Numerous amendments to the Tax Code
Pepeliaev Group advises of the contents of amendmentsThis alert does not cover amendments made to the regulation of excise duties, mineral extraction tax, tax on additional income, state duty, special tax regimes and taxation of personal funds.
to the Russian Tax Code madeFederal Law No. 389-FZ ‘On amending parts one and two of the Russian Tax Code, certain items of the legislation of the Russian Federation and on suspension of the second paragraph of article 78(1) of part one of the Russian Tax Code’ dated 31 July 2023. This law came into force on the date when it was officially published on 31 July 2023.
in connection with the implementation of the main avenues of tax policy for 2024-2026.
I. Tax administration
1. The Law introduces a number of amendments to the regulation of the unified tax account and the aggregate obligation.
In particular, the previous approach to calculating the deadline for submitting an adjusted tax return to a reduction has been returned: if, when the single tax account was implemented, the previous 3-year period was reduced because there was need to include a desk tax audit, now the law explicitly states that within a 3-year period (calculated from the tax payment deadline) it is enough to submit an adjusted tax return (article 11.3(5)(4) of the Tax Code). However, this amendment will come into force only on 1 October 2023; for another two months the period will be calculated more strictly.
In the light of significant technical difficulties with the implementation of the unified tax account, the law has suspended for 2023 the new rule allowing the offset of a positive balance of the unified tax account against the obligations of another person.
If the tax authority determines that the figures of the tax return do not correspond to the control ratios, the information from tax returns will be taken into account when determining the amount of the aggregate obligation from the date when the decision enters into force based on results of the desk tax audit or within 10 days after its completion (second paragraph of article 11.3(5)(3.1) of the Tax Code). If violations are not identified, then the tax return can be taken into account earlier. Stricter rules are being introduced for a notification of the calculated amount of tax, which, if the ratios are violated, will be considered not filed.
2. The possibility is being introduced to notify the tax authority in electronic form of a person being granted the powers of a taxpayer's representative. Documents confirming the powers may be submitted to the tax authority by a person in the form of electronic documents signed with an enhanced qualified signature of the principal (article 29(3) of the Tax Code).
These amendments take effect on 1 March 2024.
Pepeliaev Group's Comment
A representative will be able to exercise powers not only on the basis of a written power of attorney, but also on the basis of a power of attorney in the form of an electronic document. In our opinion, this will significantly simplify interaction with tax authorities and the representation of taxpayers' interests, for example, when filing objections to a tax audit report. The formats of an electronic power of attorney and the procedure for submitting them to the tax authority will be approved by the Russian Federal Tax Service.
3. It will be possible to submit a bank guarantee to the tax authorities in electronic form (article 74.1 of the Tax Code has been amended). An electronic bank guarantee will be received by the tax authorities from guarantors via telecommunication channels. The format and procedure for presenting it will be established by the Russian Federal Tax Service subject to the Bank of Russia’s approval.
These amendments take effect on 1 April 2024.
4. The amounts prepaid by individuals as a single tax payment and that have formed a positive balance of the unified tax account will be credited against the upcoming tax payment obligation immediately upon the formation of the tax notification, and not at the onset of the tax payment deadline (article 78(8) of the Tax Code).
These amendments take effect on 1 October 2023.
Pepeliaev Group's Comment
Such a mechanism will potentially reduce the time for funds to be received to regional and local budgets from the current date (December) to the start of the campaign for sending tax notifications (August – September).
5. Foreign ‘electronic service’ providers will be required to register for tax purposes only if they interact with end consumers (work in the B2C segment). Currently the accounting obligation also applies to those who work in the B2B segment (article 83 (4.6) of the Tax Code).
These amendments take effect on 1 April 2024.
Pepeliaev Group's Comment
The amendments to article 83(4.6) of the Tax Code have been discussed in the business community for a long time. Owing to the current regulation, many foreign companies have decided to withdraw from the Russian market owing to the assessment of the correlation between possible accounting risks in the Russian tax authorities and the profit they receive here. The new regulation will comply with international practice and will solve this problem.
