and Russian-made engines, Cooperation and Export project associated components gearboxes, and body metal are and are aimed at streamlining preserved, but they cannot be the mechanism of The subsidies will be granted to complied with by all players. compensations of the industrial Russian-registered producers of producers’ transportation costs. wheeled vehicles or associated components that use imported Supporting the export-oriented completely knocked-down (CKD) companies by compensating kits (the “industrial assembly” their transportation costs is one regime). of the most popular and

Government support initiatives

Ministry of Industry and The Ministry of Industry and the car component strategy Trade and GAZ Group sign Trade signed a SPIC with agenda. One of the options is to Recycling fee SPIC to produce new models Hyundai Motor Manufacturing establish a PPP foundation that Rus would select projects for The Ministry of Industry and localisation investments. The Customs regulations Trade, Gaz Group, and the The contract worth RUB 16.6 bln idea appealed to the Ministry of government of Nizhny Novgorod is signed for ten years and Industry and Trade; however, it Region signed a special envisages investments from will be difficult to administrate Track and trace investment contract to produce other Hyundai Motor companies, and align with the Budgetary new vehicle models. e.g Hyundai WIA, the engine (T&T) and paperless Code. producer. The total investments procedures The contract signed until 2028 may reach up to RUB 35 bln. Dmitry Medvedev chaired the envisages the production of new The company committed to the meeting on fostering and the upgrade of the existing production of passenger cars, agricultural machinery Other federal vehicles, using GAZ’s production using Russian-made key industry held at CLAAS capacities. legislation news components: the engine, machinery plant on 18 According to the SPIC, over RUB automatic transmission, and January 20 billion will be invested in the control system elements. Other In 2018, Russian agricultural Court practice localised production of new obligations under the SPIC machinery producers received (precedent cases) vehicles and units with a high include export commitments and RUB 10 bln in subsidies, with export potential, in particular, R&D localisation. another RUB 8 bln allocated for light commercial vehicles and The Ministry of Industry and 2019. Dmitry Medvedev said modern diesel engines for LCVs. Deloitte’s periodicals Trade called for refining the that he had signed a resolution The Ministry of Industry and national strategy for car to streamline the subsidy rules. Trade signed a SPIC with component industry Prime Minister underlined that Contacts AVTOVAZ. The parties to the As the government subsidy domestic agricultural machinery SPIC include companies of policy is made stricter by was not only in demand on the the Renault-Nissan- Government Resolution No. 719 Russian market, but was sought Mitsubishi alliance, Lada of 2015, the car manufacturers after abroad, and the volume of Izhevsk, and the are not ready to attract suppliers exports kept growing. A decision governments of Samara to Russia to comply with the was made to allocate nearly RUB Region, the Udmurt Republic, statutory requirements and are 340 bln to support the export of Moscow, Saint Petersburg, waiting to be incentivised by the agricultural machinery until and Kaluga Region. Government. 2024. The contract is signed for 10 Thus, Andrey Kossov, head of According to Minister of Industry years and envisages over RUB AEB’s Committee of Car and Trade Denis Manturov, 70 billion in investments and Component Producers, explained Russian-made combine creating more than 2,300 new that importing a ready-made harvesters accounted for nearly jobs. SPIC commitments include catalytic converter at a zero 15 percent of the global market the localisation of global car import duty was cheaper than and high-power tractors – for up platforms and car operating producing one; furthermore, as to 25 percent, the figures also systems, production of engines, a particular model becomes driven by the government including the gas-operated ones, obsolete, retooling of production support initiatives, such as and continuously variable capacities would be required. producer discounts as per transmissions, and Government Resolution No. implementation of cloud The discussion of incentives to 1432. technologies. lure suppliers to Russia are currently on the table as part of © 2019 Deloitte Consulting LLC Automotive News 7 Background

