Publications

As we pre­vi­ously re­por­ted, for­eign pro­viders of elec­tron­ic ser­vices may face prac­tic­al dif­fi­culties with pay­ing VAT to the Rus­si­an budget.As a solu­tion to this prob­lem, in its Let­ter No. SD-4-3/3807@* dated 30 March 2022 the Fed­er­al Tax Ser­vice of Rus­sia (the “FTS”) gave a num­ber of re­com­mend­a­tions on pay­ing VAT for elec­tron­ic ser­vices provided by for­eign en­tit­ies.The FTS re­com­mends that Rus­si­an cus­tom­ers of elec­tron­ic ser­vices cal­cu­late, with­hold and pay VAT them­selves as tax agents. It is also re­com­men­ded that Rus­si­an cus­tom­ers (i.e. leg­al en­tit­ies and self-em­ployed en­tre­pren­eurs) in­form for­eign ser­vice pro­viders that they act as tax agents and pay VAT to the Rus­si­an budget.It is cla­ri­fied that in such a case, Rus­si­an tax au­thor­it­ies will have no grounds to re­quire that the for­eign en­tity re­peatedly pay VAT to the budget and re­cog­nise the rel­ev­ant trans­ac­tions in its VAT tax re­turns. By vol­un­tar­ily with­hold­ing VAT, Rus­si­an cus­tom­ers re­tain the right to de­duct the in­put VAT. This po­s­i­tion is in line with the stand­ard ap­proach pre­vi­ously set out by the FTS in its Let­ter No. SD-4-3/7937@* dated 24 April 2019.   At the same time, this re­com­mend­a­tion of the FTS seems to be more rel­ev­ant for fu­ture pay­ments for elec­tron­ic ser­vices to for­eign ser­vice pro­viders and does not re­solve the prob­lem with pay­ing VAT for the first quarter of 2022, if the cus­tom­er failed to vol­un­tar­ily pay VAT to the budget due from pay­ments made to the for­eign ser­vice pro­vider.Fur­ther­more, this re­com­mend­a­tion will not ap­ply to for­eign ser­vice pro­viders if elec­tron­ic ser­vices are provided to cus­tom­ers who are in­di­vidu­als.Fi­nally, in its new let­ter the FTS does not cla­ri­fy wheth­er pro­vi­sions re­gard­ing the vol­un­tary pay­ment of VAT to the budget and the eli­gib­il­ity of Rus­si­an cus­tom­ers for VAT de­duc­tion ap­ply if the for­eign pro­vider of elec­tron­ic ser­vices is not re­gistered with Rus­si­an tax au­thor­it­ies. Ac­cord­ing to the lit­er­al in­ter­pret­a­tion of Art­icle 171 (2.1) of the Rus­si­an Tax Code, VAT de­duc­tion is pos­sible only sub­ject to sup­port­ing doc­u­ments show­ing the iden­ti­fic­a­tion de­tails of a for­eign e-ser­vices pro­vider as be­ing tax-re­gistered in Rus­sia.Thus, the new cla­ri­fic­a­tions provided by the FTS demon­strate the com­mit­ment of Rus­si­an tax au­thor­it­ies to ad­dress­ing the prob­lems that for­eign busi­nesses cur­rently face. However, they do not solve all chal­lenges in pay­ing VAT to the Rus­si­an budget, in­clud­ing for the first quarter of 2022. Giv­en the above, for­eign pro­viders of elec­tron­ic ser­vices should dis­cuss with their for­eign banks in ad­vance wheth­er it is pos­sible to pay VAT to the Rus­si­an budget, and to con­sider al­tern­at­ive pay­ment op­tions (e.g. via in­ter­me­di­ar­ies).We will con­tin­ue to mon­it­or the situ­ation and keep you in­formed of any fur­ther changes.* In Rus­si­an

