Tax & Legal 18 - 24 March 2019

Russian President signs package of laws

Bill introducing amendments to Tax Code released

Draft amendments to Russian Tax Code supporting export of services

Ministry of Finance approves agenda for 2019- 2024

Guidance on applying IT practices in commerce prepared

Federal Tax Service clarifies responsibilities of foreign entities voluntary taking up Russian tax residency

Ministry of Finance: no easing for suppliers of electronic services to related parties

Economic Commission to further consider parallel imports

Russian Government extends agreement with oil producers for three months

Business associations call for abolishing criminal LT Digest charges for currency breaches Bill on cryptocurrency is expected to be adopted Be in the know by end of 2019 Ministry of Transportation calls for zeroing VAT Legislative initiatives on all domestic flights

Russian President signs package of laws Initiative to create artificial intellect council in In particular, the following laws were signed: • Federal Law No. 34-FZ of 18 March 2019 on digital Rosstandart calls for introducing standards for rights (for more details, please refer to LT of 4 March tech start-ups and IT companies 2019) • Federal Law No. 32-FZ of 18 March 2019 on exchange Initiative to compensate providers for protecting of data obtained by related banks during client Runet identification for AML purposes (for more details about the AML legislation, please refer to LT Digest of 31 CIS may develop single protected digital July -6 August 2017). platform

Official Internet Portal for Legal Information OECD releases beneficial ownership concept implementation toolkit Bill introducing amendments to Tax Code released Global Forum on tax transparency reveals Major changes address the regulation of the Mutual compliance ratings for further seven jurisdictions Agreement Procedure (MAP) under Russia’s tax treaties:

• a taxpayer can request that MAP be conducted, if it Brexit: Council adopts series of contingency believes its income, profit, or property is being taxed measures for "no-deal" scenario in a way that is not in accordance with the terms of the respective treaty • within 90 days of request, the tax authorities must approve or deny the initiation of MAP; however, the timeline of MAP itself is not regulated • MAP may trigger a field tax audit, which can be • clarifying the personal income tax treatment of the carried out regardless of the time and scope of any sale proceeds from the disposal of gifts or inherited previous tax audits and cover up to 10 preceding property. calendar years Federal draft legislation portal • if MAP is initiated, all pending tax audits will be suspended Draft amendments to Russian Tax Code • once MAP is complete and depending on its outcome, supporting export of services the tax authorities will either resume the enforcement of their earlier decision or cancel it The amendments are proposed to a bill, streamlining the administration of personal income, property, • decisions based on MAP’s results will be enforced, transport, and land taxes, that already passed the first regardless of the deadlines set for the return/offset reading (for more details, please refer to LT Digest of of overpaid taxes. 10-16 December 2018). The following changes are proposed to the transfer According to the amendments: pricing (TP) regulations: • separate accounting for VAT on the services that are • to supplement the list of the functions and risks, not deemed to be supplied in Russia will not be considered to establish the comparability of required — input VAT on such services will be fully commercial and/or financial conditions, with those recoverable subject to confirming that the relevant associated with the use of intangible assets revenue was received into a bank account • to set forth that for the purposes of calculating the • for separate VAT accounting purposes, revenues arm’s length price range for commodity transactions, from the export of services/works will be included in the transaction with a foreign party will be deemed the total VATable revenue (provided there are other settled on the “date of closing, determined on a VAT-exempt operations) case-by-case basis in accordance with the relevant documents and circumstances and taking into • the donation of real estate to the state will be account the conduct of the parties” exempt from VAT • a transfer pricing audit can be ordered by the • expenses incurred to finance the infrastructure Ministry of Finance as part of MAP facilities that, by force of the Russian law, can only be owned by the state, can be deducted as part of • the decision to conduct a TP audit on these grounds the investment allowance: the regional profit tax can be made no later than two years from the date component can be reduced by up to 85 percent and MAP notification is received and only with respect to the federal – by 15 percent the controlled transaction covered by MAP • taxpayers engaged in Arctic exploration activities will • such TP audit can cover up to 10 calendar years be entitled to reclaim the input VAT attributable to preceding the year, in which the audit had been the production and/or donation of goods to the state ordered for exploration purposes • based on the TP audit findings, the prices of in-scope • separate transport and land tax returns will be transactions can be adjusted, provided the Ministry abolished, starting from 2020. of Finance recognises the adjustments made by a competent authority of the state the other party to Official website of the Russian State Duma the transaction is resident of. Furthermore, the bill proposes: Ministry of Finance approves agenda for 2019- • clarifying the deductibility of corporate restructuring 2024 losses; in particular, in the event of a merger, the successor company will be able to deduct the losses In particular, the agenda sets forth the following of the absorbed company only to the extent that activities: such losses were generated in the tax periods, as of • to align the excise tax rates for the locally produced the first day of which the successor and the absorbed and imported wines company had been related • to use the USAIS for wholesale trade, transportation, • clarifying the applicability of the beneficial profit tax and storage of pharmaceutical ethanol rate by parties to regional investment contracts • to reduce the tax burden for the taxpayers that • introducing a zero profit tax rate for the regional or donate property to the state municipal museums and theatres • to foster production of petrochemicals by the • lowering a profit tax rate for the educational and/or facilities commissioned after 1 January 2022 medical institutions indefinitely • to streamline the administration of non-tax • enabling the communications between the taxpayers payments and tax authorities via the multi-functional service centres • to improve tax administration, using the remote automated control of labelled products • approving the rules for tax-registering the foreign credit institutions upon opening of a correspondent • to establish a single population database account • to incorporate IFRS principles into the federal • providing for the special rules for calculating the accounting standards trade duty for the businesses run under a general • to ensure that IFRS is recognised across Russia partnership, commission, agency or trust agreement 2 • to streamline the leasing regulations The guidance clarifies the following matters: • to liberalise the currency laws • the use of IT, including the pricing algorithms, in commerce • to optimise the customs operations • general restrictions set by the anti-monopoly laws • to streamline the regulation of the free customs zone regime • acceptable and unacceptable IT practices of vendors, distributors and retailers, including the pricing • to implement the track and trace mechanism for algorithms. imported goods. Unacceptable vendors’ IT practices include: Official Ministry of Finance website • control of resale price maintenance, including through automated violation notices Guidance on applying IT practices in commerce • coordination of the third parties’ efforts to maintain a prepared fixed or minimum price level The guidance aims to ensure the uniform applicability of • banning or restricting discounts to retail prices. anti-monopoly laws to the sales of non-food items (such as computer equipment, household appliances and Official Russian Antimonopoly Service website electronics) via the Internet or using the technological solutions that rely on the Internet data.

