Latest changes in legislation and legal precedents

1.     Three basic directions of the most immediate efforts of the FTS:

A) development of e-services taxation (as of 2017, VAT will apply to content (music, video, games, software, etc.) sold by foreign companies to Russian residents via the internet.) For that purpose, the FTS website will deploy personal accounts for foreign companies so that they could obtain TIN, pay VAT, and submit their accounts. If this experience proves worthy, the FTS will expend it to other categories of foreign companies not present in Russia (for instance, construction sites.).

B) Work with supervisors will continue, and for that reason international cooperation of tax administrations from around the world will continue to disclose supervised entities.

C) As of 2018, they plan to deploy automatic data exchange between tax administrations from different countries: for now, it’s about obtaining data on legal entities in 83 nations, i.e. their financial statements, bank accounts, country accounting, etc. Prior to 2018, such exchange will be on demand of tax entities. According to Andrei Konkov, the deputy head of Legal Entities Taxation Directorate of the Federal Tax Service of Russia, the exchange is highly effective as other countries are willing to provide data on organizational structure of holdings and operations of separate legal entities (are there actual operations, how many employees there are, are their taxes paid, etc.) which finds its use both in challenging reasonability of expenses to the benefit of foreign companies and in application of laws on transfer pricing, determination of actual beneficiaries, etc.

2.    The most important changes in 2016:

A) Federal Law 325-FZ d.d. Jul.3, 2016: amendments to the Criminal Code (effective as of Jul.15, 2016):
•    decriminalization of actions under clauses 199 and 199.1.
•    Criminal liability for major tax evasion by a company starts with 5 million rubles of unpaid taxes (instead of 2 million) for the period of 3 financial years, provided at least 25 per cent of taxes have not been paid (instead of 10 per cent);
•    Liability for major tax evasion by organizations starts with 15 million rubles of unpaid taxes (instead of 10 million), provided at least 50 per cent of taxes have not been paid (instead of 20 per cent);
•    In case of concealment of monetary resources (amendment to clause 199.2 of the CCR), those responsible may be relieved from criminal liability if the crime was committed for the first time, and those responsible have paid out doubled (instead of fivefold) amount of the actual damage.

B) Federal Law 290-FZ d.d. Jul.3, 2016 on online cashier offices
•    As of 02.01.2017, registration of ‘old’ cashier machines is prohibited;
•    As of 07.01.2017, most companies and individual entrepreneurs have to switch to online cashier machines (with the exception of UTII, patented individual entrepreneurs, etc.)
•    As of 07.01.2018, all companies are obliged to switch to online cashier machines.

C) Government Decree No. 300 d.d. Apr.13, 2016: currency control
•    Russian Financial Supervision Office is discontinued, while its functionality is assigned to the FTS and the FCS (the latter to control currency operations related to import and export of goods.)

D) Federal Law 243-FZ d.d. Jul.3, 2016: administering insurance risks
•    As of January 1st, 2017, administration of insurance fees is assigned to tax entrities (expect for accident and occupational hazard insurance still administered by the SIF.)
•    Base rate of 34%, while 30%+10% for the transition period up to 2018.

E) Federal Law 130-FZ d.d. May 1,2016 on tax inspections
•    As of 06.02.2016, tax payers are entitled to submit clarifications under chamber inspections only in e-form
•    New amendments to the procedures or challenging rulings of tax authorities after inspections:
- execution of valid ruling by the FTSI may be suspended for the term of appealing should TPS is provided;
- the tax entity must invite the taxpayer to the review of the appeal in case there are discrepancies between the FTSI data and the data found in the taxpayer’s documents

F) Federal Law 134-FZ d.d. May 1, 2016 on tax secrecy
•    As of 06.01.2016 tax secrecy doesn’t cover the data on:
- average number of employees
- the amount of taxes paid by the company in the previous calendar year
- income/expense amounts as per accountancy reports for the previous year

They’re also considering entitling tax authorities to demand provision of conclusions from auditors as of 01.01.2018. The ministry of finance has prepared a respective bill, yet it hasn’t been introduced to the parliament so far.

G) Federal Law 401-FZ d.d. Nov.30, 2016: recovery of tax arrears from individuals
•    As of 11.30.2016, tax authorities are entitled to reccover tax arrears for periods over 3 months from individuals legally recognized as dependant on taxpayer organizations.
•    The Tax Code defines that dependant individuals are those capable of influencing conditions/results of transactions by a company, and/or economic results of the company’s operation (it covers founders, shareholders, and CEO’s.)
•    Dependant individuals will be liable to the amount of monetary assets received from the taxpayer.

