TAX: CHANGES ANTICIPATED IN 2017

17.12.2016

Olga Mazina Director of Tax Consulting and Audit Department

 Accountor Russia & UkraineTaXmas 2016

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From January 01, 2017

Foreign companies providing electronic services to Russian consumers will pay Russian VAT (No. 244-FZ dd July 03, 2016)

If a foreign company operates through an agent (foreign or Russian), VAT is withheld and paid by this agent

If a foreign company sells to Russian individuals directly, it will be required to register with Russian tax authorities and pay VAT itself

VAT on electronic services (1)

01.05.2023

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Electronic services are services rendered through Internet/other networks using information technologies E.g. Granting rights to use computer programs, databases Advertising on the Internet Posting on the Internet proposals for sale/purchase of goods/services/property rights Processing technical information and offering other options for exchanges between

sellers and buyers. For example, trading platforms operating in real time Website maintenance and modification, provision of access to websites Data storage and processing provided the entity submitting data has access to data

through the Internet Provision of domain names and hosting services Administration of information systems and websites Services automatically provided through the Internet (search, translation, etc.) Granting rights to use electronic books, information, materials, music through the

Internet, including provision of remote access to view and listen through the Internet Providing access to search engines on the Internet Provision of website statistics

01.05.2023

VAT on electronic services (2)

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Tax registration must be done within 30 days of start of service provision by sending an application to tax authorities. A list of other documents required for registration will be approved at a later date by the Russian Ministry of Finance

Calculation: VAT is calculated on the last day of the quarter in which payment from Russian customer is received; VAT rate: 15,25%; conversion into rubles done using the exchange rate of the Bank of Russia on the last day of the quarter.

Declaration: VAT to be declared through the taxpayer account at www.nalog.ru. Deadline: 25th of the month following the reporting quarter.

Payment: VAT to be paid by 25th of the month following the reporting quarter.

! No need to issue VAT invoices, maintain sale/purchase ledgers as well as VAT invoice registers! No right to VAT deductions! Providing electronic services does not give rise to a permanent establishment in Russia! The granting of rights to computer programs under license agreements remains exempt from VAT for Russian and foreign sellers

VAT on electronic services (3)

01.05.2023

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• In 2014, Russia ratified the Convention on Mutual Assistance in Tax Matters (No. 325-FZ dd November 04, 2014) which has been effective since July 01, 2015

• Countries from the G20, BRICS, OECD signed this Convention

• The Convention sets out instruments for all forms of tax cooperation among signatory countries to tackle tax avoidance

• Administrative assistance includes:- Exchange of information, including automatic exchange- Simultaneous tax checks and participation in tax checks abroad- Assistance with tax collection - Taking measures to ensure document forwarding

• In Russia, the Convention applies in relation to income and property taxes, VAT, excises, severance tax, transport/water/land taxes, special tax regimes, etc.

• Special focus on Transfer Pricing. TP-documentation will be standardized and automatic data exchange will begin from 2017 onwards

17/11/2016

International exchange of tax information: Focus on Transfer Pricing

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• Companies are entitled to adjust taxes if transfer pricing results in tax understatements

• Adjustments for 2016 may be included in annual profit tax return until March 28, 2017

• A group of companies operating in Russia may make voluntary symmetric tax adjustments

• All companies which concluded transactions with related non-residents in 2016 must file a notice with tax authorities by May 20, 2017

• Fine for tax understatement in 2016 is set at 20% of unpaid tax and 40% of unpaid tax in 2017

• Transfer Pricing Documentation substantiating market level of transfer prices releases company from fines. It is recommended to prepare such documentation before entering into transactions.

17/11/2016

Transfer pricing: existing rules

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From 2017 • Standardization of TP-documentation to facilitate automatic exchange of information

with foreign countries

• New rules will apply to Russian companies and foreign companies’ permanent establishments in Russia provided foreign companies are part of a multinational group of companies preparing consolidated reporting and the group’s annual turnover is RUB 50 billion (= EUR 750 million)

• Additional reporting:1) Notice of affiliation with a multinational group of companies Submitted by Russian group members annually Deadline: within 3 months of the end of the financial year2) Country-by-Country reportSubmitted by Russian companies - parent companies or authorized group membersDeadline: within 12 months of the end of the financial year3) Global documentation (=Master File) Submitted by Russian companies – parent companies or authorized group members Deadline: within 3 months of a request from tax authorities4) Local documentation (=Local File)Deadline: within 3 months of a request from tax authorities

17/11/2016

Transfer pricing: anticipated changes

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From July 01, 2016

Exporters may claim VAT deductions before submission to tax authorities of documents supporting 0%-rate

Change applies to VAT deductions for goods/services/rights acquired by exporters after July 01, 2016 (150-FZ dd May 30, 2016)

Change does not apply to export of raw materials (wood, chemicals, minerals, metals, etc.)

17/11/2016

VAT refund for exporters

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From January 01, 2016 Bank loans are not deemed controlled debts, if- The bank (including foreign banks) is not related to the Russian borrower or the entity

that secures the loan;- The entity that secured the loan did not repay the loan or interest for the Russian

borrower (e.g. the provision was not claimed) From January 01, 2017

Loans received from related foreign individuals are controlled debts so their interest is limited for tax purposes

Loans received from sister companies are controlled debts so their interest is limited for tax purposes

Relatedness is identified by the general rules set out in the Russian Tax Code (direct/indirect share of more than 25%, share of 50%, etc.)

