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ACCA

PAPER F6
TAXATION
(RUSSIA)

STUDY SYSTEM

Accountancy Tuition Centre (International) Ltd 2011

(i)

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No responsibility for loss occasioned to any person acting or refraining from action as a
result of any material in this publication can be accepted by the author, editor or
publisher.
This training material has been published and prepared by Accountancy Tuition Centre
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Editorial material Copyright Accountancy Tuition Centre (International Holdings) Limited, 2011.
Print ISBN: 978 1 903632 54 3
e-book ISBN: 978 1 903632 63 5
All rights reserved. No part of this training material may be translated, reprinted or
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CONTENTS

Contents
Introduction

(iv)

Syllabus

(iv)

Study guide

(ix)

Rates and allowances

(xviii)

Russian tax system

0101

Corporate profits tax Scope, computation and income recognition

0201

Corporate profits tax Deductible expenses

0301

Corporate profits tax Other income and expenses, branches and payments

0401

Personal income tax Scope, computation and deductions

0501

Personal income tax Special rates and rules

0601

Personal income tax Obligations

0701

Value added tax Common rules

0801

Value added tax Special cases, payment and reporting

0901

10

Social insurance contributions

1001

11

Corporate property tax

1101

12

Tax administration and control

1201

13

Glossary

1301

Index

1401

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SYLLABUS

Introduction
This Study System has been specifically written for The Association of Chartered
Certified Accountants Paper Taxation (F6 ) Russia (Rus).
It provides comprehensive coverage of the core syllabus areas and is designed to be used both
as a reference text and interactively with the ATC Learning System to provide you with the
knowledge, skill and confidence to succeed in your ACCA studies.
SYLLABUS

TX (F6)
Rus
Aim
To develop knowledge and skills relating to the tax system as applicable to Russian
legal entities and individuals.
Main capabilities
After completing this examination paper students should be able to:
A

Explain the operation and scope of the Russian tax system.

Explain and compute the income tax liabilities of individuals in their capacity as
individual entrepreneurs and employees.

Explain and compute the corporate profits tax liabilities of Russian legal entities.

Explain and compute the effects of value added tax on incorporated businesses.

Explain and compute the effect of social insurance contributions on employees,


employers and individual entrepreneurs.

Explain and compute the corporate property tax liability of Russian legal entities.

Identify and explain the obligations of taxpayers and/or their agents and the implications
of non-compliance.

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SYLLABUS

Relational diagram of main capabilities


The Russian Tax System (A)

Income Tax Liabilities


(B)

VAT
(D)

Corporate Tax Liabilities


(C)

Social Insurance
Contributions (E)

Corporate Property Tax


(F)

Tax Planning, Administration and Control (G)

Rationale
This syllabus introduces candidates to the subject of taxation and provides the core
knowledge of the underlying principles and major technical areas of taxation, as they
affect the activities of individuals and businesses.
In this syllabus, candidates are introduced to the rationale behind and the functions of
the tax system. The syllabus then considers the separate taxes that an accountant
would need to have a detailed knowledge of, such as:

personal income tax of both employees and individual entrepreneurs;

the corporate profits tax and corporate property tax liabilities of Russian legal
entities;

the social insurance contributions liabilities of employees, employers and


individual entrepreneurs; and

the value added tax liability of incorporated businesses.

Having covered the core areas of the basic taxes, candidates should be able to compute
tax liabilities, explain the basis of their calculations, apply tax planning techniques for
individuals and companies and identify the compliance issues for each major tax
through a variety of business and personal scenarios and situations.

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SYLLABUS

Syllabus overview

BUSINESS
TAXATION

RUSSIAN
TAX SYSTEM

PERSONAL
INCOME TAX

Regulatory framework
Tax system
Taxpayers and agents
Types of business
activities

Scope
Calculation
Deductions
Interest and other nonemployment income
Withholding and
payment
Filing

CORPORATE
PROFITS
TAX

OTHER
TAXES

VALUE ADDED
TAX

SOCIAL
INSURANCE
CONTRIBUTIONS

VAT base
VAT rates
Invoices and
declarations
Input VAT
Administration

Tax formula
Income classification
Accruals method
Cash method
Partially deductibles
Depreciation
Property disposals
Non-operational income
Provisions
Losses
CPT calculation
Allocation to branches
Payments & reporting