Clarifications from government bodies Federal Tax Service clarifies responsibilities of • are treated in the same manner as the Russian foreign entities voluntary taking up Russian tax companies for the purposes of Chapter 25 of the residency Russian Tax Code; however, they pay other taxes according to the rules established for non-residents. Such foreign entities: Garant:Prime • file the same tax returns as the Russian companies • do not have to file the reports mandatory for permanent establishments of foreign companies Ministry of Finance: no easing for suppliers of electronic services to related parties • in their profit tax returns, put down their name and the assigned KPP (the 5th and 6th digits being “88”) The position was expressed by the Ministry of Finance in response to a proposal on exempting the provision of • can pay taxes by way of debiting their Russian electronic services under contracts with related Russian branch’s bank account and foreign companies from VAT. • include in their profit tax base all types of foreign- According to the ministry, the proposal contradicts the sourced income less the expenses incurred both in principles of the universality and equality of taxation; Russia and abroad therefore, no changes to accommodate it should be • pay tax on the dividends received after the tax expected. registration in Russia at the rates of 0 and 13 Consultant Plus percent similar to the Russian companies

Media review Economic Commission to further consider parallel than those produced abroad, or are overpriced. imports To remind, in 2018, the Constitutional and the Supreme The amending protocol to the Treaty on the Eurasian Courts already considered the issue of parallel imports, Economic Union that would temporarily permit parallel i.e. branded goods that are imported and sold without imports for certain categories of goods have been on the trademark owner’s consent, and held that parallel the table for two years now. imports, indeed, violate the trademark owners’ rights; however, they cannot be subject to the same sanctions The document provides for preserving the regional as counterfeit products (for more details, please refer to principle of exhaustion of trademark rights and enables LT Digest of 12-18 February 2018). a temporary exhaustion of rights to certain product categories. Official Eurasian Economic Committee website During these two years, the document was discussed and approved by the Eurasian Economic Commission Russian Government extends agreement with oil Panel and updated to factor in the feedback from the producers for three months EAEU member states. The decision to extend the market stabilisation As of today, the protocol has been generally approved agreement with oil companies for another three months by all member states, except Belarus. was made on 21 March 2019. The EEC resolved to continue the discussions. In accordance with the agreement, the companies In particular, parallel imports may be permitted, if committed to constraining their petrol retail prices until certain goods are either unavailable on the EAEU the end of March, owing to which the prices at the market, or are in short supply, or are of poorer quality petrol stations did not add more than 0.4 - 1.1 percent.

