Amendments to the Russian Federation Tax Code effective as of 1 January 2009

Practical Law UK Articles 7-386-3780 (Approx. 9 pages)

Amendments to the Russian Federation Tax Code effective as of 1 January 2009

by Irina Dmitrieva, White & Case LLP

Tax administration

Disputing decisions of the tax authorities

A decision of a tax authority to impose tax liability (and to deny imposition of liability) can now be disputed in court only after it is disputed with the superior tax authority by filing an appellate or general complaint.

An appellate complaint is filed before the disputed decision enters into force (that is, within ten days after its receipt) and postpones this decision from entering into force until the date when the decision on the appellate complaint is issued.

If this decision has not been disputed in the appellate order, a general complaint can be filed within one year after the decision is adopted.

The term for considering the complaints (both appellate and general) is one month, with a possible 15-day extension.

A taxpayer may dispute a tax authority's decision in court by filing a claim within three months following the day when it became known that the tax authority's decision entered into force.

The Minister of Finance's provision of deferrals or extensions for paying federal taxes

In 2009, the Russian Minister of Finance has the authority to provide deferrals or extensions for paying federal taxes (as well as deferrals or extensions for paying late-payment interest and fines) if the amount of indebtedness of the taxpayer exceeds RUB10 billion and its lump sum redemption creates the threat of adverse social and economic implications.

The deferral or extension can be provided without a security for a term of up to five years with the accrual interest at the rate of half the Russian Central Bank refinancing rate effective during the period of deferral or extension.

Use of evidence acquired by violating Tax Code regulations

Evidence acquired by violating Tax Code regulations cannot be used when tax authorities consider the results of tax audits and adopt relevant decisions. This rule develops the principle of not admitting unlawfully acquired evidence established in the Russian Constitution, Commercial Court Procedural Code and the Civil Procedural Code.

However, documents that are provided by a taxpayer to a tax authority that violate the statutory established terms cannot be regarded as being acquired in violation of the Tax Code.

Submission of amended tax returns before the end of a desk tax audit

If a taxpayer submits an amended tax return before the end of a desk tax audit, the audit of the previously submitted tax return stops and a new audit begins on the basis of the amended tax return.

The documents received by a tax authority when conducting an audit that was stopped can be used for subsequent tax control actions with respect to this taxpayer.

VAT

Import of technological equipment

As of 1 July 2009, the scope of the VAT exemption for imported technological equipment has been changed so that it is now available for any importation of such equipment (including importation under sale and purchase agreements, and not only importation as in-kind contributions to charter capital).

At the same time, this exemption is granted only to technological equipment, the equivalents of which are not produced in Russia, and which is included in the list approved by the Government.

VAT on advance payments

For the first time, purchasers of goods (works, services) are given the right to offset input VAT (paid with advance payments) before the actual receipt/transfer of the acquired goods (works, services).

At the same time, an obligation is introduced for the sellers of goods (works, services) to issue factura-invoices within five calendar days after receiving the advance payments.

Subsequently, on actual receipt/transfer of the goods (works, services), the purchaser restores the previously offset VAT on the advance payments and offsets input VAT that is charged with the purchase price.

Payment of VAT in non-cash settlements

The requirement to pay VAT by wire transfers when making barter transactions, offset of counterclaims and use of securities as a payment instrument that was introduced in 2007 is now abolished.

Therefore, VAT offset on non-cash settlements can now be made in accordance with general terms, without the requirement of actual payment of VAT.

Payment of VAT on construction-assembly works for self-consumption

Upon performance of construction-assembly works for self-consumption, VAT is assessed on the last day of each tax period (quarter). From now on, it is permitted to offset VAT in the same quarter (at the moment the tax base is calculated), without paying VAT to the state budget.

Therefore, when such works are performed, there is no need to use monetary funds for paying VAT to the budget.

