LCD Television Users Guide LT-42X579 LT-47X579 LT-42EM59 ...
LT in Focus Draft law on fiscal roadmap
8
LT in Focus Draft law on fiscal roadmap Tax and Legal November 29, 2016 On November 29 2016, the Federation Council approved Draft law No. 11078-7 aimed at implementing the Fiscal Roadmap for 2017 and the Planning Period of 2018 and 2019 (hereinafter, the Draft law). The document will bring some material changes to the Russian Tax Code, most of them entering into force on 1 January 2017. Already now, the business community can start figuring out what measures to take in the upcoming three years to be in line with the proposed changes. The Draft law is unlikely to undergo any material rewording and is expected to be signed by the President of Russia soon. This issue gives you an overview of the key changes in the tax landscape introduced by the Draft law and offers opinions of Deloitte’s professionals on its industry-specific implications. Profit tax Transfer pricing VAT Excise tax Property and land tax Mineral extraction tax Taxation of small businesses Other changes Recommendations Profit tax Setting a temporary limit for carrying forward the losses accumulated since 2007 will be one of the most dramatic changes in profit taxation rules. In 2017-2020, only a 50% reduction of the tax base for the current period will be allowed, regardless of the total amount of accumulated loss. Through the mentioned period the taxpayers will not be able to record a “zero” tax base using loss carryforward like they do now. We advise that the companies who wish to claim for tax incentives, or those who already apply them, and the companies whose borrowings are tied to their business-plan objectives (e.g. payback period, profitability, asset value) with tax payments factored in should make sure that they are able to deliver on their targets. They need to evaluate the additional tax burden and adjust their estimates accordingly, too. At the same time, the Draft law lifts the time limitation on loss carryforward, which can have a beneficial effect on the value of recognizable deferred tax assets. Limitation of loss carryforward Limiting loss recognition by consolidated group of taxpayers The consolidated tax base of a consolidated group of taxpayers (CGT) will be calculated as the sum of its members’ tax bases. The losses generated by the CGT members over the tax period are summed up and may reduce the consolidated tax base by 50%. The accounting rules for treating losses when calculating the consolidated tax base in a CGT must be set forth in its accounting policy. After the concept of the CGT was introduced, regional budgets saw a decrease in their tax revenues as the taxpayers utilized their accumulated losses and redistributed profits towards the lower-tax regions. In light of the above, registration of new CGT agreements and adding members to the existing ones was put on hold . New rules for calculating bad debt provisions According to the Draft law, the excess of receivables over payables for one counterparty will be recognized as bad debt. The Draft law does not expressly provide for an increase of tax burden through higher tax rates (except for excise duties); however, such increase may indirectly result from most of its provisions.
Transcript of LT in Focus Draft law on fiscal roadmap
LT in FocusDraft law on fiscal roadmap
Tax and Legal
November 29, 2016
On November 29 2016, the Federation Council approved Draft law No. 11078-7 aimed at implementing the Fiscal Roadmap for 2017 and the Planning Period of 2018 and 2019 (hereinafter, the Draft law). The document will bring some material changes to the Russian Tax Code, most of them entering into force on 1 January 2017.Already now, the business community can start figuring out what measures to take in the upcoming three years to be in line with the proposed changes. The Draft law is unlikely to undergo any material rewording and is expected to be signed by the President of Russia soon.
This issue gives you an overview of the key changes in the tax landscape introduced by the Draft law and offers opinions of Deloitte’s professionals on its industry-specific implications.
Profit tax
Transfer pricing
VAT
Excise tax
Property and land tax
Mineral extraction tax
Taxation of small businesses
Other changes
Recommendations
Profit tax
Setting a temporary limit for carrying forward the losses accumulated since 2007 will be one of the most dramatic changes in profit taxation rules.In 2017-2020, only a 50% reduction of the tax base for the current period will be allowed, regardless of the total amount of accumulated loss.Through the mentioned period the taxpayers will not be able to record a “zero” tax base using loss carryforward like they do now.We advise that the companies who wish to claim for tax incentives, or those who already apply them, and the companies whose borrowings are tied to their business-plan objectives (e.g. payback period, profitability, asset value) with tax payments factored in should make sure that they are able to deliver on their targets. They need to evaluate the additional tax burden and adjust their estimates accordingly, too.