3 The price freeze agreement with the Russian state participation, is critical, but may be hampered by Antimonopoly Service and the Ministry of Energy was the personal data legislation. signed by ten largest oil producers on 31 October 2018. The strategy implies the establishment of a Presidential The Ministry of Energy is monitoring the commodity AI Council to regulate the industry. prices and the retail prices at the petrol stations on a The implementation may be assigned to a dedicated daily basis. taskforce and the presidium of the Government’s Digital Vedomosti Development Committee, chaired by Deputy Prime Minister Maxim Akimov. The measures also include fostering the development of Business associations call for abolishing criminal public cloud computing capacities powered by AI charges for currency breaches (similar to Amazon Web Services and Microsoft Azure Respective petitions were sent to Prime Minister Dmitry Machine Learning) and production of high-speed Medvedev by the Union of Industrialists and chipsets, holding government biddings for the Entrepreneurs, the Chamber of Commerce, and development of AI-powered solutions, investing in the Delovaya Rossiya and Opora Rossii associations. technology, including via state-owned investment funds, and creating private and public research According to the business community, non-repatriation datasets. of revenue is an aggravating circumstance rather than a stand-alone offence. The associations call for abolishing Official website of the Ministry of Communications and the respective article of the Criminal Code – a bill to Media that effect has been developed by the Russian Export Centre. Rosstandart calls for introducing standards for Vedomosti tech start-ups and IT companies The regulator proposes introducing new types of Bill on cryptocurrency is expected to be adopted standards – specifications and technical reports, which by end of 2019 may be of interest to tech startups, IT and innovation companies that have not yet developed the standards The timing was set according to the FATF for their technologies, as well as to those still looking at recommendations. new market niches. The State Duma faces criticism from the Russian The new document types will be similar to those of the over the insufficient regulation companies with a longer track-record, but will be of cryptocurrencies, bitcoins, and other instruments enjoying faster expert approval and release (within two that are now widely used, including for money months). laundering. All approvals will be handled digitally: subject-matter A separate law that would regulate the issue and experts will exchange opinions, promptly introduce distribution of virtual assets will be developed by a changes, and make the final decisions. taskforce, comprising representatives of the Federal Security Service, , the Ministry of The documents will not have the status of a national Finance, the Ministry of Economic Development, and the standard (like ), but will be admitted for use in Central Bank of Russia. similar functions, subject to certain limitations. Vedomosti Rossiyskaya Gazeta

Ministry of Transportation calls for zeroing VAT on Initiative to compensate providers for protecting all domestic flights Runet According to the proposal that is pending approval of The members of the Federation Council propose that the Ministry of Finance, zero VAT should apply to all the Government compensate the Internet providers for flights, including those connected via . their expenses incurred to comply with the Runet sovereignty bill. The initiative is aimed at supporting the airlines and preventing the airfare prices from growing. This initiative is one of the amendments introduced for the bill’s second reading. The ministry also proposed partially compensating the airlines for the expenses resulting from the surge in Another proposal calls for exempting the Internet petrol prices in 2018. providers from liability to customers arising from the network failures caused by use of cybersecurity tools. Vedomosti RBCdaily

Initiative to create artificial intellect council in Russia CIS may develop single protected digital platform The proposal is included in the industry road map The platform dubbed “CISnet” by analogy with the developed by the Ministry of Telecommunications and Runet will integrate the domains of the CIS countries Media, Sberbank, and other subject-matter experts. into a single network that is protected from the outside. The strategy sponsors believe that developing the Parlamentskaya Gazeta artificial intelligence (AI) technologies, including with

4 International law OECD releases beneficial ownership concept were rated “Largely Compliant.” implementation toolkit These jurisdictions have demonstrated their progress on The toolkit covers a variety of issues regarding the the deficiencies identified in the first round of reviews, implementation of the concept of beneficial ownership including improving access to information, developing at the national legislation level: broader exchange of information agreement networks, etc. • the concepts of beneficial owners and ownership Official OECD website • the global approach to the concept • the criteria used to identify beneficial owners Brexit: Council adopts series of contingency • the measures being taken internationally to ensure measures for "no-deal" scenario the availability of information on beneficial ownership These measures are temporary in nature and will enter • automatic exchange of financial accounts into force the day after the UK's withdrawal in the event information. of a "no-deal" Brexit. Official OECD website The measures will apply to the social security, cross- border transport networks, fisheries, military exports, and student exchange programmes. Global Forum on tax transparency reveals compliance ratings for further seven jurisdictions On 14 March 2019, the U.K. Parliament voted to postpone Brexit until 30 June 2019, which now has to The seven jurisdictions reviewed – Hong Kong (China), be approved by 27 EU member states. Liechtenstein, Luxembourg, the Netherlands, North Macedonia, Spain, and the Turks and Caicos Islands Kommersant