Government support initiatives

The Ministry of Industry and The Ministry of Industry and Trade prepared amendments to Trade includes high-tech Recycling fee Resolution No. 719, aiming to agricultural machinery into foster the development of the subsidised goods’ list national component base and Customs regulations breakthrough technological To remind, the Russian solutions, thus laying ground for producers of agricultural the industry’s digitalisation, machinery are partially Track and trace subsidised for the costs incurred expected to increase the (T&T) and paperless from product buyback competitiveness of Russian procedures machines in the global market. guarantees. The Ministry of Industry and The subsidy rules are Trade calls for granting established by Government Other federal discounts to users of Resolution No.1269 of 24 legislation news construction equipment and October 2018. utility vehicles Court practice A draft resolution developed by the ministry provides for (precedent cases) compensating discounts offered by the Russian machinery manufacturers to the buyers of Deloitte’s periodicals road construction equipment, utility vehicles, logging machinery, and trailers. Contacts The discounts may reach 15 percent of a contract’s value, or 20 percent for remote regions.

Government support initiatives Recycling fee Recycling fee Customs regulations

Track and trace (T&T) and paperless procedures

Other federal legislation news

Court practice (precedent cases)

Deloitte’s periodicals

Contacts

Government support initiatives

A new bill adding Article 24 of Federal Law No. environmental tax and 89-FZ of 24 June 1998 “On Recycling fee recycling fee to the Tax Code Production and Consumer is developed Waste” requires payment of a recycling fee for each vehicle Customs regulations The new tax replaces the former imported into or produced in pollution charges, while a single the Russian Federation, recycling fee is introduced regardless of the purpose. Track and trace instead of the now-applicable (T&T) and paperless environmental and recycling fees. procedures

A more detailed review of the bill will follow shortly. Other federal legislation news

Court practice (precedent cases)

Deloitte’s periodicals

Contacts

Government support initiatives Customs regulations Recycling fee Customs regulations

Track and trace (T&T) and paperless procedures

Other federal legislation news

Court practice (precedent cases)

Deloitte’s periodicals

Contacts

Government support initiatives

Resolution of The Supreme New rules for declaring Eurasian Economic Council No. goods illicitly imported in the Recycling fee 72 of 29 May 2014 “On EAEU applicability of the complete knock-down (CKD) regime in the The document proposes enabling Customs regulations Customs Union and Common the declaration of goods and Economic Space member states” payment of customs duties and sets limits on the distribution of taxes by the buyers of such Track and trace goods identified by the customs CKD vehicles with a localisation (T&T) and paperless authorities. rate below 50 percent, starting procedures from 1 July 2018. Relevant declaration procedures The consideration of are enabled by Article 104 of amendments to Resolution No. Federal Law No. 289-FZ of 3 Other federal 72 was to take place earlier, but August 2018, but have not been legislation news was postponed indefinitely due formally established. to the reshuffling in the The buyers of illicitly imported Government of Belarus. Along goods will be able to file a Court practice with the postponement of the declaration with an authorised (precedent cases) localisation threshold increase, local customs body. the Eurasian Economic Commission (EEC) and the The document requires putting Deloitte’s periodicals Customs Union states’ ministries the code “НВТ” (NVT) in Box 7 are discussing the rules for of the declaration and listing the confirming the country origin, documents required for the say sources close to the matter. clearance of illicitly imported Contacts Alternatively, the Ministry of goods in Box 44. Economy lobbies against the postponement and have repeatedly reported their position to the EEC. With the production localisation rate for 90 percent of the vehicles hitting nearly 60 percent, Russia will have no trouble complying.

Government support initiatives Track and trace (T&T) Recycling fee and paperless Customs regulations Track and trace (T&T) and paperless procedures procedures

Other federal legislation news

Court practice (precedent cases)

Deloitte’s periodicals

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Government support initiatives