Tax payments by instalments

As of 1 January 2008, the tax period for VAT for all taxpayers became a calendar quarter, and VAT was payable on a quarterly basis no later than the 20th of the month following the relevant quarter.

As of the third quarter of 2008, the order of VAT payment to the state budget was amended: VAT is now remitted to the state budget in even instalments no later than the 20th of each of the three months following the relevant quarter.

Therefore, taxpayers are in fact granted an "instalment plan" for paying VAT to the state budget. For example, following the fourth quarter of 2008, VAT is payable in even instalments before 20 January, 20 February and 20 March 2009.

VAT returns are still submitted on a quarterly basis no later that the 20th of the month following the relevant quarter.

Documenting VAT reimbursement decisions

From now on, on partial reimbursement of VAT, the tax authority will issue two decisions – on the partial reimbursement of the amount of VAT claimed for reimbursement and on the partial denial of reimbursement of the amount of VAT. The new rule implies that disputing the tax authority's decision on the partial denial of reimbursement would not affect decisions on the partial reimbursement of VAT from entering into force and, accordingly, the terms of reimbursing the amount of VAT that tax authority agreed to reimburse.

Excise tax

Tax rates

Tax rates for most of the goods that are subject to excise tax have been increased. At the same time, a further increase (10% on average) will occur in 2009-2011.

The increase applies, in particular, to excise tax rates for ethyl alcohol, alcohol products, cigarettes, cars with horsepower greater than 90, and for straight-run petrol.

Rates for gasoline and diesel fuel will remain unchanged until 2011. As of 2011, different tax rates will be introduced for different fuel types (lower rates for higher grades of fuel).

Individual income tax

Standard tax allowances

The standard monthly tax allowances have been increased:

The standard tax allowance in the amount of RUB400 now applies until the aggregate annual income of a taxpayer reaches RUB40,000 (previously, RUB20,000).
The standard tax allowance for each child is increased from RUB600 to RUB1,000. This deduction now applies until the aggregate annual income of a taxpayer reaches RUB280,000 (previously, RUB40,000). In addition, this deduction may now be doubled by one of the parents, at their discretion.

Property-related tax allowances

Tax allowance with respect to expenses for constructing or purchasing real estate has been increased from RUB1 million to RUB2 million with retroactive effect from 1 January 2008. This allowance can still be applied only once.

Taxation of interest on ruble loans and bank deposits

The rules for calculating the material benefit from interest rate savings for ruble loans (subject to individual income tax at 35%):

Taxable saving = 2/3 (previously, 3/4) of the Russian Central Bank refinancing rate – actual interest rate on the loan.

Interest on ruble bank deposits (subject to individual income tax at 35%):

In the part exceeding the refinancing rate of the Russian Central Bank plus 5% (previously, in the part exceeding the refinancing rate of the Russian Central Bank).

Based on the refinancing rate of the Russian Central Bank of 11.5% (effective since 5 June 2009), the need to pay taxes would arise if ruble deposits bear interest at a rate exceeding 16.5% and ruble loans bear interest at the rate of less than 7.67%.

The rules for calculating the individual income tax base for interest on loans and deposits in foreign currency are still based on the comparison of the actual interest rate with the 9% rate.

Payment of individual income tax on sale of property rights (such as participatory shares in Russian limited liability companies)

The order on the payment of individual income tax on the sale of property rights (such as participatory shares in Russian limited liability companies) has been amended. From now on, calculation and payment of individual income tax is the obligation of the individual seller (and not the corporate purchaser, as before).

Previously, this procedure applied only to the sale of property (including sale of shares in joint stock companies).

Payment of individual income tax on gifts

It is now the company's obligation to calculate and withhold individual income tax for gifts to individuals (in monetary form or in-kind) exceeding RUB4,000 per year.

Previously, it was an individual's obligation to calculate and pay individual income tax in such cases.

