Overview of Tax events for June 2019

Regulatory developments

The Russian Government’s Resolution No. 790 dated 22 June 2019 introduces an experiment which involves labelling clothing and other consumer goods for the period from 27 June until 30 November 2019.

The Russian Government’s Resolution No. 814 dated 26 June 2019 introduces another experiment which involves labelling perfumes and eau de toilette for the period from 1 July until 30 November 2019.

The Head of the Russian Ministry of Industry and Trade has announced that the tax free system can be extended to cover all Russian regions by the end of 2019.

The Russian Ministry of Finance is proposing that criteria should be altered of recognising a person as a Russian tax resident to be as follows: residence in Russia for 90 days a year, or having a centre of vital interests in the country.

Starting from 2020, Russian Federal Tax Service intends to exclude Panama and San Marino from the list of offshore zones that do not cooperate with the Russian agency in the sphere of tax information exchange.

Practice

The World Bank has cut its forecast of Russia’s GDP growth in 2019 from 1.5% to 1.2%. The tightening of monetary policy in combination with the VAT increase in 2019 further contribute to the declining growth rates in the remaining part of the year.

As follows from the report: “Monitoring the economic situation in Russia” prepared by the Russian Presidential Academy of National Economy and Public Administration, there is no noticeable growth of revenues from internal VAT in the Russian state budget after VAT was raised in 2019.

“That industry-based tax standards are being used by interregional and inter-district inspectorates reduces the administrative burden on business and simultaneously increases its transparency”, declared Sergey Arakelov, Deputy Head of the Russian Federal Tax Service.

In 1Q2019, the number of field tax audits dropped by 36% to 2,700 (as compared with 4,100 in 1Q2018).

Revenues from field tax audits grew by 10% to reach RUB 48 billion. With the VAT-2 automated control system taxpayers have voluntarily adjusted their tax liabilities by almost RUB 29 billion which demonstrates a growth of 2.4 times.

The number of appeals that were considered against the results of field tax audits reduced by 42% which is in proportion to the reduction in the number of such audits. The number of applications to court, after taxpayers’ appeals have been considered in higher tax authorities within the scope of the pretrial procedure, dropped by 11.4%. Courts have considered 23% fewer cases initiated based on the results of field tax audits.

The debt-to-income (DTI) ratio amounts to 7.4%.

Starting from 2019, foreign suppliers of e-services are paying VAT to the Russian state budget. The amount of tax which was accrued for 1Q amounted to RUB 12 billion. Such renowned companies as Google, Apple, Facebook, Microsoft, Sony Interactive, Booking.com, Amadeus, Discovery, and Bloomberg account for 70% of VAT accruals. A total of 1,580 foreign companies have registered with Russian tax authorities.

The potential increase of tax on sugar containing products and a trend towards healthy eating is pushing transnational corporations to modify their product range. Thus, the American company Mars Inc. has started to sell in Russia its first product in the healthy food segment, i.e. the Be Kind snack bar.

Additionally:

That excise duty has been imposed on non-alcoholic beverages with high sugar content will have a significant impact on consumer prices, the general director and head of the board of directors of The Coca-Cola Company stated.

The Russian Supreme Court has postponed until autumn its consideration of the new resolution of the Plenum regarding criminal liability for tax offences. The business community has expressed its concerns over some of the clarifications. The most ominous are the clarifications that virtually abolish the statute of limitations for tax evasion.