At the same time, the Draft law lifts the time limitation on loss carryforward, which can have a beneficial effect on the value of recognizable deferred tax assets.
Limitation of loss carryforward
Limiting loss recognition by consolidated group of taxpayers
The consolidated tax base of a consolidated group of taxpayers (CGT) will be calculated as the sum of its members’ tax bases. The losses generated by the CGT members over the tax period are summed up and may reduce the consolidated tax base by 50%. The accounting rules for treating losses when calculating the consolidated tax base in a CGT must be set forth in its accounting policy.
After the concept of the CGT was introduced, regional budgets saw a decrease in their tax revenues as the taxpayers utilized their accumulated losses and redistributed profits towards the lower-tax regions. In light of the above, registration of new CGT agreements and adding members to the existing ones was put on hold.
New rules for calculating bad debt provisions
According to the Draft law, the excess of receivables over payables for one counterparty will be recognized as bad debt.
The Draft law does not expressly provide for an increase of tax
burden through higher tax rates (except for excise duties);
however, such increase mayindirectly result from most of its
provisions.
2
This definition is more specific than the existing one, which is somewhat high-level: according to Paragraph 1 Article 266 of the Russian Tax Code, doubtful (bad) debt is any amount owed to the taxpayer that is not repaid on time according to the terms of contract, and is not secured by pledge, guarantee or surety.
The existing definition has enabled frequent tax base manipulations through increasing the mutual receivables and payables within a group of companies. The transition to the new definition may prove a challenge for big holding companies with high levels of intra-group debt, resulting in bigger bad debt provisions. It can also require adjustments in the accounting policies and unbudgeted tax expenses.
Changes in taxation of gratuitous sureties (guarantees)
The draft law stipulates that income received in the form of a gratuitous surety (guarantee) is deductible, provided all parties to the transaction are Russian non-bank organizations.
This provision will eliminate the regulatory gap concerning taxation of non-monetary income and will put an end to the discussion on whether transfer-pricing documents need to be drawn up for this type of income. At the same time, accounting for expenses related to gratuitous sureties (guarantees) remains a matter of dispute.
Yulia OrlovaPartnerIndustrial products, metals and mining
“Key players in Metals are big groups of companies, whose operations are often financed through intragroup debts. Moving domestic gratuitous loans and guarantees out of the scope of controlled transactions and exempting non-bank sureties (guarantees) from VAT is doubtless a positive development for them.
However, there’s still a fly in the ointment: due to the changes in loss carryforward rules, the companies will likely have to reconsider their strategies. Another big change for the vertically integrated metals holdings is the increase of MET on multicomponent ores – they will likely have to revise their financial plans for the year.”
Tatiana Kofanova DirectorAutomotive
“Higher excises and loss carryforward restrictions will have negative implications for most car manufacturers. The companies are also expecting a negative effect from the limitations on reserving for bad debt when receivables from the dealers are offset by payables (e.g. bonus payments). The companies which localized their production may face a higher property tax on assembly equipment. This calls for estimating the adverse implications and putting a plan in place to optimize the additional tax load.”
Changes in accounting rules for interest on controlled debt
The Draft law extends the provisions of Federal Law No.32-FZ of 8 March 2015 on thin capitalization until the end of 2019. Therefore, the special method for calculating the maximum interest on controlled debt incurred before 1 October 2014 will apply until 31 December 2019.
3
Distribution of profit tax revenues between federal and regional budgets during 2017-2020
The Draft law introduces changes to distribution of profit tax revenues between the federal and regional budgets. The existing split of 2% and 18% will be changed to 3% and 17% respectively.