6. According to article 101(10) of the Tax Code, the tax authority may take measures aimed at ensuring the enforcement of a decision issued based on the results of a tax audit (a prohibition on disposing of property, a suspension of account transactions, etc.). The taxpayer may ask the tax authority to replace the interim measures with a bank guarantee, pledge or surety (article 101(11) of the Tax Code).
The law makes possible the partial replacement of interim measures. The same opportunity will emerge when the enforcement of the decision is suspended, if it is appealed to a higher authority.
These amendments take effect on 1 April 2024.
7. Property claims related to the exercise of the powers of the tax authorities can be submitted to the court only after compliance with the pre–trial procedure, which will become mandatory, after appealing the relevant decisions, actions or omission of the tax authorities to a higher tax authority (article 138 of the Tax Code).
These amendments take effect on 1 January 2025.
Pepeliaev Group's Comment
The pre-trial procedure will apply to taxpayers’ appeals to the court with demands for the return of taxes collected in excess (default payments or fines), interest payments, the return of an overpayment (offset), etc. Now, when applying to the court with such claims, the pre-trial procedure cannot be observed, which has been repeatedly confirmed by the Supreme Court of the Russian Federation (clause 48 of Resolution No. 18 of the Plenum of the Russian Supreme Court dated 22 June 2021). Previously, the presentation of a property claim made it possible to ‘cure’ the missing of a 3-month deadline for a judicial challenge to the decision of the tax authority at the cost of paying increased state duty. Under the new conditions, if the deadline for appealing to a higher authority is also missed, an appeal is filed, but left unconsidered on this basis, then further judicial protection is impossible (clause 66 of Resolution No. 57 of the Plenum of the Supreme Commercial (‘Arbitration’) Court of the Russian Federation dated 30 July 2013).
8. The new article 140.1 of the Tax Code regulates the process for considering a taxpayer's appeal under a simplified procedure.
The simplified procedure means that the appeal will be considered within 7 days from the date when it is received by the tax authority whose actions or omissions of officials are being appealed, and not by a higher tax authority.
In order to apply the simplified procedure, the taxpayer will have to send an appeal via telecommunication channels or through the taxpayer’s personal account and indicate such a desire in it.
The simplified procedure cannot be applied to appeals against decisions based on results of tax audits (article 101 of the Tax Code) and on imposing liability outside of tax audits (article 101.4 of the Tax Code).
These amendments take effect on 1 January 2025.
Pepeliaev Group's Comment
A simplified procedure for reviewing appeals may make practical sense, for example, if a taxpayer believes that the violation of the taxpayer’s rights is caused not by the position of the tax authority as such, but by a specific inspector, or was the result of a misunderstanding. However, the scope of the application of the simplified procedure concerns only the actions or inaction of tax authorities, as well as various procedural decisions.
The possibility to cancel a decision with the appointment of additional tax control measures, which was initially proposed by a higher tax authority, has been excluded from the final text of the law. On the one hand, this reduces the burden that could arise for business on the support of such measures; on the other hand, there remains the risk of approval by higher authorities of decisions with objective factual shortcomings. Employees of the tax service also feared that the cancellation of a decision under this procedure would entail the termination of interim measures taken when it was issued. There is a possibility that in the future such a rule will still appear, but the interim measures will remain in effect.
Among other amendments concerning tax administration, we note the emergence of the possibility of questioning witnesses within the framework of tax monitoring. Examinations also appear in this procedure – for VAT and for the same reasons as for desk tax audits.