Corporate Property Tax

TAX
ADMINISTRATION
AND CONTROL

Tax registration
Tax audits
Tax payments
Tax returns
Tax appeals

SIC payers
Tax base
Exempt items
SIC rates
Employers
Individual
entrepreneurs

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SYLLABUS

Detailed syllabus
A

The Russian tax system

1
2
3

The overall function and purpose of taxation in a modern economy


Different types of taxes
The tax regulatory framework

Income tax liabilities

1
2
3
4
5
6

The scope of individual income tax


Income from employment
Income earned by individual entrepreneurs
Dividend and other income
The comprehensive computation of taxable income and individual income tax liability
The use of exemptions and deductions in minimising individual income tax liabilities

Corporate profits tax liabilities

The scope of corporate profits tax

Taxable income for corporate profits tax

Deductible expenses and tax allowances in deferring and minimising


corporate profits tax liabilities

The comprehensive computation of corporate profits tax liability

Tax accounting for corporate profits tax

Value added tax (VAT)

1
2
3

The scope of value added tax (VAT)


The computation of VAT liabilities
VAT payment and reporting

Social insurance contributions (SIC)

1
2
3

The scope of social insurance contributions (SIC)


Contributions made by employers for employed persons
Contributions made by individual entrepreneurs

Corporate property tax

1
2
3

The scope of corporate property tax


The computation of corporate property tax liabilities
Payments and reporting requirements

Tax planning, administration and control

1
2
3

The obligations of the taxpayer and/or their agents


The procedures relating to tax audit, appeals and disputes
The sanctions for tax violations, tax penalties and interest on late tax payments

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SYLLABUS

Approach to examining the syllabus


The paper will be mainly computational and will have five questions, all of which will be compulsory.

Questions one and two will be for a total of 55 marks with one of the questions being for
30 marks and the other for 25 marks. One of these two questions will focus on individual
income tax and the other question will focus on corporate profits tax.

Question three will be for 15 marks, and will focus on value added tax (VAT) issues.

Questions four and five will be on any area of the syllabus and will be for 15 marks each.

In addition to question 3, value added tax might also be included as part of any other
question relating to a business but for no more than a further 10 marks.
Social insurance contributions will not be examined as a separate question, but may be
examined in any question involving individual income tax or corporate profits tax.
Corporate property tax may be examined as part of the corporate profits tax question or
separately as part of question four or five, but will account for no more than 8 marks
in total on any one examination paper.
Any of the five questions might include the consideration of issues relating to the
minimisation of tax liabilities or tax administration.
Guide to examination assessment
ACCA reserves the right to examine anything contained within the study guide at any
examination session. This includes knowledge, techniques, principles, theories, and concepts as
specified.
ACCA publishes examinable documents once a year to indicate exactly what regulations and
legislation could potentially be assessed within identified examination sessions. Tax rates and
allowances as published by ACCA at:
http://www.accaglobal.com/students/acca/exams/f6/exam_docs/russia
are reproduced at the end of this session.
For paper based examinations regulation issued or legislation passed on or before 30th September
annually, will be assessed from June 1st of the following year to May 31st of the year after. Therefore,
paper based examinations in June 2011 and December 2011 will be assessed on regulations issued and
legislation passed on or before 30th September 2010.
Regulation issued or legislation passed in accordance with the above dates may be examinable even if
the effective date is in the future.
The term issued or passed relates to when regulation or legislation has been formally approved.
The term effective relates to when regulation or legislation must be applied to an entity transactions and
business practices.
The study guide which follows offers more detailed guidance on the depth and level at which the
examinable documents will be examined. The study guide should therefore be read in
conjunction with the examinable documents list.

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SYLLABUS

STUDY GUIDE
A

THE RUSSIAN TAX SYSTEM

Overall function and purpose of taxation in a modern economy

(a)

Describe the purpose (economic, social etc) of taxation in a modern economy.[2]

Different types of taxes

(a)

Explain the difference between direct and indirect taxes.[2]

(b)

Recognise the types of taxes levied on legal entities and physical persons in the Russian
Federation.[2]

(c)

List the legal forms of business activities in Russia and identify the relevant taxes for each
type of business activity.[1]

Tax regulatory framework

(a)

Explain the tax regulatory framework in the Russian Federation including the process for
making changes and amendments to the Tax Code (Article 5 of Part I).[2]

(b)

Explain how the tax terms/periods set by the Tax Code (Article 6(1) of Part 1) are
determined.[2]

(c)

Outline the application of regional and local tax laws, defining the relevant tax regulatory
bodies.[2]

Excluded topics

Chapter 4, 5, 6 of Part I of the Tax Code


Taxation of branches of foreign legal entities .

