On 26 March 2022, Russia’s President signed Federal Law 67-FZ* (the “Law”) introducing an anti-crisis package of tax support measures for businesses.
Below is our overview of the main changes for corporate taxpayers. The tax changes that are relevant for individuals will be overviewed in a separate publication.
Corporate profits tax
Application of transfer pricing rules
According to the new Law, the revenue threshold for recognising cross-border transactions between related parties as controlled transactions for transfer pricing (the “TP”) purposes has been increased from RUB 60m to RUB 120m (EUR 649,529 to EUR 1.3m)** per calendar year.
For the business community, this has been a long-anticipated measure to reduce the administrative burden of documenting small intra-group transactions. However, in the current market situation it is most likely meant to neutralise to some extent the depreciation of the rouble exchange rate in cross-border flows.
Moreover, domestic transactions will not be subject to TP control during the period of 2022-2024, where at least one party to a domestic transaction enjoys investment tax relief under Article 286.1 of the Russian Tax Code.
Finally, the Law extends the application period until 31 December 2023 for extended “safe harbour” ranges for arm’s length interest rates on inter-group loans established during the COVID-19 pandemic.
In addition, the lower range for rouble cross-border loans has also been set at 0%. Previously, this measure applied only to domestic rouble debt obligations.
By clicking here you will find the comparability analysis of the arm’s length ranges under the general rules and under the Law.
Clarified rules for calculating thin capitalisation
The Law provides for a temporary freeze of foreign exchange rates when calculating excessive interest for controlled debts determined in accordance with Article 269(2) of the Russian Tax Code for the period from 1 January 2022 to 31 December 2023.
According to the Law, the amount of controlled debt denominated in foreign currency is determined at the official rate set by the Central Bank of the Russian Federation (the “CBR”) as of the last reporting date of the relevant reporting tax period, but not exceeding the official rate set by the CBR as of 1 February 2022.
At the same time, the amount of equity as of the last day of each reporting tax period will be determined without regard to the FOREX differences that arose during the period from 1 February 2022 to the last day of the reporting tax period, on which the capitalisation ratio is determined.
Similar rules were applied in 2020 and 2021 during the COVID-19 pandemic, when the rate was fixed as of 28 February 2020.
Extended list of non-taxable forgiven debts
The taxable income of Russian taxpayers will temporarily exclude income from debt forgiveness under the loan agreements made before 1 March 2022 with a foreign entity and/or foreign citizen that in 2022 adopts the decision to forgive the debt.
The taxable income will also exclude debts forgiven by a new foreign lender (legal entity or individual), acquired by that lender as a result of a debt assignment before 1 March 2022.
The Law does not set any additional criteria for such an exemption (e.g. the minimum percentage of direct or indirect shareholding owned by the foreign lender in the Russian debtor). Thus, theoretically this rule may apply both to intra-group loan obligations and obligations to third parties.
New incentives for IT-companies
Under the Law, IT companies will enjoy a 0% corporate profits tax rate during the period between 2022 and 2024, instead of 3%. Interestingly, the Law does not introduce any new eligibility criteria for this incentive, thus the general conditions set out in Article 284(1.15) of the Russian Tax Code will continue to apply to IT-companies.
This measure has been introduced in pursuance of Russian President Decree No. 83 dated 2 March 2022, on which we previously reported.
The procedure for recognising FOREX differences has been changed: foreign exchange differences recognised in profit (in 2022-2024) or loss (in 2023-2024) shall be recognised on termination (i.e. discharge) of claims (i.e. obligations) denominated in foreign currency.
Thus, unrealised foreign exchange gains and losses are excluded from tax reporting, which significantly reduces the impact of estimated values on the amount of tax. The asymmetry in the time periods is not coincidental: these changes allow the recognition of all foreign exchange losses arising in 2022 while limiting the amount of foreign exchange gains starting from 2022.
The Law entitles taxpayers to switch to monthly advance payments based on actual profits during 2022, starting from a reporting period of three months.
Note that the normal procedure is to make such a switch from the beginning of a tax period (i.e. year). A similar measure was taken in 2020 due to the pandemic and is aimed at reducing potential tax overpayments.
A zero rate of VAT has been set on certain tourism services
A 0% VAT rate applies to (i) services related to the provision of a tourism industry facility for lease or use if it is put into operation after 1 January 2022 and included in the register of tourism industry facilities for a period of up to five years; and (ii) services involving the provision of temporary accommodation in hotels or other accommodation facilities until 30 June 2027.
The list of taxpayers that may apply for accelerated VAT refund has been expanded
All taxpayers who are not under reorganisation or liquidation or subject to any bankruptcy proceedings at the time of applying for a VAT refund will be eligible for an accelerated VAT refund up to the amount of taxes they paid for the preceding year.
VAT may be refunded in excess of the taxes paid for the preceding year subject to the provision of a bank guarantee or suretyship.
The measure is aimed at ensuring that taxpayers can quickly replenish their working capital with the amount of the VAT refund. The Federal Tax Service estimates that the tax refund will take, on average, eight days from the date when the application is filed.
It is important to note that under the general procedure taxes will be refunded only upon completion of a desk tax audit and in practice such a refund takes at least two to three months, while the accelerated refund procedure (i.e. refund upon application) was previously available only to limited taxpayers who met certain requirements.
Property tax and land tax
Cadastral value as of 1 January 2022 will be used to calculate corporate property tax and land tax for the 2023 tax period.
However, this rule will not apply if the cadastral value decreases in 2023, or if the increase in the cadastral value is due to a change in the characteristics of a property. Therefore, the effect of inflation on the tax base is eliminated.
The Law has abolished the multipliers 1.1 and 2 where transport tax is calculated for 2022 for vehicles worth between RUB 3m (EUR 32,476) and RUB 10m (EUR 108,254).
Therefore, the multipliers will only apply to vehicles worth over RUB 10m (EUR 108,254).
According to the Law, there will be no fines for failure to provide documents confirming the amount of CFC profits, or for providing documents containing false information for the 2020 and 2021 financial years (i.e. the 2021 and 2022 tax periods).
Note that the fines for failure to provide such documents under the general procedure or at the tax authorities’ request amount to RUB 500,000 (EUR 5,412) and RUB 1m (EUR 10,825), respectively. It is likely that the cancellation of fines for the 2021-2022 tax periods is attributable to the potential difficulties that controlling persons may face in obtaining financial statements due to the restrictions imposed.
Also, there will be no fines for tax underpayment as a result of applying prices deviating from the arm’s-length ones in the controlled transactions where income and/or expenses are recognised for the period between 1 January 2022 and 31 December 2023, regardless of the date of a relevant contract.
According to general rules, such a fine will amount to 40% of the unpaid tax, but not less than RUB 30,000 (EUR 324).
Finally, for the period between 9 March 2022 and 31 December 2023, late payment interest will not be doubled where companies delay payment of tax for over 30 calendar days. This measure is obviously aimed at neutralising a significant rise in the rate of late payment interest in this period pro rata to the increase in the CBR key rate in 2022.
* In Russian
** As of 1 April 2022