EEC meeting on e-passports T&T for tyres • the minimisation of labelling costs for all stakeholders Recycling fee Approval of priority measures The Government approves the must be ensured ensuring introduction of concept of the T&T and the electronic vehicle passports in labelling systems • every product item must be Customs regulations EAEU identified by a label The concept sets forth the tasks • The list includes nearly ten and objectives of the T&T and • all stages of a product’s life measures, to name but a few: the labelling systems, their key cycle, from the production or Track and trace parameters and requirements. import to retail sale, where (T&T) and paperless • designating an authority in cash register equipment is procedures each EAEU member state that Starting from 2019, labelling will used, must be recorded will oversee the be required for 10 categories of implementation on the inter- goods, including tyres and tyre • the Government will charge a Other federal country agreement on casings. fee for generating label codes uniform electronic vehicle legislation news passports The system will have the status • effective public control of the of a government database and labelled goods must be • appointing the national can be based on a public-private ensured. Court practice operators that will be partnership. (precedent cases) interacting with the EAEU Businesses will be obliged to administrator of the electronic The labelling and T&T processes label goods, submit data to the vehicle passport system will rest upon the following government database, and principles: install labelling and machine Deloitte’s periodicals • determining the rules for vision equipment to verify the creation and maintenance of • before requiring that a labels and aggregate goods into national segments of the particular category of goods multiple and/or transportation Contacts EAEU register of e-passport must be labelled, feasibility of packages. issuers and the methods of e- this must be analysed passport testing in the EAEU • labelling will be the • analysing the applicable responsibility of the parties regulations of the Eurasian involved in the production and Economic Commission for the distribution of goods necessary updates • mandatory data will be owned • testing the national segments by the state of the e-passport system by 1 • the use of labelled goods’ T&T November 2019, after which data for third parties’ the system must go live commercial purposes will be across the EAEU. banned

The governments of the EAEU • to test the mechanism’s states must ensure the efficiency, voluntary labelling implementation of the majority will be permitted of activities by Q4 2019.

Government support initiatives Other federal legislation Recycling fee news Customs regulations Track and trace (T&T) and paperless procedures

Other federal legislation news

Court practice (precedent cases)

Deloitte’s periodicals

Contacts

Government support initiatives

Property tax exemption for VAT rate increase to 20 Warranty repairs movables percent & electronic services Recycling fee Starting from 1 January 2019, Effective 1 January 2018, the VAT rate of 20% Sub-paragraph 13, Paragraph 2, movable property items as per Article 149 of the Russian Tax Customs regulations Paragraph 25, Article 381 of the By force of Federal Law No. 303- Code on free-of-charge repair Russian Tax Code that are not FZ, starting from 1 January and maintenance of goods, older than three years, as well 2019, the VAT rate was home appliances, including Track and trace as the property classified as increased to 20 percent for all medical devices, during the (T&T) and paperless innovative high-performing transactions. This will require warranty period, including the equipment, can enjoy additional companies to re-design their cost of spare parts and procedures regional tax benefits up to a full VAT invoices and adjust contract components, is no longer exemption. templates accordingly. applicable. Other federal The benefit was introduced in VAT on electronic services However, the provision on VAT legislation news 2018 by Moscow, Saint exemption for warranty repair Petersburg, and Leningrad Federal Law No. 335-FZ of 27 November 2018 introduced services will reappear in Sub- Region. paragraph 37, Paragraph 3, amendments to Article 174.2 of Court practice Article 149 of the Russian Tax The date of manufacture can be the Russian Tax Code, that (precedent cases) verified with technical passports, entered into effect on 1 January Code (cf. Article 2 of Law No. labels, product labels, Russian 2019. From that date onwards, 424-FZ of 27 November 2018). catalogues, catalogues of foreign foreign suppliers of e-services Therefore, the use of the benefit Deloitte’s periodicals publishers and other documents, must assess VAT themselves or will become voluntary. as well as based on the results have their agent(s) involved in of an independent examination, customer settlements do it for taking into account the following them. Contacts factors: By 15 February 2019, foreign • if the manufacturer indicated suppliers of e-services to only the year of manufacture, companies or individual 1 June will be taken for the entrepreneurs tax registered in product’s manufacture date Russia (including branches of • where the month and the foreign entities) were to file a year of manufacture are VAT registration request. VAT indicated, a product will be registration is mandatory even deemed produced on the 15th for the providers of VAT-exempt day of the indicated month services (e.g. software licensing). • if only the year of manufacture is indicated and a movable property item was purchased and recorded before 1 July, the acquisition date will be taken for the date of manufacture. Russian Ministry of Finance Letter No. 03-05-05/-01/68585 of 25 September 2018.