INCOME TAX LIABILITIES

Scope of individual income tax

(a)
(b)
(c)

Describe the scope of individual income tax.[1]


Define residents and non-residents for individual income tax purposes.[1]
Recognise the income that is exempt from individual income tax.[1]

Excluded topics

Source of income (Article 208 of the Tax Code)


Impact of double tax treaties.

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Income from employment

(a)

Compute the taxable income from employment.[2]

(b)

Explain how income in kind and material benefits are valued and calculate relevant amounts.[2]

(c)

Compute the imputed income arising from interest savings on mortgage loans received for
acquisition or new construction of residential property, acquisition of plots of land or
acquisition of shares in the above property. [2]

(d)

Explain the timing of income recognition on salaries accrued, but not paid in a calendar
year.[1]

(e)

Compute the taxable amounts of business trip expenses (statutory limits will be provided).[2]

(f)

Compute the exempt and taxable amounts of medical expenses paid by an employer.[2]

Excluded topics

Income of non-residents.

Income earned by individual entrepreneurs

(a)
(b)
(c)
(d)

Compute the business income of an individual entrepreneur.[2]


Recognise the expenditure that is deductible (including depreciation allowances).[2]
Compute the amount of professional deductions available (norms will be provided).[2]
Explain the treatment of losses incurred by an individual entrepreneur.[1]

Dividend and other income

(a)

Compute the exempt and taxable amounts of interest on bank deposits.[2]

(b)

Compute the imputed income arising from low interest loans.[2]

(c)

Compute the imputed income arising from the interest savings on new bank loans provided
for refinancing the loans received for acquisition or new construction of residential property,
acquisition of plots of land or acquisition of shares in the above property. [2]

(d)

Compute the exempt and taxable amounts of gifts prizes and awards, distinguishing between
different types of gifts and prizes.[2]

(e)

Compute the taxable amounts of property insurance reimbursements.[2]

(f)

Compute the exempt and taxable amounts of life insurance payments.[2]

(g)

Compute the exempt and taxable amounts under agreements for non-state pension security or
obligatory pension insurance concluded with non-state pension funds (Article 213.1).[2]

Excluded topics

Transactions involving futures and derivatives

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Comprehensive computation of taxable income and income tax liability

(a)

Prepare a basic individual income tax computation.[2]

(b)

Apply the correct rates of tax to the different types of income.[2]

(c)

Compute the standard and child deductions.[2]

(d)

Explain and apply the principal social deductions, charity, education and medical (norms will
be provided).[2]

(e)

Explain and apply the principal rules of deduction on the sale of residential property.[2]

(f)

Explain and apply the principal rules of deduction on the purchase of residential property,
land, including mortgage interest and other acquisition related confirmed expenses (housing
incentive).[2]

(g)

Compute other property deductions, including deductions on transactions in securities.[2]

(h)

Compute the tax payable on dividend income, considering the provisions of item 2 of Article
214.[2]

(i)

Compute the tax payable on income from the sale of listed and unlisted securities based on the
provisions of Article 214 (1).[2]

(j)

Compute the tax payable on income from investment funds (PIFs).[2]

(k)

Compute the tax on income from lotteries and advertising campaigns.[2]

Excluded topics

All exemptions stated in items 4-8, 11-17, 22-26, 29-33, 35-38, 41-51 in Article 217
of the Tax Code

Increased standard deductions except for double deductions for single parents

Use of exemptions and deductions in minimising individual income tax liabilities

(a)

Explain how the maximisation of available tax reductions and concessions can defer or
minimise individual income tax liabilities.[2]

(b)

Identify, compute and apply the right concession/reduction in given circumstances.[2]

CORPORATE PROFITS TAX LIABILITIES

Scope of corporate profits tax

(a)
(b)
(c)

Describe the scope of corporate profits tax and the types of taxpayer to which it applies.[1]
Explain the concept of separate sub-division as it applies to corporate profits.[2]
Explain the procedure for the allocation of profits between head-office and branches.[1]

Excluded topics

Taxpayers: foreign legal entities, banks, insurers, brokerage firms (Article 290-312).
The split of tax between the federal, regional and municipal budgets
Special economic zones and regime and, production sharing agreements
Taxation of branches of foreign legal entities

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SYLLABUS

Taxable income for corporate profits tax.

