A recent law implementing certain provisions of the Ministry of Finance’s Main Areas of Tax Policy for 2017 (“MATP”) was approved by the Federation Council on 18 November 2016 and was signed by the President Vladimir Putin on 30 November 2016.
The majority of the changes in the law would take effect as of 1 January 2017, including the following key provisions:
1. The law limits the carryover of losses to the current reporting (tax) period from prior tax periods to 50% of the taxable base of the current tax period (before reduction by such losses). The 50% limitation on the use of losses will not apply to tax returns filed in 2016, but will apply in 2017. The 10-year limitation on the carry-forward of losses is also temporarily eliminated until 31 December 2020.
Certain taxpayers will not be affected by this amendment (e.g., members of a Free Economic Zone; participants of the Special Economic Zone in the Magadan region, etc.).
2. The 50% limitation on the use of carryover losses would also apply to a consolidated group of taxpayers (hereinafter referred to as a “CGT”). The new rules restrict the losses incurred by individual CGT participants to 50% of the CGT taxable base.
Given that the main goal of creating a CGT is to calculate and pay corporate income tax based on the aggregate financial result of the business activities (including losses) of the CGT participants, this amendment will bring eliminate a key goal of a CGT.
3. Penalties for late payment of taxes or duties by entities and individual entrepreneurs will be increased. For a delay not exceeding 30 calendar days, the penalty will be 1/300 of the refinancing rate of the Russian Central Bank for each calendar day of delay. For a delay exceeding 30 calendar days, the penalty will be 1/150 of the refinancing rate for each calendar day of delay. This provision will apply to late payments occurring after 1 October 2017.
4. Under new rules, a taxpayer will be entitled to a rapid VAT refund if the taxpayer provides either a surety agreement or a bank guarantee; currently only a bank guarantee is sufficient. A surety must meet certain criteria, including that the surety is a “major taxpayer”, defined as a taxpayer which paid at least RUB 7 billion of federal taxes for the previous year.
The same surety provision applies to exempting from tax the sales of excisable goods shipped outside of Russia. However, for this purpose the surety is subject to stricter requirements: the surety must have paid at least RUB 10 billion of taxes for the previous year.
5. Interest-free loans between related Russian parties and the grant of a surety (guarantee) where all parties are Russian non-banking entities are no longer treated as controlled transactions for transfer pricing purposes.
6. New excise tax rates will apply to certain excisable goods and the list of excisable goods is expanded (electronic nicotine delivery systems, liquids for such systems, tobacco (tobacco products) to be consumed by way of heating).
In addition, for certain types of excisable goods for tax periods from 1 September through 31 December, the excise tax has been increased.
7. The cadastral value of a property can now be challenged, unless a resolution of the supreme government agency of the relevant constituent entity of the Russian Federation continues the prohibition on such challenges, but then only until 20 December 2016. Any error in the cadastral value of a land plot is to be corrected starting with the tax period in which the error affected the tax base. Therefore, if a taxpayer proves that the cadastral value of his/her land plot is incorrect, such error will be remedied not only prospectively but also retrospectively.
8. The law makes the first attempt to delegate the right to establish corporate property tax allowances from the federal level down to the regional level. The proposal entitles regional authorities to determine tax benefits in respect of property located in the Russian part of the Caspian Sea floor and movable property. If there are no regional laws establishing such allowances by 1 January 2018, such allowances will not apply from that date.
In conclusion, the law will result in an increased tax burden on businesses, notwithstanding assurances to the contrary from the minister of finance during recent parliamentary hearings.