II. Controlled foreign companies
A provision is added that the profit of a controlled foreign company (“CFC”) which is a foreign structure without the formation of a legal entity will not be taken into account for tax purposes if the following conditions are simultaneously met with respect to such a structure:
- the above structure, in accordance with its personal law, is a form of collective investment;
- the profit (income) of the above structure in accordance with its personal law is not subject to taxation;
- the profit distributed by the above structure (the income paid by it) in favour of its members (shareholders and other persons) or beneficiaries is subject to accounting when the tax base for taxes is determined from taxpayers recognised as controlling persons of this structure, in accordance with the relevant chapters of part two of the Tax Code.
Compliance with these conditions will need to be indicated in the CFC notification (article 25.14(6)(11) of the Tax Code).
These amendments take effect on 31 August 2023.
III. Liability for non-compliance with tax legislation
1. The law increases the fine for a tax agent for a failure to provide a calculation of the amounts of income paid to foreign companies and withheld taxes and allows the suspension of transactions on the accounts of the tax agent for this violation.
The fine is now RUB 200 (article 126(1) of the Tax Code). According to the new rules the fine will be the same as for a failure to submit a tax return (article 119(1) of the Tax Code) – 5 % of the unpaid amount for each full or incomplete month from the date set for its submission, but not more than 30% of the specified amount and not less than RUB 1,000.
If the calculation has not been submitted 20 days after the deadline, the tax authority will suspend operations on the tax agent’s accounts (article 76(3.2) of the Tax Code).
A special procedure is also established for filling in the updated calculation of amounts of income paid to foreign companies and taxes withheld for the past reporting (tax) period (article 81(6) of the Tax Code).
These amendments take effect on 1 January 2024.
2. Liability is introduced for non-compliance with the prohibition on disposing of (transferring as collateral) a person's property without the consent of the tax authority (article 125 of the Tax Code). Such an action will be punished with a fine of RUB 30,000.
These amendments take effect on 31 August 2023.
3. The new article 126.3 of the Tax Code establishes liability of companies and individual entrepreneurs for submitting false information for the purposes of taxpayers who are individuals obtaining deductions under a simplified procedure.
Liability is introduced for companies and individual entrepreneurs to which individuals turn for services in the area of education, healthcare, rehabilitation or insurance of social risks and who will submit such information to the tax authorities in accordance with the new first paragraph of article 221(3.1) of the Tax Code.
The fine will amount to 20% of the tax amount illegally received by the taxpayer in connection with the provision of a social tax deduction based on false information.
Companies and individual entrepreneurs will be released from liability if they independently identify errors and if adjusted documents are submitted before they learned that the tax authority had identified that inaccurate information was provided.
These amendments take effect on 1 January 2024.
IV. VAT
1. Article 149(3)(23.1) of the Tax Code, regulating the exemption from VAT of a developer's services, is being amended. Now sub-clause 23.1. describes shared construction property that may be the subject matter of the developer’s services that are exempt from VAT: “residential buildings, or residential and/or non-residential premises, parking spaces that are part of multi-apartment buildings”. The exemption from VAT will not apply if the subject matter of the developer's services is the construction of apartments (as described in the law, “premises intended for temporary residence (without the right to permanent registration)”).
These amendments take effect on 1 January 2024.
2. The limit is increased from RUB 100 to RUB 300 of VAT exempt expenses on purchasing or creating a unit of products transferred for advertising purposes.
These amendments take effect on 31 August 2023.
Pepeliaev Group's Comment
The current limit of the above expenses was introduced in 2005.
3. The sale of a tourist product in the field of domestic tourism and/or inbound tourism by a tour operator is exempt from being subject to VAT (article 149(3)(39) of the Tax Code). The exemption applies from 1 July 2023 until 20 June 2027 inclusive.
4. Amendments are being made to the regulation of the exercise of digital rights.
There is a rule for determining the tax base for the shipment of goods, the sale of which is taxed at a rate of 20 %, on account of the payment received when a hybrid digital right (which includes a digital financial asset and a utilitarian digital right) is issued, if a zero rate was applied when paying (article 154(6.1) of the Tax Code).