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Russia modernises data privacy legislation For details, please refer to Legislative Tracking in Focus of 23 August 2018. On 10 October 2018, Russia signed Amending Protocol ETS No. 223 to the Council of Europe Convention for Protection of Individuals with regard to Automatic Increase of Russian VAT rate Processing of Personal Data (ETS No.108). The accession to the Convention will require ratification of Federal Law No. 303-FZ ‘On Amendments to Certain the Protocol by the Russian parliament and will entail Tax Laws of the Russian Federation’ of 3 August 2018 changes in the Russian data privacy laws and (hereinafter, “Federal Law No. 303-FZ” ) has introduced enforcement practices. amendments to the Tax Code of the Russian Federation (hereinafter, the “Russian Tax Code”), including an For details, please refer to Legislative Tracking in Focus increase of the general VAT rate from 18 to 20 percent. of 28 November 2018. The raise is expected to generate additional budget revenue of RUB 620 billion p.a., starting from 2019. And yet it moves! Or does it? Along with the added revenue from the oil and gas ‘tax Starting from 1 January 2019 movable property would maneuver’, the measure is viewed as a source of be exempt from taxation. financing for the national development agenda outlined by the President of the Russian Federation in May 2018. It creates a shortfall in the regional fiscal revenues, which have been estimated by Minister of Finance For details, please refer to Legislative Tracking in Focus Anton Siluanov at up to RUB 181 billion. of 17 August 2018. This, in turn, may lead to more litigations over the tax authorities’ attempts to classify movable property as The Convention on the legal status of the Caspian immovable to collect more tax. Sea For details, please refer to Legislative Tracking in Focus Meeting at the summit in Aktau on 12 August 2018, the of 23 November 2018. leaders of Russia, Kazakhstan, Azerbaijan, Iran, and Turkmenistan signed a milestone document, which brings the relations among the countries to a new level First prosecution for FATCA non-compliance, 12 - the Convention on the legal status of the Caspian Sea. September 2018 It has taken the five neighbors more than 20 years to On 11 September 2018 in federal court in Brooklyn, come to an agreement. Adrian Baron, the former Chief Business Officer and For details, please refer to Legislative Tracking in Focus former Chief Executive Officer of Loyal Bank Ltd of 17 August 2018. pleaded guilty to conspiring to defraud the United States by failing to comply with the Foreign Account Tax Compliance Act (FATCA). The Loyal Bank is an off- New approach to tax treatment of transactions shore bank that has offices in Budapest, Hungary and between related parties Saint Vincent and the Grenadines. On 15 June 2018, the Nineteenth Commercial Court of According to court documents, in June 2017, an Appeals considered a dispute between PepsiCO and the undercover agent met with Baron and explained that he Russian Federal Tax Service (FTS) over the tax was a U.S. citizen involved in stock manipulation treatment of intragroup transactions. schemes and was interested in opening multiple corporate bank accounts at Loyal Bank. Courts of two instances supported the tax authorities in classifying the arrangement between the plant and the For details, please refer to Legislative Tracking in Focus trading/holding company as free of charge provision of of 12 September 2018. services. According to the tax authorities, the plant’s advertising Amendments to the Russian Tax Code and marketing expenses had contributed to an increase in the earnings of the trading/holding company and not Federal Law No. 302-FZ «On amendments to Part I and the plant itself. II of the Russian Tax Code» (The Law) introduced a number of changes aiming to reduce the administrative For details, please refer to Legislative Tracking in Focus burden for VAT payers. In particular, the Law optimizes of 31 July 2018. the list of documents to be field with the tax authorities to justify the application of a zero VAT rate.

***** We hope that you will find this edition interesting and informative. Should you have any questions on this subject, please do not hesitate to contact us. Best regards, Deloitte CIS Partners 6 Contacts

Tax & Legal

Svetlana Meyer Gennady Kamyshnikov Managing Partner Partner Tax&Legal, Deloitte CIS Private & Corporate Tax [email protected] [email protected]

Oleg Berezin Oxana Zhupina Partner Partner, Pharmaceuticals Consumer Products [email protected] [email protected]

Yulia Orlova Vladimir Elizarov Partner Partner Metals and Processing Technology, Media, Entertainment & Telecommunications [email protected] [email protected]

Artem Vasyutin Yulia Krylova Partner Director Real Estate Retail, Wholesale and Distribution [email protected] Tourism and Hospitality [email protected]

Tatiana Kofanova Alexandra Konova Director Director Automotive Oil & Gas, Energy & Resources, Mining [email protected] [email protected]

Anna Kostyra Anton Zykov Managing Partner Partner Legal services Tax Dispute Resolution [email protected] [email protected]

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