Government support initiatives Court practice Recycling fee (precedent cases) Customs regulations Track and trace (T&T) and paperless procedures

Other federal legislation news

Court practice (precedent cases)

Deloitte’s periodicals

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Government support initiatives

VAT refund (upon expiration third-party entity, which is infringed upon the attached of three years) confirmed by the relevant IP rights and the tax Recycling fee documents. authorities had rightfully Case No. А40-99400/2018 denied VAT recovery, citing In the tax authorities’ opinion, Customs regulations A portion of spare parts supplied the taxpayer’s failure to the company had performed comply with the key by the taxpayer was found VAT-exempt R&D, therefore, had defective after their importation requirement of Paragraph 2, wrongfully reclaimed VAT on the Article 171 of the Russian Tax Track and trace to Belarus and payment of purchase of the spare parts used Code. (T&T) and paperless import VAT. Having recalled the in the project. defective products, the taxpayer Property tax benefits for non- procedures filed a downward-adjusted tax The court cited that: residential buildings of the return and claimed a refund of 1) Pursuant to Article 769 of the High energy efficiency class the overpaid VAT. Other federal Russian Civil Code, under a Case No. А40-71051/18-140- legislation news The request was denied by the research contract, the 2435 tax authorities on the grounds of contractor undertakes to expiration of the statutory three- perform research activities in A taxpayer applied the tax year period. accordance with the benefit, envisaged for the High Court practice principal’s statement of work; energy efficiency class (precedent cases) A three-year period of limitation under a prototype properties, to a non-residential is indeed established by the development contract, the structure (a garage with a Russian Tax Code; however, contractor must develop a vertical extension, used by a Deloitte’s periodicals there are exceptions – namely, prototype and design dealership). the instances where the tax was documents thereto, while the assessed and paid correctly, but The property was commissioned principal must accept the Contacts had to be subsequently adjusted results and pay for the work. in 2013, its energy passport for objective reasons. Yet, the joint decision dated 2017. The taxpayer’s claims were provides both for a statement The court resolved in favour of found legitimate by a of work and prototype the tax authorities, citing as commercial court. development and sets the follows: limits and conditions for using Recovery of VAT on spare the excavator (in accordance • there are no regulations parts used for creating a with Paragraph 1, Article 772 categorising non-multifamily prototype of the Russian Civil Code). buildings into energy efficiency classes Case No. А66-11467/2017 Therefore, the joint decision qualifies for a prototype • according to the existing A company teaming up with the development contract. regulations, energy efficiency Russian Defence Ministry made a classes are assigned only to joint decision to upgrade a 2) According to the joint multi-family buildings single-bucket military excavator decision, intellectual property model. The company undertook rights to the excavator • energy efficiency parameters to design, produce and test at prototype are owned by the for non-multifamily buildings its own expense a prototype Russian Federation. are not defined. with better tactical and technical properties. Therefore, the Company leasing the prototype to the Once completed, the prototype third party without the was leased by the Company to a Defence Ministry’s consent

