Important tax amendments on operations with securities and derivatives, limitations on interest deductibility and other major issues
Important tax amendments on operations with securities and derivatives, limitations on interest deductibility and other major issues
16.01.2014
Legal Update No. 445, 16 January 2014
Goltsblat BLP advises that, on
30 December 2013, the Russian President signed the Federal Law “On Amending
Article 275-3 of the Federal Law “On the Securities Market” and Parts One and
Two of the Tax Code of the Russian Federation”, introducing a number of
important changes in taxation of both legal entities and
individuals.
The amendments are generally
positive in character. Worthy of special mention is the positive trend towards
narrowing the sphere of application of special restrictions on the prices of
securities and derivatives, as well as on interest costs and losses from
assignment of receivables to transactions subject to the transfer pricing rules
(Section V.1 of the Russian Federation Tax Code). Even so, these rules only come
into full effect from 2016, until which time the current pricing rules will
remain in effect.
Limitations
on interest deductibility under clauses 1 and 1.1, article 269 of the RF Tax
Code
From 2015 onwards, interest on
debt liabilities arising from uncontrolled transactions may be deducted in full
based on the actual rates, without the current limitations being applied. For
controlled transactions, interest will be deductible in the amount of the actual
rates but with adjustment based on the transfer pricing rules.
Moreover, if one of the parties
to a controlled transaction is a bank, interest will be deductible within the
scope of set market price ranges: for rouble loans from 75% to 180% (from 75% to
125% from 2016) of the Bank of Russia refinancing rate; for currency loans from
LIBOR, EURIBOR or SHIBOR plus 2-4 percentage points to LIBOR, EURIBOR or SHIBOR
plus 5-7 percentage points (the percentages depending on the currency). If the
rate applied does not fit within these limits, the interest will be deductible
at the actual rates but with adjustment based on the transfer pricing rules.
In fact, the new rules mean
that, for intra-group loans from related Cypriot financial and holding
companies, the “safe harbour” rate of 14.85% on rouble loans, which serves as a
reference for everyone and which is used on a mass scale by companies (since the
changed limits remain only for bank loans) will be abolished. For intra-group
loans, the existing transfer pricing rules requiring disclosure of such loans
and benchmarking substantiation of the interest on them now come to the
fore.
Monthly
accounting of interest income and costs specified
The amendments applicable to
the timing of tax base calculation specify, among other things, that debt
liability income and costs are to be taken monthly, irrespective of when payment
is made. This constitutes a legislative answer to the question raised in
Resolution of the Supreme Commercial Court of the RF No. 11200/09 of 24 November
2009 on the SaNiVa case concerning restrictions on deducting, during current tax
periods, interest for which actual payment has been deferred.
Changed
rules for determining the tax value of securities and
derivatives
The rules for determining
prices under transactions with securities and derivatives have been
reformulated. First, sale on a stock exchange of traded securities and
derivatives is to be booked at the actual price (provided the transactions go
through a Russian or foreign trading organiser). In other cases involving
transactions made, in particular, with over-the-counter traded securities,
market/estimated price ranges are calculated for adjustment purposes. Moreover,
in the event of a divergence from the market price range, security and
non-traded derivative prices are only adjusted when this benefits the treasury
(when the sales price is below the minimum market price range level and the
purchase price is above the maximum), which might entail double taxation. A
positive new development is that, given certain factors (such as acquisition of
a more than 5% stake in a company or price setting by a state authority), the
taxpayer may use transfer pricing methods to prove that the price of traded
securities complies with the market price (Section V.1 of the RF Tax Code),
without linkage to the stock market price range.
It is anticipated that, in
2015, the given rules will apply to all taxpayers and, from 2016, only to
controlled transactions under the rules of Section V.1.
New
procedure for determining the separate tax base and deducting losses on
securities and derivatives
Worth noting among the
amendments relating to taxation of securities and derivatives is that aspects of
“mixing” the profits and losses on such operations and the general tax base are
to be regulated in more detail. In particular, the general tax base will include
income and costs on operations with traded securities and derivatives, whereas
the tax base for non-traded financial instruments is determined separately.
Losses from operations with non-traded securities and derivatives may not be
deducted from the general tax base (with the exception of hedging operations,
swop and option contracts with clearing institutions). At the same time, the
overall tax loss on ordinary operations may be deducted from the profit on the
above operations. Special interim provisions are introduced to cover deduction
of losses arising before the end of 2014 and not already deducted. Separate,
more preferential provisions are envisaged for professional securities market
participants.
Changes
to the list of non-VAT-able operations (article 149 of the RF Tax Code) and
the proportion calculation rules (article 170 of the RF Tax
Code)
The RF Tax Code has been
amended to expand and specify the list of non-VAT-able operations and detail the
procedure for calculation of proportions for a series of financial
operations.
New
personal income tax investment benefit
In order to encourage
individuals to invest on the stock market, tax exemption is reinstated for sales
revenues from securities held for over three years (investment tax benefit), as
well as in the amount of the funds deposited in a special individual investment
account and of incomes received on operations performed on such an investment
account (up to a certain cap).
Let us recall that the RF Tax
Code used to include a rule on three-year exemption for securities but it was
difficult to apply, so it was subsequently scrapped. The new expanded regime is
to act as an additional incentive to individuals to invest on the Russian stock
market.
New
regulation of operations with depository receipts
The current personal income and
profit taxation applies, with certain specifics, to operations with depository
receipts, be they Russian or foreign, in relation to paper of Russian or foreign
issuers.
Other
amendments
Exemption for incomes in the
event of a reduction in authorised capital in accordance with the legislation of
the Russian Federation (subclause 4, clause 1, article 251 of the RF Tax Code)
is specifically prescribed. There is also a series of amendments designed, in
particular, to specify the taxation procedure relating to (partial) redemption
of securities, the specifics of non-fulfilment of a repo closing leg, in the
sphere of trust management profit tax and others.
Effective
dates
Most of the new law’s
provisions come into effect in 2015 but it stipulates other effective dates or
interim provisions (in particular, in relation to deduction of losses from
operations with securities and derivatives and investment tax benefits).
If no special enactment
procedure is specified for the provisions of the Federal Law, the general rules
apply: they come into effect no earlier than one month from their official
publication and no earlier than the 1st day of the regular tax period for the
relevant tax (apart from rules beneficial to taxpayers, which, in accordance
with part 1, article 6 of the Federal Law, come into effect on 1 January
2014).
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