Overview of Tax events for July 2019

Regulatory developments

The Russian President has signed the following laws:

• on tax incentives in culture, education and healthcare. The law enables companies to reduce the profit tax base by deducting expenses on creating social infrastructure facilities transferred free of charge to state or municipal ownership. Constituent entities of Russia have been granted a right to provide an investment deduction to developers with respect to transportation, utility or social infrastructure facilities. Members of consolidated groups of taxpayers will be able to apply the investment deduction with respect to PP&E and expenses on completing construction, renovation or reconstruction of them;
• on clarifying the procedure for granting tax benefits to residents of priority development areas and the Free Port of Vladivostok. This will rule out situations when residents are denied the right to apply the profit tax benefits because of fluctuations of currency exchange rates;
• expanding the list of matters that may be included in an agreement to create a priority development area.

The Federation Council has approved amendments to the Russian Tax Code to reduce the VAT rate on fruit and berries including grapes from 20% to 10%. This law also contains a provision which abolishes the beneficial VAT rate on palm oil.

A Resolution of the Russian Government has been signed to increase the number of regions where VAT will be compensated to foreigners when they export goods outside the Eurasian Economic Union. This system now includes Veliky Novgorod.

By its Resolution No. 836 dated 29 June 2019, the Russian Government has decided to perform from 15 July 2019 to 29 February 2020 an experiment in labelling certain categories of dairy products with means of identification.

The Russian Government can revise the list of high-tech equipment, the import of which into Russia is not subject to VAT.

The Russian Ministry of Finance is planning to include grapes used for the production of wine in the list of excisable products in 2020.

The function of collecting from telecom operators mandatory payments for the use of radio frequencies can be transferred from the Federal Service for the Supervision of Communications, Information Technology and Mass Media (Roskomnadzor) to the Russian Federal Tax Service.

On 1 July the “Charter of good faith taxpayers in the Russian jewellery market” took effect for jewellers.

PRACTICE

The Ministry of Finance has circulated a notification that the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting has come into force.

The Association of good faith members of agricultural industry market has launched at the Хартия-апк.рф website a Data resource containing information on inconsistencies in tax reporting which enables users to check their contracting parties.

Based on the results of field tax audits, Russian subdivisions of Imperial Tobacco, British American Tobacco, Philip Morris International (PMI) and Donskoy Tabak (a part of Japan Tobacco International, JTI since 2018) received additional tax assessments of 60 billion roubles. The Tax Service has noticed that during the last 3 months of 2016 there was a sharp increase in the production of cigarettes which the manufacturers tried to ship to their affiliated distributors during the same period. By artificially building up sales, the companies fixed excise duty rates before they increased in 2019, thus reducing the tax burden.

The Head of the Russian Federal Tax Service has demonstrated a system which makes it possible to track in real time all purchases made in Russia.

The Russian Constitutional Court has confirmed that the incentive which exempts from taxation real estate items of the high energy efficiency class does not apply to non-residential buildings, premises or structures.

The Russian Constitutional Court has ruled that the recycling fee should not be paid on temporarily imported vehicles (Resolution No. 30-P dated 19 July 2019).

An overview has been prepared of the Russian Constitutional Court's and the Russian Supreme Court's legal positions on taxation in the second quarter of 2019.

The Russian Supreme Court:has expressed its opinion on movable property being reclassified as immovable (case No. А05-879/2018 concerning CJSC Lesozavod 25). No clear definition of movable property is available. The taxation depends on experts’ assessments and this creates an unequal position for taxpayers.

The Russian Federal Tax Service believes that the issue should be resolved at the level of tax authorities’ practice: criteria of movable property are being discussed, through to specific items, with the involvement of the business community.