(a)

Income recognition:
(i)
(ii)
(iii)

(b)

Define the two income recognition methods (cash and accruals).[1]


Explain and apply the effect of both methods on the timing of income recognition.[2]
Explain the concept and basic rules relating to transfer pricing.[2]

Taxation of special types of income:


(i)

Explain and apply the rules for the taxation of dividends and calculate profits tax on
dividends paid and received by Russian legal entities.[2]

(ii)

Explain the timing of income recognition for the principal on sales made via
commissioners and calculate taxable income of both principal and commissioner.[2]

(iii)

Calculate the taxable income on foreign currency transactions and on transactions


denominated in notional units.[2]

(iv)

Explain the timing of income recognition for factoring operations and calculate the
taxable income from trade debt factoring for both parties.[2]

(v)

Compute the taxable gain or loss on fixed asset disposal, including the valuation of
depreciable property).[2]

(vi)

Compute the taxable income arising from leasing transactions.[2]

(vii)

State the rules for the taxation of simple partnership income.[1]

(viii)

Calculate the taxable income on p.3 (penalty income), p.4 (rent income), p.6 (interest
income), p.7, p.13, p.18, p.20 of Article 250 of the Tax Code. [2]

Excluded topics

Certain excluded income items (Article 251, it.1.6-1.8, 1.13-1.31, 1.33, it.2, 1.34-1.40, it.2)
Recognition date for certain income (Article 271 , it.4.9)

Deductible expenses and tax allowances in deferring and minimising tax liabilities

(a)

Expense recognition for tax purposes:

(b)

(i)

Define the method of expense recognition for tax purposes.[1]

(ii)

Explain the matching principle of expense recognition if the cash method is used for
profits tax purposes.[1]

(iii)

State the expense allocation rules between activities taxed at different rates.[1]

(iv)

Explain the rules for recognition of direct and indirect expenses in profits tax
accounting for manufacturing and trading companies.[1]

Deductible expenses for corporate profits tax:


(i)

Explain and apply the rule for the initial 30% write-off available for new fixed
assets.[2]

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SYLLABUS

(c)

(ii)

Explain and apply the rules for capital improvements to leased assets (Article 258.1,
259.2).[2]

(iii)

Explain the treatment of expenses incurred on fixed asset acquisitions (including


bank interest).[2]

(iv)

Explain the differences in the rules for the recognition of repair and capital
improvement expenses.[2]

(v)

Define depreciable tangible and intangible assets [2]

(vi)

Explain and apply the allowable depreciation methods for tax purposes.[2]

(vii)

Explain and apply the rules for the creation and usage of an allowance for bad debts
(Article 266).[2]

(viii)

Explain and apply the rules for bad debts write-offs.[2]

(ix)

Apply the expense allocation rules between commissioner and principal.[2]

(x)

Apply the relevant tax rules for losses on fixed assets disposals (Article 323).[2]

(xi)

State the main types of partially deductible and non-deductible expenses.[1]

(xii)

Define and apply the deductibility limits on bank loan interest including the sum
differences on liabilities denominated in notional currency units and thin
capitalisation rules (Article 269).[2]

(xiii)

Calculate the adjustments for other types of partially deductible expenses (statutory
limits will be provided).[2]

(xiv)

Calculate the deductible expenses of both the lessor and the lessee under the
different accounting treatments of leased assets.[2]

Losses:
(i)

Define allowable net operating losses and calculate the amount of losses qualifying
for the carry forward tax concession.[2]

(ii)

Explain the rules for calculating the maximum amount of losses allowable in each
year and calculate the loss carry forward concession.[2]

Excluded topics

Expenses on natural deposits (Article 261)


Research and development expenses (Article 262)
Expenses incurred on social infrastructure (Article 264, it.1.32)
Other operational expenses (Article 264, it.1.32, 1.33, 1.38-1.39(2), 1.42-1.44)
Non-operational expenses (Article 265, 1.3, 1.4, 1.9, 1 10-1.13, 1.17, 18, 19, 19.2,
2.3, 2.4, 2.6)
Certain non-deductible expenses (Art 270, it.10, 11, 13, 15, 17-18, 20, 22, 24-26,
30-32, 35, 37-40, 45-47, 48.1-48.7, 48.9)
Repair allowance (Article 260)
Special tax reserves (Articles 267, 267(1))
Expenses incurred for acquisition rights for plots of land (Article 264.1)

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Comprehensive computation of corporate profits tax liability

(a)
(b)
(c)

Prepare a computation of total taxable income based on the format of the profits tax return.[2]
Compute the corporate profits tax liability, applying the correct rates of tax [2]
Prepare calculations of the profits tax payable by branches.[2]

Excluded topics

Dividend income received from foreign legal entities (Article 275,it.1)

Trust agreements (Article 276)

Charter capital formation (Article 277)

Securities income (Articles 280-282)

Income of banks, insurance companies, non-state pension funds, brokers and foreign legal
entities (Articles 290-300)

Income from term deals (Articles 301-305).

