Changes in tax benefits. Benefits for production modernisation

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Investment tax deduction

Draft law No. 274631-7[1] provides that between 1 January 2018 and 31 December 2027 a new article of the Russian Tax Code (article 286.1 - Investment tax deduction) will be in effect.

According to this article, provided that the relevant regional law is adopted, taxpayers will be entitled to reduce profit tax by the amount of expenses on the acquisition of new fixed assets and/or on the reconstruction (modernisation, technical re-equipment) of the existing fixed assets. The tax payable to the regional budget may be not less than the amount calculated at the rate of 5%, and the tax payable to the federal budget may be reduced to zero.

At the same time, taxpayers who have exercised the right to an investment tax deduction will not be able to apply bonus depreciation with respect to the relevant assets and to book the depreciation when the profit is taxed.

An investment tax deduction is possible with respect to fixed assets included in depreciation groups 3-7 starting from the period when the fixed asset is commissioned or when its initial value is changed. The fixed assets must be located within the Russian constituent entity that has adopted the relevant law.

The regional law may establish additional limitations as to the amount of the deduction, the range of persons and categories of fixed assets.

Комментарий ПГ

Please be advised that it is not the tax base that is reduced by the amount of the expenses, but the tax amount, which makes the benefit more profitable compared with other benefits. At the same time, for a decision to use the benefit to be taken, the efficiency needs to be calculated subject to a number of factors.

Taxation of movable property

According to article 381(25) of the Russian Tax Code (the "Tax Code"), movable property booked as fixed assets after 1 January 2013 is not subject to property tax. From 2018 the powers to grant this benefit will be delegated to Russia's constituent entities.

Draft law No. 274631-7 provides that the term for the powers to be delegated should be postponed to 1 January 2019.

Currently, a draft law submitted by the Ministry for Economic Development is at the stage of public consultation. This draft law proposes that tax on movable property be abolished altogether [2]. Most likely, the extension of the federal benefit for 2018 is related to the need for sufficient time for a decision to be made with respect to the initiative of the Ministry for Economic Development.

Комментарий ПГ

If draft law No. 274631-7 passes successfully, the effective period of the laws of the Moscow and Nizhny Novgorod Regions (that were adopted earlier and that introduce this benefit in the relevant territories from 1 January 2018) is likely to be postponed to 1 January 2019. If the initiative of the Ministry for Economic Development is implemented, there will be no more need for such laws at all.

Federal Law No. 286-FZ dated 30 September 2017 makes changes to article 381.1 of the Tax Code. According to such changes, the benefit provided for by article 381(21) of the Tax Code (with respect to assets with high energy efficiency) may be granted from 2018 to taxpayers only provided that there is a relevant regional law. It cannot be ruled out that the amendments to the second reading of draft law No. 274631-7 will postpone the effective period of this provision to 1 January 2019, since so far there have been no discussions at the regional level as to whether this benefit should be preserved.

Help from your adviser

Pepeliaev Group's lawyers have extensive experience of safeguarding the rights and lawful interests of clients in the area of establishing and applying tax benefits at the federal and regional levels. Our team is ready to provide legal assistance to companies in connection with the planned changes.

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