Resolution by the RF Government No. 372 of 30.04.2009 “On approval of the list of technological equipment (inclusive of components and spare parts thereto) with no analogues manufactured in the Russian Federation, imports of which into the customs territory of the Russian Federation is exempt from value added tax”
It took the Government four months to implement a new provision of the Tax Code regarding VAT exemption of imported equipment with no analogues offered by Russian manufacturers.
The list lacks metal-working machinery (it includes special machinery for aircraft industry only) and agricultural machines although other types of equipment are represented extensively – ranging from gas turbines to medical sterilizers. Practically the whole range of printing equipment has been exempted from VAT.
The new exemption will supersede the earlier one which exempted from VAT any Technological equipment imported as contribution to share capital of Russian companies. Therefore now VAT is payable on equipment outside the list enacted by the Government which is imported as contribution to share capital.
The new exemption will take effect on July 1, i.e. on the 1st day of the quarter following the quarter in which the resolution was published.
Expenses of Negotiations with Individual Customers May Be Recognised as Representation Expenses
Letter by the Finance Ministry of the RF No. 03-03-06/2/64 of 27.03.2009 “On accounting of representation expenses incurred in negotiations with individuals”
Referring to an individual query the Finance Ministry authorised recognition of expenses of negotiations with individuals as representation expenses for profit tax purposes (with regard to the limits in effect). This authorisation shall be treated with care since pursuant to Article 264 of the RF Tax Code representation expenses include, among others, costs of negotiations with representatives of organisations only.
Exchange Gains on Loans in Conventional Units: the Two Controversial Approaches by Finance Ministry
Letter by the Finance Ministry No. 03-03-06/1/124 of 12.03.2009
Letter by the Finance Ministry No. 03-03-06/1/204 of 02.04.2009
The issue of accounting for tax purposes of exchange gains arising from revaluation of principal amount denominated in conventional units has become a highly relevant one in the context of the weakening rouble.
Two organizations addressed the Finance Ministry with the interval of two weeks and got two different answers. Mr. Ilya Trunin, Director, Tax and Customs Tariff Policy Department, concluded that exchange gains arising from revaluation of loan obligation denominated in conventional units should not be deducted for profit tax purposes.
His deputy, Mr. Sergey Razgulin, considered that negative gain should be treated as consideration for the loan and recognised for tax purposes as interest on debt liability (Art. 269 of the RF Tax Code), i.e. exchange gain under 1.5 of the refinancing rate may be recognised within expenses.
Authors of the both letters agree on one aspect: this gain is not an ordinary exchange gain arising from revaluation of liabilities and claims since the RF Tax Code recognises as ordinary only those gains that relate to disposal of goods, works, services and property titles (Par. 11.1 Art. 250 and Subpar. 5.1 Art. 265 of the RF Tax Code).
We cannot but point out certain slyness of the authors who repeatedly recognised extension of loan as a financial service – as long as the issue of levying VAT on loan interest was concerned. Now that due to a weaker rouble negative gains can materially reduce profit tax budgetary incomings, the Finance Ministry is looking for options to exclude or reduce the impact of this factor. Still, uncertainty regarding the issue remains and we recommend using caution when revaluing loans.
Russia and Cyprus Initialled Protocol to Double Tax Treaty
Competent authorities of Russia and Cyprus initialled protocol which offers opportunity to Cyprus to be withdrawn from the offshore black list. The fact of being on the list prevents zero rate from being applied to dividends distributed by the Cypriot companies to Russian residents (for zero rate to be applied a number of other conditions shall be complied with, including volume of investments in Cyprus of at least RUB500 mln).
The protocol introduces material amendments into the information exchange procedures. No refusal is allowed now to disclose information by referral to the fact that it is held by a bank, another financial institution, nominee, person or entity acting as an agent or by a trustee or to the fact that the information applied for concerns individual or corporate property interests. This provision enables queries for information within the framework of both tax supervision and criminal procedure.
New approaches to Russia-Cyprus tax information exchange focused on identification of Russian beneficiaries are likely to result in material changes in corporate structures of many Russian business groups. Meanwhile they have some time: to take effect the protocol needs to be ratified by legislatures of the both states.