The basic value added tax (VAT) rate recently increased from 18% to 20%. The new rate will apply to all goods, works and services which are sold, performed or provided from 1 January 2019. In addition, several estimated tax rates have also been amended. As entities are expected to reflect the increased VAT rate in the price of their goods, economists predict a rise in prices associated with the increase in early 2019.
Bill 424632-7 on the Amendment of Parts 1, 2 and 4 of the Civil Code of the Russian Federation (the Digital Rights Bill) and Bill 571124-7 on the Amendment of the Federal Law on Information, Information Technologies and Data Protection (the Big Data Bill) were recently submitted to Parliament for discussion. Both bills are essential developments, especially given the increasing interest in and high value of Big Data in the current digital reform.
The Federal Tax Service recently began publishing information concerning the various obligations of Russian taxpayers (ie, legal entities) and their financial reporting on its website. This practice is new in Russia, as such information was previously classified as tax secrets and, by virtue of the Tax Code, could not be disclosed. This development is useful not only for Russian taxpayers, but also for foreign companies choosing Russian counterparties.
In January 2019 a new law will come into force enabling the tax authorities to request client-related documents from auditors which constitute 'auditing secrets'. This law marks the end of years of struggle by the tax authorities to gain access to audit documents. Although these changes carry no significant risks for bona fide taxpayers, the business community is concerned that the authorities may be able to request auditors' documents and opinions on related services, such as accounting and tax consulting.
The EU General Data Protection Regulation (GDPR) applies internationally and can encroach on the national laws of non-EU countries. In Russia, international companies must fulfil the requirements of both the GDPR and local laws, even though they may contradict each other. Companies should follow a number of recommendations in order to find the most practical solutions, mitigate relevant legal risks and keep their noses clean should Roscomnadzor try to find fault with them.
The Federal Tax Service (FTS) recently issued a letter providing an extensive explanation of the tax authorities' application of the beneficial owner of income (BOI) concept. This concept was previously referred to only in the international tax treaties between Russia and other states, but has recently been actively implemented into Russian tax legislation. In this regard, the FTS's letter is of great interest, as it summarises the approach of both the courts and the tax authorities with regard to resolving BOI issues.
New data storage rules recently took effect for telecoms operators in Russia. Although the rules are aimed at fighting e-terrorism and preserving national cybersecurity, their application and implementation will inevitably lead to substantial financial and material investments by telecoms operators. Therefore, it will be interesting to see how this legislation will be complied with in practice.
New data storage rules recently took effect for online data distributors (organisers) in Russia. The new rules form an integral part of the ongoing reform of the legislation on the national governance of internet sovereignty, data privacy and cybersecurity, which includes the package of laws known as the 'Yarovaya Law'. However, both the Yarovaya Law and the new data storage requirements have been widely criticised.
The Audiovisual Services Law recently took effect and has introduced an innovative legal regime for the operation of streaming and video on demand services in Russia. The law has defined 'audiovisual services', imposed special obligations on audiovisual service owners and introduced penalties for non-compliance with the law.
The Ministry of Finance recently issued an important clarification regarding the taxation of a foreign parent company's property rights to a trademark as a contribution to the charter capital of its Russian subsidiary. Previously, there had been ambiguity surrounding this issue due to the competing provisions of the Tax Code with regard to the procedure for imposing value added tax on contributions to a company's charter capital and transactions involving property rights to trademarks.
A new law, which will enter into force in 2019, will introduce significant changes to the special procedure for imposing value added tax (VAT) on services provided in electronic form by foreign companies that have no branch or representative office in Russia. Foreign organisations that provide services in electronic form to Russian buyers are advised to register for tax accounting in Russia as VAT payers, as Russian counterparties will likely refuse to purchase electronic services from parties that fail to do so.
At the end of 2017, a number of amendments to the Tax Code came into force which significantly increased the scope of information and documents that Russian divisions of some international companies must submit to the tax authorities. Russian companies and foreign companies subject to taxation in Russia must now provide a notice of participation in an international group of companies and so-called 'country information'.
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.
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.
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.
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.
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.
The State Duma of the Federal Assembly recently passed a new law introducing significant changes to the taxation of foreign companies selling software and internet services in the Russian territory. The so-called 'Google tax' will require foreign companies providing services in electronic form and selling content online to Russian consumers to register with the Russian tax authorities from January 1 2017.