The regions will be entitled to reduce the regional component of profit tax by one percentage point to 12.5%. This will require aligning the regional laws with the new regulations in order to reinstate the balance of public and private interests.Considering the challenging economic environment and the fact the regions will be entitled to reduce the tax rate, we can not rule out that the proposed changes will eventually increase the tax burden for regional investors that apply tax incentives.
Vasily Markov DirectorTechnology, Media and Telecommunications
“The limitations on loss carryforward and on reimbursement of the movables/equipment tax may turn out really painful for the IT and High-tech industry. They will likely make the taxpayers turn to the existing tax optimization mechanisms.
According to the document, the regional property tax incentives will not be introduced until 2018. However, already now the regions are empowered to exempt movables from tax on the regular grounds envisaged by Article 372 of the Russian Tax Code effective 1 January 2017, or as part of the regional tax incentives already applied by the taxpayers.
We are already engaged in several projects, including in the Telecom sector, to analyze and revise the existing business plans and investment contracts with the regions in order to include movables into the scope of tax benefits.”
Transfer pricing
Changes in scope of controlled transactions
The Draft law envisages a number of favorable
changes in transfer pricing:
• Interest-free loans between related parties will not
be considered controlled transactions for transfer
pricing purposes, if the beneficiaries and parties to
such transactions are registered in the Russian
Federation;
• The issue of sureties (guarantees) will not be
considered a controlled transaction, if all parties to
it are Russian entities.
These changes will partially address the overregulation
of transfer pricing in domestic transactions among
related parties. Previously, the taxpayers had to
substantiate prices in transactions not materially
relevant to the national fiscal interests.
VAT
VAT exemption and incentives
According to the Draft law, non-bank sureties (guarantees) will be exempt from VAT beginning the next year. This will align the tax regulations with the civil legislation, recognizing non-bank sureties and regulating their taxation. It will also put an end to the disputes on whether VAT should be charged on gratuitous intragroup sureties and guarantees (there are known cases when VAT was charged on their market value).
A zero VAT will be charged on long-distance carriage of passengers and cargo by public railways and on commuter rail services.
Changes in VAT refund and excise exemption policies
The Draft law refines surety requirements for VAT refund
purposes and for exemption from excise duties on exported excisable goods; in particular, the requirement that a surety must be issued by a related party only will be excluded.
Changes in VAT recovery policies
The new regulation proposes introducing a VAT recovery obligation for taxpayers that received subsidies to reimburse the cost of goods, works, or services purchased, regardless of the budget level such subsidies were paid from.
The current legislation provides for VAT recovery in respect of federal subsidies only. The proposed changes may impact the agricultural players that primarily rely on regional incentives, impacting in an indirect way their free cash flow and tax load.
4
• The rate of excise duty on sparkling wines with protected geographical indication will increase by RUB 5 (from RUB 14 to RUB 19 per litre), on other sparkling wines — by RUB 9 (from RUB 27 to RUB 36 per litre);
• The ad valorem component of the excise duty on cigarettes will be raised from 13 to 14.5 percent;
• For the first time the excise tax will be charged on electronic nicotine delivery systems and the nicotine-containing liquids;
• The Draft law will clarify the calculation of excise multipliers for cigarettes, cigarillos, beedis or kreteks for the period from September through December.
Calculation of excise tax based on the USAIS data
The Draft law stipulates that when the tax base on alcoholic beverages and alcohol-containing products filed by a taxpayer as per Sub-item 1, Item 2, Article 187 of the Tax Code is less than the volume of excisable goods sold in the respective tax period as per the Unified State Automated Information System (USAIS), the tax base will be determined in accordance with the USAIS data.
Excise taxes
Oksana ZhupinaDirectorConsumer products
“The use of the USAIS data for assessment of excise tax on alcoholic beverages and alcohol-containing products is a material, systemic change.
