Russian Tax Code Changes re Tax Payments and Tax Administration.
Legal Update No. 163.
Goltsblat BLP advises that Federal Law No. 229-FZ of 27 July 2010 “On Amendments to Parts One and Two of the Tax Code of the Russian Federation and Certain Other Legislative Acts of the Russian Federation and Invalidation of Certain Legislative Acts (their Provisions) of the Russian Federation Pertaining to Settlement of Overdue Taxes, Levies, Default Interest and Fines and Some Other Tax Administration Issues” comes into force on 2 September 2010 (some of the provisions apply to tax relations from 1 January 2010 or come into effect after 1 January 2011).
We would like to emphasise the following key changes:
The electronic document management system used by taxpayers, banks and tax authorities has been significantly expanded. In addition to submitting electronic tax returns, taxpayers can now file electronic notifications, notices and claims.
By mutual agreement between parties to a transaction, provided relevant technical capabilities are available, VAT invoices may now be issued electronically. Such VAT invoices can subsequently be submitted for tax authority audit also in electronic format. The formats and procedure for filling in electronic VAT invoices and keeping relevant accounting records are yet to be determined.
2. Limitations on interest deductibility.
The upper limit on interest deductible for profit tax purposes under article 269 of the Tax Code has been re-adjusted.
Interest on debt obligations arising before 1 November 2009 will only be deductible in the period from 1 January through 30 June 2010 to the extent of double the refinancing rate of the Central Bank of Russia for rouble borrowings and 15% for borrowings in foreign currency.
The following limitations apply to other debt instruments:
from 1 January through 31 December 2010 - 1.8 times the refinancing rate of the Central Bank of Russia for rouble borrowings and 15% for foreign currency borrowings;
from 1 January 2011 through 31 December 2012 - 1.8 and 0.8 times the refinancing rate for rouble and foreign currency borrowings, respectively.
Beginning from 2013, the limit will be brought back down to the pre-crisis level of 1.1 times the refinancing rate of the Central Bank of Russia for rouble borrowings and 15% for foreign currency borrowings, unless any further changes are adopted.
The limit on deductibility of interest on debt obligations in foreign currency will thus not only go down from 15% to 0.8 of the refinancing rate of the Central Bank (which is currently 7.75%) in 2011-2012 but will be more than 55% lower than that on rouble debt obligations.
In this context and in view of the maturities of specific borrowings, we recommend examining debt instruments denominated in foreign currency in order to determine whether they will be covered by this limitation on deductibility in 2011-2012 and assessing the expedience of converting foreign currency borrowings into rouble instruments. Companies could also consider whether the benefits envisaged by some double taxation treaties, permitting unlimited deduction of interest, can be used.
3. Tax deferrals, tax payments in instalments and investment tax credit.
The conditions and procedure for permitting tax payments to be made on a deferred/instalment basis and for granting investment tax credit have been clarified and adjusted (in particular, the Federal Law contains a complete list of documents to be submitted to the tax authorities for the purposes of these tax benefits). Investment tax credit has been increased from 30% to 100% of the cost of acquired equipment used exclusively for R&D, technical upgrade and investment in development of facilities with the highest energy efficiency class according to the relevant list approved by the Russian Government.
4. A new element of a VAT invoice.
A new mandatory element has been added to the standard VAT invoice - “currency”.
5. Minimum cost of PP&E and depreciable and amortisable assets.
From 1 January 2011, property, plant & equipment and depreciable and amortisable assets will also include assets with a historical cost of more than 40 thousand roubles (the current figure being 20 thousand roubles).
In this context, it is advisable to amend company accounting policy for 2011 to reflect this change and recognise qualifying property as depreciable/amortisable assets for tax accounting purposes.
6. More stringent tax sanctions.
The Federal Law has raised the fines for certain tax offences (articles 116, 119, 120, 125, 126, 129, 1291, 134, and 1351 of the Russian Tax Code). The changes do not affect the fines for failure to pay tax in part or in full under article 122 of the Russian Tax Code.
Two new offences are now introduced by article 1191 of the Russian Tax Code on failure to comply with the electronic tax returns filing procedure (a fine of 200 roubles) and article 19.76 of the Russian Code of Administrative offences on illegal refusal to allow tax authority officials access to the taxpayer’s territory for tax audit purposes (a 10-thousand-rouble fine for officers).
7. Procedural rights of taxpayers during a tax audit.
A taxpayer is now officially entitled to familiarise itself with all case materials in tax audit proceedings before a decision is taken as to whether it should be held liable for tax offences (this applies to tax audits beginning after the Federal Law’s effective date).
8. New obligations of PIT agents.
For personal income tax purposes, tax agents must now maintain tax ledgers of income paid and tax deductions granted to individuals and are also required to repay PIT directly to the taxpayer within three months if the tax was illegally withheld after the taxpayer applied for a tax rebate. If this three-month term is breached, the tax agent will also have to pay the taxpayer interest at the refinancing rate of the Central Bank of the Russian Federation.
9. Timelines for remitting tax to budget accounts.
A reduced term has been introduced for tax agents to remit the tax withheld to budget accounts. From now on, taxes withheld on income paid to foreign entities and income in the form of dividends and interest on government and municipal securities are to be remitted to budget accounts no later than the day following the payment (remittance) date.
In this context, companies have to adapt the timelines of the relevant internal procedures to the new requirements.
10. Some other changes.
Changes have also been introduced in the procedure for booking expenses related to natural resources, tax registration, preferential revenue recognition rules for film makers, the threshold for quarterly advance payments of profit tax, recognition of tax arrears as uncollectible and some other provisions.
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