Profit tax

Profit tax rate

The profit tax rate has been decreased and its distribution between state and regional budgets has been changed:

Rates	Before 2009	As of 2009
Federal budget	6.5%	2%
Regional budget/usual	17.5%	18%
Regional budget/reduced	Not less than 13.5%	Not less than 13.5%
General/usual	24%	20%
General/reduced	Not less than 20%	Not less than 15.5%

For agricultural producers that have not opted for the special tax regime, the term for applying the reduced rates with respect to profits from producing and processing their own agricultural goods has been extended:

0% rate - until 2012 (inclusive).
18% rate - from 2013 to 2015.
20% rate - from 2016.

Conditions to apply the 0% rate for dividends received by Russian companies

The conditions to apply the 0% rate for dividends received by Russian companies have been clarified. It is determined that on the day when the decision to pay dividends is made, the relevant participation in charter capital (or depositary receipts that entitle the owner to receive dividends) must be owned continuously for 365 calendar days.

Previously, the Tax Code permitted the interpretation that this term should have been 365 working days.

Depreciation of fixed assets

The rules for the accrual of depreciation have been amended as follows:

The depreciation premium for fixed assets included in depreciation groups 3-7 (that is, with term of use from three to 20 years) has been increased from 10% to 30%.
As of 1 January 2008, the depreciation premium should be restored if fixed assets are sold within five years after they are put into operation
The choice of depreciation method (straight-line or double declining balance method) should be made for all the taxpayer's property as a whole (except for property for which the straight-line method must be used, (that is, for buildings, structures and transfer mechanisms, and intangible assets with a term of use exceeding 20 years included in depreciation groups 8-10)).
The depreciation method may be changed once every five years.
For double declining balance method purposes, depreciation is calculated with respect to depreciation groups (and not with respect to concrete assets).
The reducing depreciation ratio (0.5) with respect to cars and minibuses with a value exceeding RUB600,000 and RUB800,000 accordingly has been abolished.
The use of accelerated depreciation ratio (up to three) for leased fixed assets belonging to depreciation groups 1-3 is not permitted regardless of the applicable depreciation method (previously, this restriction was applicable only to leased property depreciated in accordance with the double declining balance method).
If a company undergoes reorganisation or liquidation, depreciation is accrued up to and including the month when such reorganisation or liquidation was registered (previously, it was not possible to accrue depreciation in that month).
If a lease agreement provides for the lessor's obligation to reimburse expenses of a lessee for inseparable improvements that were made by a lessee with respect to the lessor's property, the lessor is entitled to accrue the depreciation right after the inseparable improvements are put into operation (the factual reimbursement requirement has been abolished).
The exclusive rights for software are accounted for as depreciable property if their acquisition cost exceeds RUB20,000 (previously, according to the clarifications of the Ministry of Finance, RUB10,000). Expenses below this amount are subject to a one-off deduction.

Deduction of expenses

The following amendments have been introduced with respect to deducting expenses:

For the period from 1 September 2008 to 31 December 2009, the threshold for deducting interest has been increased from 1.1 to 1.5 of the refinancing rate of the Russian Central Bank (that is, since 5 June 2009, up to 17.25%) with respect to ruble loans and from 15% to 22% with respect to foreign currency loans.
Payments to the members of board of directors are non-deductible.
The threshold for deducting a travelling daily allowance has been abolished.
The threshold for deducting insurance premiums for personal voluntary insurance has been increased from 3% to 6% of the total amount of payroll expenses.
The list of expenses for voluntary property insurance is now effectively non-exhaustive; the deduction may be applied if the insurance is a Russian law requirement with respect to a certain kind of activity.
An increasing ratio (1.5) is introduced for deducting R&D expenses, including those that did not yield any positive results; the list of such expenses is to be approved by the Government of the Russian Federation.
Expenses on the development of natural resources using third-party contractors can be deducted when acceptance acts (interim or final) are signed by the parties (previously, such expenses could have been deducted only after the final act was signed by the parties).
Expenses for participating in a tender for acquiring a subsoil licence may be deducted (at the taxpayer's discretion):
- through depreciation of an intangible asset during the term of a license; or
- as other operating expenses during the following two years.
Previously, the Tax Code provided only for a depreciation mechanism for deducting such expenses.
The right to deduct losses from a sale of property rights (including the sale of participatory shares in limited liability companies) is now clearly established by the Tax Code.