H)  Federal Law 401-FZ d.d. Nov.30, 2016: penalty fees increased
•    As of 01.01.2017, there is a penalty fee for each calendar day of arrear for companies and individual entrepreneurs to the tune of:
- 1/300 of policy rate (now it’s 10 per cent) for arrears up to 30 calendar days inclusive
- 1/150 for arrears over 30 calendar days
•    Penalty fees for individuals not being individual entrepreneurs remain 1/300 of policy rate

I) Federal law 401-FZ d.d. Nov.30, 2016: excise tariffs
•    As of 01.01.2017, excise tarrifs increase for:
           - wine (with some exclusions): from 9 to 18 rubles/liter
           - cigarettes
           - 4th and 5th class gasoline, and diesel fuel
•    New excises are introduced for:
           - e-cigarettes (40 rubles a piece);
           - nicotine-containing liquids (10 rubles a milliliter)

J) Federal Law 244-FZ d.d. Jul.3, 2016: e-services
•    The concept of place of supply for e-services in Russia is expanded:
- the customer’s place of residence is Russia
- the bank operating the account which is used for the purchase is in Russia
- the customer has a Russian IP
- a Russian phone number is used for the purchase
•    introduction of a new taxable object for VAT (rendering e-services via VAT, including provision of content, advertisement services, etc.)
•    foreign companies rendering e-services to individuals in Russia are obliged to:
- register with the special online portal of the FTS;
- pay the services VAT to the amount of 15.25 per cent (computed interest rate).

K) Federal Law 32-FZ d.d. Feb.15, 2016: applicability of double taxation treaties clarified
•    As of 02.15.2016, the concept of a person actually entitled to receive revenues is extended: it may also be an organization on behalf of which an individual is entitled to handle revenues obtained by the organization or the person directly/indirectly controlling it.
•    While taxing revenues of a foreign entity from Russian sources, only a DTT of a person actually entitled to receive revenues is applicable.
•    As of 2017, a company has to provide the following to a Russian tax agent company to use DTT benefits:
- tax residency certificate;
- confirmation of actual right to receive revenue (company statement + group organizational scheme).

L) Federal Law 401-FZ d.d. Nov.30, 2016: carry forward of losses
•    For the period of 01.01.2017 through 12.31.2020, there is a limitation for carry forward of losses: tax base cannot be reduced by more than 50% in the current tax period.
•    Carry forward of losses from operations taxed at zero per cent (education/medical entities, agricultural manufacturers, Skolkovo, etc.) is not allowed, plus there are some other limitations (realization of shares, etc.)
•    The limitation doesn’t cover some instances as per item 2.1 of clause 283 of the RTC, including:
- special economic zone residents;
- participants of regional investment projects.

M) Federal Law 25-FZ d.d. Feb.15, 2016: ‘thin cap’ regulations
•    As of 01.01.2017, an unsettled indebtedness of a Russian company to the following entities is considered controlled:
- foreign individual/company that directly/indirectly owns a share in the debtor of at least 25 per cent;
- foreign individual/company if the direct participation interest of each previous entity in each subsequent organization is at least 50 per cent;
-‘sister’ company of aforementioned entities;
- aforementioned individual/company if said entity is an underwriter, or otherwise maintains fulfillment of obligations.
•    The following is not considered a controlled indebtedness:
- debt to Russian tax residents not mutually dependant on aforementioned foreign entities, if the former have no debt for comparable obligations (item 8 of clause 269 of the RTC);
- debt to banks not being mutually dependant where underwriters are mutually dependant, unless the main debt has not been settled or paid by said mutually dependant individuals has occurred as of the time of obligation (item 9 of clause 269 of the RTC.)

N) Federal Law 401-FZ d.d. Nov.30, 2016: new structure of revenue taxes:
•    As of January 1st, 2017, revenue tax structure changes as follows:
- 3 per cent (instead of 2 per cent) to the federal budget
- 17 per cent (instead of 18 per cent) to the regional budget
•    Regional authorities are entitled to reduce the regional part of revenue tax rate to 12.5 per cent (instead of 13.5 per cent.)