8 April 2022

8 April 2022

6 April 2022

5 April 2022

1 April 2022

In the cur­rent eco­nom­ic and polit­ic­al en­vir­on­ment, and tak­ing in­to ac­count the lim­it­a­tions now im­posed by many for­eign banks with re­spect to the trans­fer of funds to Rus­sia, we ex­pect that for­eign pro­viders of elec­tron­ic ser­vices may face prac­tic­al dif­fi­culties with pay­ing VAT to the Rus­si­an budget for the first quarter of 2022. Ac­cord­ing to the ap­plic­able le­gis­la­tion, the tax is due to be paid on or be­fore 25 April 2022.Ac­cord­ing to the in­form­a­tion at our dis­pos­al, In­ter­re­gion­al tax in­spec­tion No. 7 in charge of the elec­tron­ic ser­vices’ agenda is col­lect­ing in­form­a­tion from tax­pay­ers on ex­pec­ted prob­lems with pay­ments with a view to provid­ing tech­nic­al solu­tions.That be­ing said, for­eign pro­viders of elec­tron­ic ser­vices in Rus­sia should con­firm with their for­eign banks in ad­vance wheth­er it is pos­sible to pay VAT to the Rus­si­an budget in due time. Any prob­lems iden­ti­fied may be re­por­ted to the In­ter­re­gion­al tax in­spec­tion No.7 via the feed­back form in the tax­pay­er’s on­line ac­count.For­eign pro­viders of elec­tron­ic ser­vices may also dis­cuss with their Rus­si­an cus­tom­ers the VAT pay­ment mech­an­ism for the flows. For ex­ample, the Rus­si­an cus­tom­er may choose to vol­un­tar­ily with­hold the VAT due from the pay­ment made to the for­eign pro­vider, us­ing the mech­an­ism provided in the let­ter* of the Fed­er­al Tax ser­vice dated 24.04.2019 No. СД-4-3/7937@. However, this ap­proach may be ap­plied only in re­spect of fu­ture pay­ments to the for­eign pro­viders.* In Rus­si­an

11 April 2022

The Rus­si­an Fed­er­al Tax Ser­vice has, for the first time, ac­know­ledged that a loss-mak­ing trans­ac­tion may still be con­sidered arm’s-length for trans­fer pri­cing pur­poses in Rus­sia in its let­ter No. ShYu-4-13/2724@* dated 5 March 2022 (the “Let­ter”).Ac­cord­ing to the Let­ter, in the cur­rent eco­nom­ic en­vir­on­ment, where the ap­plic­able sanc­tions in­tro­duced at the US and EU level may in­flu­ence the eco­nom­ic con­di­tions of com­mer­cial trans­ac­tions, Rus­si­an tax­pay­ers may be forced to sell their goods pro­duced for ex­port­a­tion abroad with a dis­count, which may in cer­tain cases lead to a loss res­ult­ing from such trans­ac­tions.This be­ing said, the Fed­er­al Tax Ser­vice should con­sider that these cir­cum­stances may in­flu­ence the pri­cing ap­plied in, and the res­ults of such trans­ac­tions, when con­duct­ing the trans­fer-pri­cing con­trol over such trans­ac­tions and when con­sid­er­ing ap­plic­a­tions for ad­vance price agree­ments filed by tax­pay­ers.Com­ment­sAl­though Rus­si­an tax au­thor­it­ies have his­tor­ic­ally pro­nounced their in­ten­tion to con­sider the eco­nom­ic cir­cum­stances of the trans­ac­tions per­formed when con­duct­ing trans­fer-pri­cing audits, they have nev­er be­fore in prac­tice con­firmed the pos­sib­il­ity of re­cog­nising loss-mak­ing trans­ac­tions as per­formed in com­pli­ance with trans­fer-pri­cing re­quire­ments.This was not even the case dur­ing the COV­ID-19 pan­dem­ic, when tax au­thor­it­ies sug­ges­ted that tax­pay­ers ap­ply the ad­just­ments aimed at en­sur­ing the com­par­ab­il­ity of the com­mer­cial terms of tested trans­ac­tions, which was for­mu­lated rather vaguely in Rus­si­an tax le­gis­la­tion.However, this new ini­ti­at­ive, al­though rep­res­ent­ing a pos­it­ive shift in the per­cep­tion of Rus­si­an tax au­thor­it­ies, still leaves a vast num­ber of open ques­tions to be cla­ri­fied.For ex­ample, it is not clear what eco­nom­ic cir­cum­stances Rus­si­an tax au­thor­it­ies will ac­tu­ally con­sider when as­sess­ing the com­pli­ance of the trans­ac­tion with the arm’s-length prin­ciples. In prac­tice, ac­com­pa­ny­ing eco­nom­ic con­sequences of the sanc­tions, such as ex­change-rate volat­il­ity or tem­por­ary sus­pen­sion of cer­tain busi­nesses in Rus­sia, may have even stronger in­flu­ence on the res­ults of the com­mer­cial trans­ac­tions than the im­me­di­ate re­stric­tions in­tro­duced as part of the sanc­tions pack­ages.Moreover, the Let­ter ex­pli­citly ad­dresses the tax­pay­ers en­gaged in ex­port­a­tion of the goods pro­duced, while cur­rent eco­nom­ic con­di­tions will likely in­flu­ence the prices charged in and the res­ults of vari­ous types of trans­ac­tions per­formed in Rus­sia, in­clud­ing im­port­a­tion of goods to Rus­sia, pro­vi­sion of works and ser­vices, trans­ac­tions with in­tel­lec­tu­al prop­erty, etc. It is un­clear wheth­er sim­il­ar ap­proaches would ul­ti­mately be ap­plic­able to a wider range of cross-bor­der trans­ac­tions, fall­ing un­der trans­fer-pri­cing con­trol.Fi­nally, the Let­ter does not ad­dress the pos­sib­il­ity of per­form­ing cross-bor­der ad­just­ments aimed at re­duc­tion of tax pay­able to the Rus­si­an budget, cur­rently pro­hib­ited un­der the le­gis­la­tion in force. However, such ad­just­ments may in fact be re­quired in the cur­rent con­di­tions, es­pe­cially in cases when the Rus­si­an parties to the con­trolled trans­ac­tions hold en­tre­pren­eur­i­al status, and are thus gen­er­ally bound by the ob­lig­a­tion to en­sure arm’s-length prof­it­ab­il­ity to their routine coun­ter­parties.Our tax team will be closely mon­it­or­ing fur­ther anti-crisis de­vel­op­ments in the trans­fer pri­cing do­main and will re­port on any such changes.* In Rus­si­an