Controlled debt amount is calculated as the sum of all the debts owed to a foreign entity and its related parties

Interest is limited on a quarterly basis and no annual recalculation is required

(No. 25-FZ dd February 15, 2016).

17.11.2016

Corporate income tax/profit tax: thin capitalization rule is changed

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From January 01, 2017More companies will apply the simplified taxation system. A company will be

entitled to apply this system if: its income for the 9 months preceding its application for simplified taxation

system does not exceed RUB 90 million (currently RUB 45 million indexed at 1,329) When companies’ total annual income exceeds RUB 120 million (currently RUB 60 million indexed at 1,329), they no longer are entitled to apply the simplified taxation systemThe new thresholds will not be indexed in 2017-2019, and the index for 2020 will be 1.

The book value of company’s fixed assets does not exceed RUB 150 million (No. 243-FZ dd July 03, 2016)Reminder: companies may apply the simplified taxation system provided no

other companies own more than 25% of their share capital

17/11/2016

Simplified taxation system

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From January 01, 2017Federal Law 212-FZ will be abolished in 2017. Chapter 34 of the Russian Tax Code

will regulate social contributions (No. 243-FZ dd July 03, 2016) The administration of contributions (except contributions for insurance against

work-related accidents and occupational diseases) will be transferred to the Federal Tax Service, including payment monitoring, debt collection and reporting

No substantial changes to the procedure for calculating contributions. Daily allowances for business trips exceeding RUB 700 for trips in Russia and RUB 2,500 for trips abroad will be subject to social contributions (except contributions for insurance against work-related accidents and occupational diseases)

Report on contributions for pension, social and medical insurance will be sent quarterly until 30th of the month following the reporting period. The Federal Tax Service approved the report form (Order No. MMB-7-11/551@ dd November 10, 2016)

Social insurance against work-related accidents and occupational diseases If a company fails to inform the Social Insurance Fund about its actual type of

activity, this company will pay contributions calculated on the basis of the company’s most hazardous type of activity as recorded in the State Register of Legal Entities (Government Decree No. 551 dd June 17, 2016)

17/11/2016

Social contributions

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From January 01, 2017

Companies are to send to the Pension Fund monthly data on insured employees (SZV-M). Deadline: by 15th of the month following the reporting period (currently by 10th)

Personalized reports on pension data to be sent to the Pension Fund annually by March 1st of the year following the reporting year (currently quarterly by 15th/20th of the second month following the reporting period)

17/11/2016

Personalized reports for Pension Fund

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From January 01, 2017 From 2017 onwards, companies will be able to make arrangements

for an independent assessment of their employees’ qualifications. The cost of this assessment will be:- deductible from profit tax base- not included in employees’ taxable income

Individuals will be able to arrange for an independent assessment of their qualifications and the cost of such assessment could be claimed as social deduction up to a maximum of RUB 120,000 (together with educational, medical costs, etc.) To apply for deductions, personal income tax must be declared on Form 3-NDFL

(251-FZ dd July 03, 2016)

17/11/2016

Independent assessment of qualification: tax implications

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• New thresholds for transfer of tax loss for future periods

Maximum of 30% of tax loss of past periods may be deducted from taxable profit (currently 100% of tax loss of past periods may be deducted)No time limit for such deduction (currently 10-year limit)

• New profit tax rates3% - state budget 17% – regional budget (currently 2% and 18%

respectively)

17.11.2016

Corporate income tax/profit tax: anticipated changes

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• Penalties may increase

First 30 calendar days – 1/300 of Central Bank rate, from 31st day – 1/150 of Central Bank rate (i.e. if Central Bank rate is 10%, penalties will be calculated at 24%)

• Taxes may be paid by a 3rd party

A company’s owner, general director or counterparty may pay taxes on behalf of the company

17/11/2016

Tax administration: anticipated changes

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:• ISA in RussiaInternational Standards of Auditing (ISA) issued by the International Federation of

Accountants (IFAC) will be applied in Russia from 2017 onwards ISA and information about their implementation status may be found at:

http://minfin.ru/ru/perfomance/audit/standarts/international/

The scope of audit work will be extended, audit approaches will become global, audit will cover different parts of corporate activities (risks, internal control, etc.)

Auditors working under audit contracts signed before 2017 will still be able to apply old audit standards.

• Mandatory audit of construction companiesFrom 2017 onwards, construction companies that raised money for shared

construction will be subject to mandatory audit (No. 304 –FZ dd 03.07.16).

REMINDER: statutory audit is mandatory if in the year prior to reporting Asset value > RUB 60 million Net turnover > RUB 400 million

17/11/2016

Audit

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Thank you for your time and attention

191015, Russia, St. Petersburg, Shpalernaya ul. 54Phone: +7 812 325 82 94 (281)/cell: +7 921 189 88 34

Olga.Mazina@accountor.ruwww.accountor.ru

01/12/2015

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