Tax incentives for profit tax, individual income tax and unified social tax purposes for payroll expenses

The profit tax deduction and simultaneous individual income tax and unified social tax exemptions are now provided for the following expenses of employers for the benefit of their employees:

Reimbursement of the interest on loans and credits used for purchasing or constructing residential premises – up to 3% of payroll expenses. This incentive is effective up to 1 January 2012.
The amounts spent for employees' education in higher or specialised educational institutions on completing their higher or specialised secondary education.

Tax incentives for profit tax, individual income tax and unified social tax for co-financing pension savings

The following changes have been introduced to stimulate the additional financing of pension savings made in accordance with the Federal Law "On Additional Insurance Contributions for the Funded Part of the Labour Pension and State Support of Formation of Pension Savings":

Additional personal contributions of employees can be deducted from the individual income tax base as a social tax allowance (social tax allowances include, among others, expenses of up to RUB120,000 on medical treatment, pension coverage and insurance).
State contributions for co-financing the formation of pension savings effected from the National Wealth Fund of up to RUB12,000 or RUB48,000 are exempt from individual income tax.
Employers' contributions for the benefit of individuals making personal additional contributions:
- are exempt from individual income tax and unified social tax in the amount of up to RUB12,000 for one worker per year;
- are deducted (in an amount of up to 12% of the payroll expenses of the employer, including life insurance expenses, pension coverage and insurance expenses for the employees).

Natural resources production tax (NRPT)

The following amendments have been introduced to the procedure for calculating NRPT:

The "non-taxable threshold" for crude oil production has been increased from US$5 to US$15 per barrel.
The amount of oil produced is now determined in net weight units (that is, without water, oil-dissolved gas and contaminants, water, salts and foreign matrix contained in suspension state, determined by laboratory testing).
Oil fields north of the Arctic Circle, on the Azov and Caspian seas, in the Nenets Autonomous Area and the Yamal Peninsula have been added to the list of oil fields where the 0% rate applies. The 0% rate applies to a limited volume of oil produced, provided that the term of oil extraction does not exceed the specified limit.

Taxation of concession agreements

The Tax Code has been amended to include provisions regulating the taxation of concession agreements.

VAT

As of 1 October 2008, the VAT rules established for simple partnership and asset management agreements are extended to concession agreements:

The transfer of property or property rights under concession agreements is not deemed as realisation and is exempt from VAT.
It is the concessioner's duty to pay VAT and issue factura-invoices with respect to transactions made under a concession agreement, and the concessioner is also entitled to offset input VAT on goods (works, services) purchased for the purpose of executing the concession agreement.

Profit tax

Property and property rights received under a concession agreement are not deemed as taxable income.

The provision which states that received depreciable property is to be depreciated by the concessioner during the term of a concession agreement is now extended to property created under the concession agreement.

It is specified that for depreciation purposes, the acquisition cost of property received as an object of a concession agreement is calculated as its market value determined at the moment when it was received, increased by the amount of expenses for completion, reconstruction, modernisation, and so on, except for the amount of taxes that constitute a deductible expense.

The concessor's right to deduct expenses for concession payments is now clearly established by the Tax Code.

Property tax

Property received by Russian and foreign companies under concession agreements is taxed under general property tax regulations:

Russian companies and foreign companies conducting activity in Russia through permanent establishments pay property tax with respect to property received under concession agreements if it is accounted for on their balances as fixed assets.
Foreign companies without permanent establishments in Russia pay property tax for real estate received under concession agreements.

Amendments to the Russian Federation Tax Code effective as of 1 January 2009 | Practical Law