These amendments take effect on 1 October 2023.
5. The possibility to refund VAT under an accelerated procedure within the amounts of previously paid taxes is extended until 2025 inclusive (article 176.1(2)(8) of the Tax Code).
In addition, certain grounds for applying the VAT refund application procedure will require the provision of a bank guarantee or a surety agreement to the tax authorities in the amount of the VAT claimed for refund.
These amendments take effect on 31 August 2023.
6. The law introduces a mechanism for a tax agent to pay VAT when authorities grant the right of limited use of a land plot (an easement) owned by them in Russia (article 161 of the Tax Code).
The tax base in this case is determined by the tax agent separately for each land plot encumbered with an easement.
These amendments take effect on 1 October 2023.
V. Taxation of remote employees and persons providing services via the Internet
1. Income of a remote employee which is paid by a Russian company or by a structural unit of a foreign company registered in Russia will be recognised as income from sources in Russia (article 208(1)(6.2) of the Tax Code).
For such income, even if it is received by non-residents, the general rate of personal income tax will apply, which is 13 % (15 % of income exceeding RUB 5 million per year).
These amendments take effect on 1 January 2024.
Pepeliaev Group's Comment
The legislature has essentially equated the taxation of employees working remotely for Russian employers (regardless of where they perform their work functions) with the taxation of ‘ordinary’ Russian workers. On the one hand, this will remove many of the problems that arise now (whether an employer should check whether its employee retains the status of a tax resident of Russia; changes in rates if the employee’s residency status changes during the year; self-filing of tax returns by employees, etc.). However, many double taxation treaties establish other rules. For example if an employee working remotely for a Russian company has obtained the status of a tax resident of Türkiye, then this employee’s income cannot be subject to tax in Russia under the treaty (article 15 of the Double Taxation Treaty with Türkiye).
2. Remuneration received by the taxpayer for the work performed (services supplied), intellectual property rights provided for use, if the transaction is performed in the Internet using a Russian domain zone, an information system, Russian complexes of software and hardware tools is recognised as income from sources in Russia, provided that at least one of the following conditions is met:
- the taxpayer is a Russian tax resident;
- the income is received on an account in a Russian bank;
- the sources of payment of income are Russian companies, individual entrepreneurs, notaries who are in private practice, attorneys at law who have established their own private legal practice, or structural units of foreign companies in Russia.
The tax rate is 13 %/ 15 %.
Pepeliaev Group's Comment
A reimbursement of individuals who work remotely under civil law agreements will be subject to personal income tax if there is any link to Russia. However, possible collisions with double taxation treaties should be taken into account if the person receiving income is a tax resident of another country.
3. Compensation of implied expenses of a remote employee related to the use of equipment that he/she owns or leases, in the amount of no more than RUB 35 for each day of when a labour function is performed, or in the amount of a remote employee's expenses actually incurred and documented (article 217(1) of the Tax Code), is exempt from taxation.
In the same manner, this compensation will be exempt from the taxation of insurance contributions (article 422(1)(2) of the Tax Code).
VI. Personal income tax: other amendments
1. Currently individuals independently pay tax from dividends received from sources outside Russia. The law establishes the obligation for a tax agent with regard to such income for brokers, trustees and depositories, if monetary funds are credited to their accounts (article 214(2) of the Tax Code).
These amendments take effect on 1 January 2024.
2. The law introduces a unified provision of RUB 700 of non-taxable income in the form of a daily allowance or field allowance for employees whose permanent work is performed en route or is itinerant nature, and bonuses for rotational work schedule. Also an increased threshold of RUB 2,500 per day has been established for business trips outside Russia. Within the framework of the new provisions such payments will also not be subject to insurance contributions (article 422(2) of the Tax Code).
These amendments take effect on 1 January 2024.
3. The exemption from personal income tax is extended for 2023 when a controlling person receives property and property rights from a CFC (article 217(60.2) of the Tax Code).