The inconsistencies between monthly returns and the USAIS data can trigger a tax audit. The taxpayers need to pay special attention to their accounting, product return and write-off policies. In many instances accounting systems will have to be reviewed, updated and aligned with the USAIS.
The increase in excise taxes on sparkling wines and tobacco products will have an adverse effect on the industry as it will entail growth of retail prices. Given the decline in real household income, the demand is likely to shift towards the cheaper products, forcing producers to revise their marketing and production plans accordingly.”
“Due to an increase in excises on alcohol and tobacco products, retailers will not only have to reconsider their purchase and selling prices, but will have to decide on how to calculate bonuses for the supplies of goods that were excised (when sold or imported) using different excise rates.
Delegating the decision on extending the moratorium on cadastral revaluation of property to the regional authorities may have an adverse effect on owners of commercial property across regions. The moratorium can be lifted simply by inaction of the regional authorities, so an increase of the property tax can ensue.
Artem VasyutinPartnerRetail, Wholesale and DistributionTourism and Hospitality
Change in excise tax rates
The Draft law will affect the following excise taxes:
• Excise rates on passenger cars with HP from 90 to 150 will be raised from RUB 41 to 43 per litre in 2017, to RUB 45 per litre in 2018, and to RUB 47 per litre in 2019; excise rates on passenger cars and motorcycles with HP above 150 will be increased from RUB 402 to RUB 420 per litre in 2017, to RUB 437 per litre in 2018 and to RUB 454 per litre in 2019;
• The excise rates on Euro-5 gasoline, diesel fuel and medium distillates will be raised, while excise rates on gasoline inconsistent with Euro 5 standards and straight-run gasoline will be preserved.
5
Property tax and land tax
Changes in corporate property tax benefits on
movables
Another potentially unfavourable development concerns the tax benefits on corporate movables envisaged by Item 25, Article 381 of the Russian Tax Code. The Draft law suggests supplementing Chapter 30 of the Russian Tax Code with Article 381.1 that would regulate application of tax benefits on movables recognised after 1 January 2013. It is assumed that effective 1 January 2018 the powers to apply tax benefits in the regions will be delegated to the regional authorities and will require adoption of relevant regional laws. Given the economic downturn, not all the regions are likely to seek localisation of tax benefits, keeping the regional taxpayers’ tax burden at the existing levels.
Changes in determining cadastral value
Federal Law No. 360-FZ of 3 July 2016 introduced a ban on property revaluation for tax purposes until 1 January 2020. It was assumed that until that time cadastral values as of 1 January 2014 would apply. According to the Draft law, the ban can only be set by a decision of the region’s highest executive authority made by 20 December 2016. If the new law is enacted, the ban can be overruled simply by inaction of the regional authorities.
Mineral extraction tax
Increase in tax burden on oil and gas industry
The tax burden on oil and gas sector is expected to
increase in 2017-2019, as a new component will be
introduced into the MET calculation formula, its value
for 2017 set at RUB 306, for 2018 at RUB 357 and in
2019 at RUB 428.
Tax on multicomponent ore extraction
The draft law also proposes changing the taxation of
multicomponent ore extraction by setting a specific
MET rate of RUB 730/t for ores extracted in
Krasnoyarsk Kray.
Andrey PaninPartnerEnergy & Resources
“There’s no final understanding of how the tax burden on oil and gas companies will develop. On the one hand, the period of tax incentives for downstream companies will end soon. On the other hand, an “added income” tax is to be introduced to incentivize exploration of new fields. The new tax multipliers for oil and gas extraction increase the administrative workload for producers and bring the tax burden on old fields to the brink of unprofitability at the current oil prices.”
Yulia KrylovaDirectorReal Estate
“Delegating the decision on whether to keep or lift the ban on cadastral revaluation of property to the regions is important for the real estate sector in general and for owners that pay property tax based on cadastral value in particular.
