Comments by Methodology Department, BDO Unicon Outsourcing
We can currently see that the Government is actively trying to tighten control over taxpayers to improve budget revenues.
Insurance Contributions
The Order of FTS on the changes in the calculation form and procedure for insurance contributions will take effect on 1 January 2018. It will be applied as soon as the calculation of insurance contributions for the first accounting period of 2018 is filed. There will be no major change however. The new calculation form refines the following indicators:- Section 1 “Aggregate Data on Insurance Contributor’s Liabilities” will include a new schedule to reflect the amounts contributed to additional social benefits of civil aircraft flight crew members, as well as specific categories of coal miners;
- the form of data for the individual entrepreneurs who use the patent tax system will be cancelled;
- the parties partaking in the Social Insurance Fund’s pilot project (entities domiciled in the regions where temporary disability and maternity allowances are paid directly by the Social Insurance Fund) will not have to fill in the schedules dedicated to compulsory social insurance expense;
- the filling procedure will be complemented with the provision to disallow negative values of the indicators in the calculation;
- the electronic format (content and structure of the XML file exported from the calculation software to be submitted to IFTS) will be elaborated. Furthermore, the draft prepared by the Government of the Russian Federation envisages that starting from 1 January 2018, the calculation base cap for insurance contributions will amount to: RUB 815,000 for compulsory social insurance in case of temporary disability and RUB 1,021,000 for compulsory pension insurance. This news is not particularly good for companies, as this is the maximum base for the accrual of insurance contributions from the amounts payable to employees, payments above which are accrued at a discounted rate.
Profit Tax Relief
Starting from January 2018, the list of legal entities eligible to a zero-rated profit tax will be expanded. This is evidenced by Federal Law No. 168-FZ, dated 18.07.2017. The list of such taxpayers includes the companies engaged in travel and recreation activities in the Far Eastern Federal District. This decision was made under the programme for the creation of a comfortable climate for the development of travel and recreation activities in the Far Eastern Federal District. However, the term of the relief is limited: it will be valid in the period from 1 January 2018 to 31 December 2022.The relief is a kind of bait similar to the law concerning the insurance contributions, and yet it will provide the travel industry with an opportunity to improve the service quality, attract new clients, and mobilise cash flows to business expansion.
As early as in March, Anton Siluanov proposed to cut the amount of contributions to insurance funds from 30% to 22%, but concurrently raise the VAT rate from 18% to 22%. Nevertheless, Maxim Topilin, Minister of Labour and Social Protection of the Russian Federation, warned that this sort of changes might lead to higher poverty. At present, it is likely that the Government will abandon the idea of this “tax manoeuvre.”
A reduction of insurance contributions circumstantially entails an increase in companies’ current assets and cost reduction for goods, works, and services. On the other hand, insurance contributions are normally included in expense for the purpose of profit taxation. In this case, expense goes down which increases the profit tax base and the amount of tax payable to the budget. An increase of the VAT rate will result in the appreciation of goods, works, and services, which will turn into an additional tax burden for Russia’s entire population.
Reality of the Deal
In 2017, the Tax Code of the Russian Federation was complemented with the new Article 54.1 designed to counter aggressive tax optimisation mechanisms, but failing to specify the reality criteria and tax authorities’ special powers in this area during the inspection. This explains why the FTS described its understanding of the situation in the letter that is supposed to guide tax officers during the inspection (Letter of the Tax Service of the Russian Federation No. ED-4-9/22123@, dated 31.10.2017). Herein, the issue concerning the reality of the deal is addressed from the perspective of understated taxes, levies, and insurance contributions on the part of taxpayers.During the inspection, tax officers will also use the old methods: interviews, examinations, comparisons, etc. Meanwhile, the letter indicates that a tax authority is not supposed to use all these methods as a tribute to formal procedures, but should clearly see and analyse the practicality of each tax control activity to be taken.
Besides, the FTS letter states that tax authorities must disprove the reality of a deal by proving that the obligations under the deal were fulfilled by a third party rather than by a party to the agreement made by and between the relevant parties. Tax authorities are entitled to apply the following tools to that end:
- auditing all the company’s accounts;
- comparing the volume of the goods supplied to the size of the company’s warehousing facilities;
- taking inventory of the company’s assets;
- procuring explanations from the parties involved in the process (deal, transaction, etc.). Tax officers are entitled to call in any employees (even those who are no longer employed) for an interview;
- examining the sites, premises, documents, and items with the help of necessary hardware and software.
Occupational Standards for Accountants
Starting from 2018, the Ministry of Labour and Social Protection will require a higher education certificate and will impose the duty to combat corruption. This requirement will be binding upon the legal entities (open joint-stock companies, insurance companies, pension funds, state-funded organisations, etc.) that are mandated to apply the occupational standard under law.Today, the chief accountant is involved in the internal control system by the nature of the occupation and due to tradition. Under the new standard, the employer is entitled to include these duties directly in the employee’s job description, including the duty to reveal instances of corruption. Furthermore, the draft introduces new and more senior positions for financial specialists. The authors of the standard highlight that this is necessary in order to harmonise the multitude of chief accountants’ functions and duties. This tool is supposed to put some clarity in the relations between the director and chief accountant: the former may legitimately impose new duties on a specific employee, while the latter may legitimately request a pay rise.
The new standard introduces the 7th and 8th qualification levels. For instance, requirements to Level 7 chief accountant are as follows: executive-level experience of at least 5 years, knowledge of IFRS and financial analysis standards, knowledge of the labour and fiscal legislation.
The Ministry of Labour’s draft also changes requirements to accountants: previously, an accountant had to have work experience, while starting from 2018, this requirement is not mandatory. But if a first-timer asks for a promotion after the first month, you will be able to refer him/her to the new rules, according to which a young specialist cannot be promoted sooner than after a year.
Introduction of changes in the job descriptions of accounting personnel and professional development thereof under the new standard shall apply exclusively to the legal entities that are bound thereby under law. As for the other companies, the new rules are non-regulatory and must be implemented by each employer in compliance with the provisions of the labour legislation without infringing upon the rights of accounting unit’s employees.
The level of education attests to the accountant’s professionalism, which mitigates risks to the company. Legal changes will equally result in the labour input optimisation in the company through the introduction of new competences and skills — a professional accountant must consistently take care of his/her professional development. However, these advantages are relevant solely for large and medium-size companies. Small companies where the director is oftentimes the chief accountant will incur additional expense:
- the salary of a professional accountant will be higher than the salary of an entry-level chief accountant;
- payment of annual membership fees;
- sponsorship of the professional accountant’s annual training.
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