4. Amounts of obligations terminated in 2023 by debt forgiveness under a contract for the sale and purchase of shares (membership interests in the issued capital) of a Russian company concluded after 1 March 2022 are exempt from personal income tax if the seller was a foreign company or a foreign citizen who is not a tax resident of Russia (article 217(60.3) of the Tax Code).
Pepeliaev Group's Comment
These two provisions extend the opportunities of individuals within the framework of ‘deoffshorisation’ to transfer assets they own through foreign companies or structure to their direct ownership with adverse tax implications.
5. The law regulates the application of a property tax deduction when property rights are sold, exchanged or redeemed (article 220(2)(2) of the Tax Code).
These amendments take effect on 31 August 2023.
Pepeliaev Group's Comment
Tax legislation allowed property deductions only when the property was sold, while property rights are not recognised as property for tax purposes.
However, the Presidium of the Russian Supreme Court in its Resolution dated 22 July 2015 in case No. 8-PV15 specified that a taxpayer has the opportunity, when determining the personal income tax base, to reduce the amount of income from the sale of property rights by the amount of actually incurred and documented expenses related to the acquisition of such property rights. Now the legal position of the Russian Supreme Court is enshrined in the law.
6. Foreign companies that pay income to individuals under civil law agreements to bank accounts in Russia will be recognised as tax agents (article 226(1.1) of the Tax Code). These companies must register for tax purposes no later than the date of the first such payment (article 80(4.10) of the Tax Code).
The exception is the transfer of funds through Russian companies; then they bear the obligation of the tax agent. Subjects of the national payment system, banks, as well as telecom operators specified in Federal Law No. 161-FZ “On the National Payment System” dated 27 June 2011 will not be recognised as tax agents.
These amendments take effect on 1 January 2025.7. With respect to the interest (coupon) on bonds paid by the depository to a brokerage account, a special brokerage account or a trustee’s bank account used by the above trustee for the separate storage of the funds of founders of the management, the broker or trustee is recognised as a tax agent (article 226.1(5) of the Tax Code), and not the depository.
The amendments come into force from the date when the law is published (31 July 2023).
8. If bonds of foreign companies (Eurobonds) owned by the taxpayer as at 1 March 2022 are exchanged for (replaced with) bonds of Russian companies, the tax base for such a transaction is not determined (article 214.1(13) of the Tax Code).
When selling (redeeming) replacement bonds received by the taxpayer as a result of such exchange (replacement), documented expenses on the purchase of Eurobonds owned by the taxpayer before their exchange (replacement) are recognised as expenses of the taxpayer.
These amendments take effect on 1 January 2024.
9. If depositary receipts certifying the rights to shares obtained as a result of their automatic conversion are redeemed, the term of such shares in the taxpayer’s ownership is calculated from the date when such depositary receipts are acquired until the date when such shares are sold (article 219.1(2)(3) of the Tax Code).
These amendments take effect on 1 January 2024.
Pepeliaev Group's Comment
These two amendments make it possible to replace Eurobonds and depositary receipts owned by taxpayers with Russian securities ‘seamlessly’, that is, without additional tax consequences.
VII. Profit tax (all amendments will take effect from 31 August 2023)
1. The exemption from the taxation of income in the amount of obligations terminated by forgiveness of debt and described in article 251(21.5) of the Tax Code is extended until the end of 2023:
- under a loan agreement (credit), the lender (creditor) under which, as at 1 March 2022, was a foreign company or a foreign citizen;
- under a sale and purchase agreement for shares (membership interests) of Russian companies concluded after 1 March 2022, the seller of which is a foreign company or a foreign citizen;
- related to the payment to a foreign member of a limited liability company of the actual value of a membership interest upon withdrawal from the company or as a result of its exclusion from the company in 2022-2023. For this type of obligations, the law does not limit the ways of termination by forgiveness of debt; perhaps it also means the expiration of the limitation period for its recovery.