From the practical perspective it means that the local regulations will now have to be thoroughly monitored for any novelties that could extend the existing ban. Moreover, there is a chance that respective regional laws will not be adopted by 20 December 2016.”
6
Taxation of small business
Taxation of small business will also change:
• The simplified tax system eligibility cap will be
raised to RUB 150m (from RUB 120m set by Federal
Law No. 243-FZ of 3 July 2016);
• The deflator for the unified tax on imputed income
will be preserved at the level of 2016, i.e. at 1.798.
Other changes
Apart from the changes described above, we would like
to highlight two more significant developments
awaiting the taxpayers next year:
• A progressive scale of penalties will be introduced
for legal entities. Higher rates will apply to tax
payments overdue for more than 30 calendar days,
up to 1/150 of the Central Bank of Russia’s
refinancing rate. The measure is meant to counter
“borrowing” of funds from the state by delaying
one’s tax payments;
• Payment of tax by third parties will be allowed, both
on behalf of individuals and legal entities. This is
meant to facilitate the discharge of tax obligations
and improve the fiscal performance. The change is
particularly relevant for the foreign providers of e-
services: by virtue of Federal Law No. 244-FZ of 3
July 2016 entering into force on 1 January 2017,
they will be obliged to register with the Russian tax
authorities and pay VAT on such services rendered
to the individuals, provided that Russia is
recognized as the place of supply for such services.
It might also be relevant for foreign e-stores that
sell goods. The Russian Fiscal Roadmap for 2017
and the Planning Period of 2018 and 2019
developed by the Russian Ministry of Finance
envisages imposition of VAT on goods sold by
foreign e-sellers. The Russian Association of
Internet Trade Companies is currently working on a
draft law that suggests a 15.25% VAT for foreign e-
stores.
Recommendations
The majority of new provisions will enter into force on
1 January 2017, which means that companies still
have time to prepare for the upcoming changes.
Many changes will entail an increase of the tax and
administrative burden. That is why we recommend
taking a closer look at the Draft law to analyze its
impact on your business and plan for further actions.
It must also be noted that the provisions of the draft
Fiscal Roadmap for 2017 and the Planning Period of
2018 and 2019 developed by the Russian Ministry of
Finance that have not been reflected in the Draft law,
may appear in other draft laws going forward.
*****
We hope that you will find the information in this issue interesting and informative. Should you have any questions on the topics covered, please feel welcome to contact us.
Best regards,
Deloitte CIS Partners
7
Contacts
Grigory PavlotskyManaging PartnerTax & LegalDeloitte [email protected]
Gennady KamyshnikovManaging PartnerPublic [email protected]
Oleg [email protected]
Artem VasyutinPartnerTravel Hospitality & [email protected]
Yulia [email protected]
Andrey PaninPartnerOil & Gas, Energy & Resources, [email protected]
Artem VasyutinPartnerRetail, Wholesale & [email protected]
Vasily MarkovDirectorTechnology, Media & [email protected]
Tatiana [email protected]
Alexander SinitsynDirectorBanking & Securities, [email protected]
Yulia KrylovaDirectorReal [email protected]
Oxana ZhupinaDirectorFood, Beverages & [email protected]
deloitte.ru
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/about for a more detailed description of DTTL and its member firms.
Deloitte provides audit, consulting, financial advisory, risk management, tax and related services to public and private clientsspanning multiple industries. Deloitte serves four out of five Fortune Global 500® companies through a globally connected network of member firms in more than 150 countries bringing world-class capabilities, insights, and high-quality service to address clients’ most complex business challenges. To learn more about how Deloitte’s approximately 225,000 professionals make an impact that matters, please connect with us on Facebook, LinkedIn, or Twitter.
This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the “Deloitte Network”) is, by means of this communication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this communication.
© 2016 ZAO Deloitte & Touche CIS. All rights reserved.
TaxSmart app