On 9 March 2022, the Rus­si­an Pres­id­ent signed the Law* on the fourth stage of the cap­it­al am­nesty. Ac­cord­ing to the Law, un­der the fourth stage, in­di­vidu­als will be able to sub­mit, between 14 March 2022 and 28 Feb­ru­ary 2023, a spe­cial de­clar­a­tion re­flect­ing as­sets sub­ject to leg­al­isa­tion. The am­nesty will ap­ply to acts com­mit­ted be­fore 1 Janu­ary 2022.Cap­it­al am­nesty is the vol­un­tary de­clar­a­tion by in­di­vidu­als of their for­eign ac­counts, real es­tate, se­cur­it­ies and oth­er prop­erty held abroad. It in­volves the trans­fer of de­clared prop­erty to Rus­sia without crim­in­al, ad­min­is­trat­ive and tax li­ab­il­ity when the rel­ev­ant vi­ol­a­tions are re­lated to the de­clared prop­erty and ac­counts.Un­der the first three stages, which took place in 2015, 2017 and 2019, in­di­vidu­als were en­titled to sub­mit in­form­a­tion to the Fed­er­al Tax Ser­vice on land and oth­er im­mov­able prop­erty, vehicles, se­cur­it­ies (in­clud­ing shares), as well as par­ti­cip­at­ory in­terests and equity stakes in or­gan­isa­tions, con­trolled for­eign com­pan­ies and bank ac­counts loc­ated out­side Rus­sia that had not been de­clared be­fore.In con­trast to the pre­vi­ous stages, in­di­vidu­als will also be able to de­clare cash. Also, the word­ing “se­cur­it­ies” has been re­placed by “fin­an­cial as­sets”, al­low­ing not only shares and bonds, but also de­riv­at­ive fin­an­cial in­stru­ments (e.g. fu­tures, op­tions, etc.), to be de­clared in the fourth stage. The list of sup­port­ing doc­u­ments to be at­tached to the spe­cial de­clar­a­tion has been sup­ple­men­ted.In re­la­tion to cash, guar­an­tees will be giv­en provided that the de­clar­ant de­pos­its the cash spe­cified in the de­clar­a­tion in­to cur­rent or sav­ings ac­counts with Rus­si­an banks with­in 30 days from the date of sub­mis­sion of the de­clar­a­tion to the tax au­thor­ity.Com­ment­sThe Law does not cla­ri­fy how cash de­pos­its in­to bank ac­counts will be con­firmed. It is also un­clear wheth­er cash flow state­ments on for­eign ac­counts will be audited and wheth­er it is ne­ces­sary to have doc­u­ments to prove the trans­ac­tions re­flec­ted in them. In this re­gard, we will fol­low fur­ther de­vel­op­ments in this area and keep you in­formed of new cla­ri­fic­a­tions.Those who par­ti­cip­ated in the pre­vi­ous stages of the cap­it­al am­nesty can also par­ti­cip­ate in the fourth stage. However, the Law does not provide for re­peat de­clar­a­tions with­in a single stage (i.e. a de­clar­a­tion can be sub­mit­ted only once). As a res­ult, it is im­port­ant to ana­lyse all as­sets and as­sess the pos­sib­il­ity of de­clar­ing, guar­an­tees and risks.The CMS Rus­sia team is ready to as­sist in this field by not­ably:car­ry­ing out an as­set ana­lys­is to as­sess the feas­ib­il­ity of par­ti­cip­at­ing in the cap­it­al am­nesty (in­clud­ing wheth­er it is pos­sible to file a de­clar­a­tion, con­sequences, be­ne­fits of ob­tain­ing guar­an­tees and po­ten­tial risks);pre­par­ing a spe­cial de­clar­a­tion and re­ports for pre­vi­ous peri­ods (i.e. ODDS, 3-ND­FL);as­sist­ing with the pre­par­a­tion of a set of sup­port­ing doc­u­ments;as­sist­ing with fil­ing re­turns to the tax au­thor­it­ies.  * In Rus­si­an