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The Russian Federal Tax Service about the adequacy of expenses on the prevention of the coronavirus infection

28.08.2020

In its Letter No. SD-4-3/13046@ dated 13 August 2020, the Russian Federal Tax Service cited the earlier position of the Russian Ministry of Finance and affirmed that companies’ expenses on the purchase of individual and collective protection gear (antiseptic products, thermometers, masks and gloves), as well as expenses on the sanitation of premises may be deducted for taxation purposes under articles 264 and 252 of the Russian Tax Code (the “Tax Code”).

It should be noted, however, that under article 264(1)(7) of the Tax Code other expenses include expenses of such kind that are aimed at compliance with sanitary and epidemiological and disease control requirements of authorities in connection with the spread of the new coronavirus infection. While in its letter, the Federal Tax Service points out that expenses on preventing COVID-19 must be made subject to the recommendations of the Russian Federal Service for Surveillance on Consumer Rights Protection and Human Wellbeing ("Rospotrebnadzor"). 

Therefore, the Federal Tax Service interprets broadly the legislative provision which classifies the coronavirus-related expenses as other expenses by allowing deduction of such expenses based on the recommendations of authorities as well. This is probably due to the severe consequences (from fines to complete shutdown for quarantine) that may arise if such “recommendations” are not followed. 

Specifically, the Federal Tax Service cites the recommendations set forth in Rospotrebnadzor’s Letter No. 02/7376-2020-24 dated 20 April 2020, which prescribe the following:
  • wet cleaning of premises and workplaces on a daily (shift) basis using disinfectants of virucidal action;
  • disinfection of all contact surfaces (door knobs, switches, railings, office machines, etc.) every 2 to 4 hours;
  • the use of bactericide recirculation lamps in the premises where workers are present on a permanent basis;
  • providing employees with a stock of single-use masks (based on the shift, at least every three hours), as well as disinfecting wet towels, skin sanitisers for washing hands, disinfectants, and gloves.
At the same time, the Federal Tax Service points out that expenses on the purchase of individual and collective protective gear must be adequate and correspond to the number of working employees, the frequency of the cleaning of items and sanitation of premises, as well as to the floor area of the premises that need to be sanitised. It should be noted that the criterion of “adequacy” of expenses has never been encountered in tax regulation before. The Federal Tax Service is apparently trying to avoid any objections that tax authorities do not have the right to assess the practicality and reasonableness of expenses of entrepreneurs. However, it is obvious that essentially the same categories are being discussed. 

Therefore, it is doubtful that the tax authority may assess whether the expenses are adequate if such expenses are aimed at supporting and preserving the taxpayer’s activity in the complicated situation of the existing pandemic. The expenses incurred by an enterprise that takes measures above those prescribed by Rospotrebnadzor should also be booked in the tax base as they meet all the criteria of article 252 of the Tax Code.

It is clear, however, that if expenses on preventing the coronavirus are comparable with Rospotrebnadzor’s recommendations this will help to avoid questions from tax authorities.

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