Upon a further sale of these shares (membership interests), their value for the purposes of profit tax is recognised as zero (article 268(1)(2.1) of the Tax Code).
2. Income in the form of replacement bonds received as a result of an exchange is exempt from taxation (article 251(1)(33.3) of the Tax Code).
3. The value of replacement bonds received by a taxpayer who is a holder of Eurobonds as a result of the exchange is recognised as the value of these Eurobonds formed in the taxpayer’s tax accounting when they were acquired (article 280(5.1) of the Tax Code).
4. The value of the property (property right) received by the taxpayer without incurring the costs of its acquisition will be determined in the amount recognised upon receipt of this property (property right), taking into account the costs associated with bringing it into a state in which it is suitable for use, unless Chapter 25 of the Tax Code provides otherwise (article 252(6) of the Tax Code).
5. In cases of an extension, retrofitting, reconstruction, renovation, overhaul, partial dismantling and on other similar grounds irrespective of the residual value, the original value of both fixed assets and intangible assets changes (article 257(2)(1) of the Tax Code).
6. When depreciable property is being sold, in forming the initial value of which a coefficient of 1.5 was applied, the loss from the sale of such depreciable property is recognised as zero (article 268(3) of the Tax Code).
7. It will become possible to recognise expenses for voluntary property insurance when calculating tax, if it is aimed at compensating expenses (losses, lost income) that may arise as a result of an insured event and are taken into account when tax is calculated (article 263 of the Tax Code).
8. The carrying forward of losses to the future, limited to 50% of the current year’s profit, has been extended until 2026 (article 283(2.1) of the Tax Code).
9. Article 306 of the Tax Code introduces provisions aimed at suppressing the abuse of the rules for determining the status of a permanent establishment on the part of foreign companies.
10. In accordance with the current version of article 310(1) of the Tax Code, a tax agent, when paying income to a foreign company in foreign currency, calculates withholding tax on the date of when the withholding tax is paid. The law establishes a new rule: the tax must be calculated at the official exchange rate of the Russian Central Bank on the date when the income is paid.
VIII. Property taxes (all amendments will take effect from 1 January 2024)
1. If the taxpayer does not submit to the tax authority a statement on the ruining or destruction of a vehicle or a real estate facility, the calculation of the transport tax (corporate property tax) is terminated from the first day of the month of the ruining or destruction of such a facility on the basis of information received by the tax authority from the internal affairs bodies (articles 362(3.1) and 382(4.1) of the Tax Code).
2. The procedure for terminating the calculation of transport tax in respect of stolen vehicles has been regulated (article 362(3.5) of the Tax Code). The calculation of the tax is terminated on the basis of an application for the termination of the calculation of the tax from the first day of the month when the search for the vehicle begins until the month of its return.
3. If the location of the vehicle is changed during the tax (reporting) period, the tax at the new location is calculated starting from the first day of the month following the month in which the specified changes occurred (article 362(3.6) of the Tax Code).
4. The list of facilities in respect of which corporate property tax is calculated based on the cadastral value includes multi-apartment buildings and rented houses (article 378.2(1)(4) of the Tax Code).
5. If a land plot is occupied by both a residential fund or engineering infrastructure facilities of housing and utilities, and other facilities, then the land tax base is determined as the share of the cadastral value of the entire land plot in proportion to the part of the land occupied by other facilities (article 391(2) of the Tax Code).
The taxpayer must submit a notification with the relevant information to the tax authority.
What to think about and what to do
The main part of the amendments will come into force in 2024; for some, as noted above, other timeframes have been set for their entry into force. We recommend analysing the amendments now in order to identify ambiguities and contradictions that generate risks, as well as improvements that create new opportunities for a legitimate reduction in the tax burden.
Help from your adviser
We are ready to advise you on any practical issues related to amendments in the Tax Code.
Translated by the Translation Department of Pepeliaev Group.