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 Russia 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