The legislature is in the process of adopting a number of tax benefits intended to stimulate the development of innovative companies and marquee investments in Russia. A new law has expanded the list of expenses that can be excluded from taxable profits. Further, recently passed draft bills have introduced a new investment tax deduction and determined the terms for enforcing the concessionary income tax rates available to investors implementing large investment projects in certain areas.
Article 54.1 of the Tax Code recently came into force. It introduces new rules and definitions regarding legitimate tax optimisation and aims to clarify what is considered legitimate optimisation and what is considered tax evasion. Further, the new rules require the tax authorities to use a less formal approach when assessing the reasonableness of a tax benefit and strive to understand the economic intent of the relevant taxpayer's operations.
Russia recently signed the Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting (BEPS), which was developed to implement Action 15 of the BEPS Plan. Ratification of the convention will be a serious step towards implementing the measures envisaged in the BEPS Plan, which will change the existing double tax treaty system and have a significant impact on the functioning of international groups of companies in Russia.
For companies that are interested in entering the Russian market, but reluctant to establish a physical presence in the country, an online presence can be a viable alternative. The legal requirements for selling goods to Russian customers online are similar to those of other countries. In addition to complying with the mandatory requirements of Russian law, sellers should also make use of the benefits offered therein.
Following the reform of the Arbitration Law, most existing arbitral institutions must re-register and obtain a permit from the government to administer disputes in Russia before November 1 2017. The International Commercial Arbitration Court at the Russian Chamber of Commerce and Industry has used this opportunity to enhance significantly its previous rules governing international and domestic arbitration.
In recent years, the commercial titles of the Civil Code have been aligned more closely with international commercial practices and the Russian courts have been enforcing these new standards. These improvements are noticeable in the area of franchise law. Because these statutory provisions are new, franchisors should check the latest court decisions for additional guidance before structuring transactions based thereon.
The Federal Tax Service recently issued a notification entitled On Identifying the Circumstances of an Unjustified Tax Benefit, which summarises the law enforcement practice associated with assessing the validity of a tax benefit in disputes relating to bad-faith contracting parties. The notification will contribute to the reduction of companies' tax risks relating to an assessment of the validity of their tax benefit when dealing with contracting parties.
The Supreme Court recently clarified parties' right to terminate a contract unilaterally (ie, the 'right to unilateral refusal of performance' in Russian terminology) or amend a contractual obligation unilaterally. The court also clarified the requirements regarding the fulfilment of payment obligations, including with regard to bank transfers, currencies and interest in the event of a default, among other things.
Under certain conditions, a company may have a controlled indebtedness, for which the accounting of expenses for profit taxation purposes should be made according to the special rules regarding so-called 'thin capitalisation' stipulated in Article 269 of the Tax Code. Recent changes to the thin capitalisation rules aim to strengthen the barriers that prevent the outflow of capital abroad to the foreign companies of multinationals doing business in Russia.
Russian law continues to develop with respect to the disclosure of beneficial owners of Russian businesses. New provisions came into force at the end of 2016, which require all Russian legal entities to take reasonable and available steps to identify their beneficial owners and disclose them on request, among other things. For this purpose, the law expressly entitles a Russian legal entity to request information from its shareholders, as well as from other persons who in any way control the entity.
The statutory deadline for holding the annual general meeting of a Russian limited liability company (LLC) is April 30 2017. The meeting must approve the annual results of the LLC's activities – in particular, its annual financial statements as of December 31 2016 and its 2016 annual report. Violation of the deadline or any formal requirements may result in administrative fines. The deadline for holding the annual general meeting of a Russian joint stock company is June 30 2017.
The procedure for transferring previous years' losses to future tax periods for the purpose of calculating corporate income tax has changed substantially for 2017. Previously, only losses incurred during the 10 years preceding the relevant tax period could be recognised consecutively. As of January 1 2017, the procedure for carrying losses forward has changed and the 10-year limitation on the carrying forward of losses has been abolished.
Russian design law is incorporated into Part IV of the Civil Code. Additional provisions regarding application proceedings are set out in the Rules on Design Patent Application Proceedings and the Instructions for Design Patent Application Documents. Exclusive rights to industrial designs are recognised through registration in the State Register of Industrial Designs and certified by design patents. Certain designs relating to applied art subject matter may be protected by copyright.
While the Russian domain name registration procedure may seem easy, domain names are always at risk – especially when they overlap with traditional IP rights belonging to third parties. Nearly all domain name conflicts result in dispute resolution involving national and international principles of law and practice. Where the dispute is subject to Russian jurisdiction, a reliable and efficient domain name litigation process is available to rights holders.
The Law on the Circulation of Drugs 2015 regulates the procedure and requirements for registering a pharmaceutical product for the purposes of import, production, advertisement or sale. Under the law, drugs can be manufactured, sold and used in Russia only if they are registered with the Ministry of Health. The procedure and requirements for registering a trademark are regulated by Part IV of the Civil Code.
Thanks to a constant flow of counterfeits on the Russian market, Customs has evolved into a well-regulated government machine, which is orchestrating a promising number of seizures. While entrepreneurs will naturally factor in potential difficulties when launching a business in a new market, these rarely extend to counterfeiting. However, if the business thrives, the owner should be on the lookout for this sort of free-riding – the more successful a business, the more likely it is to attract predators.
The industrial assembly rules, which provide for a customs rate of 0% for certain car components, were recently amended by a joint order of the Ministry of Economic Development, the Ministry of Trade and Industry and the Ministry of Finance. In particular, the amendments reduced the required percentages of local production and extended the terms for achieving particular percentages of local production.
One of the most praised changes introduced by the recent arbitration law reform concerns the arbitrability of so-called 'corporate disputes'. The Russian Arbitration Association (RAA) was the first Russian arbitral institution to develop and release for public consultation draft arbitration rules for corporate disputes. While some institutions have already followed suit and many more will do so, the RAA's draft rules provide a better idea of what arbitral proceedings in corporate disputes could look like.
During 2015 and 2016 the dispute between taxpayers and the tax authorities regarding the exclusion of multinational enterprise groups' Russian subsidiaries from the requirement to pay corporate income tax on so-called 'intra-group expenses' came under scrutiny. The Russian courts have traditionally treated the actions by affiliated companies in this regard liberally. However, in 2016 Russian court practice began to change in favour of the tax authorities.
After a prolonged and heated discussion, the Patent Office recently cancelled three BLACK RUSSIAN trademarks on the basis that the term had been in general use before the trademarks' priority dates to denote a special kind of product in Class 33 – more specifically, a type of cocktail. The Patent Office based its decision on a 2015 IP Court opinion, which held that the registration of trademarks that have come into general use to denote a certain kind of goods is prohibited.