Government support initiatives

Treatment of expenses to necessary to provide for the lower tax rate envisaged by the advertise cars in car races use of the sports cars as tax treaty with Sweden. Recycling fee advertising media during the Case No. А55-1367/2018 According to the treaty, the world championship dividend tax shall not exceed Circumstances of the case: Customs regulations • the taxpayer did not have the five percent, if: • The Company (the technical capabilities and • the beneficial owner holds Contractor) signed a contract experience of preparing cars directly 100 percent of the with the Principal for the for the global championships Track and trace capital of the company paying provision of advertising and managing contracts with (T&T) and paperless the dividends (or 30 percent services, namely, for the foreign counterparties procedures in the case of a joint venture) preparation and organisation • the taxpayer lacked of sports cars (used as • the foreign capital invested equipment and experts, advertising media) exceeds USD 100,000. Other federal required for assembling and participation in the World servicing sports cars, exposed According to the tax legislation news Touring Car Championship. to high workload inspectorate, the direct • The Company engaged ownership requirement was not • there was no overlap between subcontractors to perform its complied with. Court practice the services procured by the contractual obligations. (precedent cases) taxpayer with those paid In fact, the whole dispute comes The tax inspectorate disallowed directly by the Principal down to whether the the subcontractors’ fees, paid by shareholding must be calculated • the services in question the Company, citing the intent taking into account the Supreme Deloitte’s periodicals generated high returns to generate unjustified tax Court’s position in SUEK- benefits without a business • the tax authority itself did not Kuzbass and Kashirsky Dvor- purpose. challenge the volume of Severyanin cases on the Contacts works performed under the classification of controlled debt According to the tax contracts as capital. inspectorate, the expenses had been actually borne by the • the business purpose of the The court noted that the direct Principal that engaged the expenses was proved shareholder’s 100-percent subcontractors directly, and the interest in the taxpayer and the • the taxpayer presented duly information reflected in the lender must be taken into executed source documents, service report (website account for DTT purposes. verifying the transactions screenshots, extracts from The taxpayer has no other magazines, etc.) was publicly • the court did not establish shareholders uncontrolled by the available. that the vendors were shell Company’s Group, whose share companies and their Breaches were also found in the should be excluded from the managers – nominal. relations with subcontractors of total shareholding calculation. the second- and further tiers as Lower withholding tax on The court also noted that in its well. interest reclassified into rulings on the above-mentioned dividends The court took the taxpayer’s cases, the Supreme Court side, citing the following: Case No. А23-1331/2018 instructed that investments in the form of a loan must be taken • the taxpayer’s vendors were A tax inspectorate reclassified into account to calculate the active legal entities with interest into dividends by virtue absolute capital investment relevant qualifications and of the thin capitalisation rules amount and not the relative one. business connections, and denied the application of a

Government support initiatives

In line with the principle of had not been exceeded, the accordance with Article 170 of consistency of tax treatment, taxpayer did not reinstate the the Russian Tax Code. Recycling fee the shareholding in relative VAT. terms must be determined Having considered the positions consistently, both for the The taxpayer’s position was of the parties, the court Customs regulations purposes of interest supported by the court. supported the tax inspectorate in that the five-percent expense reclassification into dividends Recovery of VAT on parts and the selection of an threshold could not be calculated Track and trace used for warranty repairs separately per each VAT-exempt applicable interest rate. (T&T) and paperless Case No. А36-10052/2017 operation. Furthermore, the court procedures underlined that borrowing from The tax authorities challenged Therefore, since the company a foreign sister company was the recovery of VAT on parts had previously reclaimed VAT not aimed at generating tax used in warranty repairs. attributable to the warranty Other federal savings, since opting for a loan repairs (a VAT-exempt legislation news instead of capital investment According to the tax audit operation), it had to reinstate and further dividend payout did findings, the taxpayer, having the tax in the respective tax expensed the cost of parts used period. not create any advantages for Court practice the parties. in VAT-exempt warranty repairs, failed to reinstate the VAT (precedent cases) Use of the five-percent reclaimed on the purchase of threshold for VAT on such parts. expenses from VAT exempt Deloitte’s periodicals operations In the tax inspectorate’s opinion, when calculating the share of Case No. А66-16122/2017 VAT-exempt and VATable Contacts operations, the taxpayer did not A taxpayer was engaged in VAT- take into account the operations exempt operations (warranty subject to the unified tax on repairs for a car dealership), the imputed income. share of exempt operations in the total revenue amounting to Consequently, the expenses nearly two percent. attributable to the VAT-exempt operations were below five Since the parts at the time of percent; and the taxpayer had purchase could not be allocated not reinstated VAT on the sale of to any particular activity for exempt goods (works, services) accounting purposes, the in accordance with Paragraph 4, taxpayer included the following Article 170 of the Russian Tax provision into its accounting Code. policy: input VAT on the parts used in warranty repairs that The tax inspectorate’s position was previously reclaimed would was challenged by the taxpayer. be reinstated in the tax periods, In the opinion of the latter, in which the costs attributable to expenses attributable to the the VAT-exempt operations operations subject to the unified exceeded five percent. tax on imputed income must not be included into the expenses Since the five-percent threshold from VAT-exempt operations in

Background

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Background

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Track and trace (T&T) and paperless Tatiana Kofanova procedures Director Tax and Legal Automotive Group Leader Other federal [email protected] legislation news

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