Tax accounting for corporate profits tax

(a)

Define and apply basic tax accounting rules based on Articles 313-320, Article 322-323.[2]

Excluded topics

Tax accounting special rules for profits tax purposes:


for federal institutions (Article 321),repair expenses (Article 324), expenses on exploration of
natural deposits (Article 325),
for operations with securities (Article 326, 327, 329, 333),
for insurers and banks (Article 330, 331),
for trusts (Article 332)

Use of exemptions and reliefs in deferring and minimising corporate profits tax liabilities

(a)

Explain how the maximisation of available tax reductions and concessions can defer or
minimise corporate profits tax liabilities.[2]

(b)

Identify, compute and apply the right concession/reduction in given circumstances.[2]

VALUE ADDED TAX

Scope of value added tax (VAT)

(a)

Describe the scope of VAT.[1]

(b)

Identify the VAT rates applicable to different types of activities (no detailed knowledge of the
application of the 10% rate is required).[2]

(c)

Explain the difference between zero rated and exempt items.[1]

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Excluded topics

VAT registration.
Waiver of VAT liability (Article 145)
VAT related to imported goods, works, services (Articles 150-152, 160)
Place of sale of goods, works, services (Articles 147, 148)

Computation of VAT liabilities

(a)

Explain how the tax point is determined under the accruals method.[2]

(b)

Apply VAT exemptions to transactions which are not the object of taxation (article 146).[2]

(c)

Explain the consequences of a non-confirmed export and compute the related VAT[2]

(d)

Compute the VAT on trade debt factoring for both parties.[2]

(e)

Compute the VAT on a fixed asset disposal, including a disposal of assets accounted for in the
VAT-inclusive amount.[2]

(f)

Compute the VAT on a self-supplied construction.[2]

(g)

Compute the VAT on sales made through commissioners for both the principal and the
commissioner.[2]

(h)

Compute the VAT on sales performed in a foreign currency.[2]

(i)

Explain the timing of sum difference recognition for VAT purposes under the accruals
method.[2]

(j)

Explain the general deduction criteria for input VAT.[2]

(k)

Explain the timing and methods of recovery of input VAT.[2]

(l)

State the major cases for the inclusion of input VAT in expenses.[1]

(m)

Explain the allocation principles for taxable and non-taxable activities .[2]

(n)

Compute the allocation of input VAT between taxable and non-taxable activities.[2]

(o)

State the situations where VAT should be included in the cost of asset.[2]

(p)

Explain and apply the specific rules for VAT recovery relating to capital construction and selfsupplied construction.[2]

(q)

Compute the claw-back of recovered VAT on property where it is subsequently used for nonvatable transactions.[2]

(r)

Prepare a basic VAT computation showing separately all elements of input and output VAT.[2]

(s)

Explain and apply the specific rules for VAT recovery related to zero rate supplies (export). [2]

(t)

Explain and apply specific rules in respect to taxpayers right for early VAT
recovery related to advances paid to suppliers. [2]

(u)

Explain the main requirements for declarative procedure of VAT recovery.[2]

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Excluded topics

Output VAT:
Zero rate supplies other than export of goods and related services
Types of VAT exempted outputs (Article 149)
Types of income subject to VAT at 10% rate
Self assessed VAT on objects other than capital construction
VAT on income from exchange of goods, works, services
VAT withholdings on income paid to foreign legal entities (VAT reverse charge)
VAT on transport services, on sale of an enterprise (Articles 157, 158)
VAT related to product sharing agreements (Article 178)
Input VAT on payments to foreign legal entities.

VAT payment and reporting

(a)
(b)
(c)
(d)
(e)
(f)

Explain the usage of VAT invoices and journals.[2]


List the information that must be given on a VAT invoice.[2]
State the deadlines for the filing of returns and making of VAT payments.[1]
Explain the procedure for VAT refunds (including the refund of VAT on exports).[2]
State the set of documents for confirmation of export in a basic situation.[1]
Requirements for electronic VAT invoice for VAT recovery.[1]

Excluded topics

Payments of customs VAT

SOCIAL INSURANCE CONTRIBUTIONS

Scope of social insurance contributions (SIC)

(a)

Describe the scope of SIC.[2]

(b)

Recognise and apply the major types of income exempt from SIC (sub-points
1, 2. d, e, g, 3, 5-7, 11-13 of p.1, p.2, p.3 of Article 9 of 212-FZ).[2]

Contributions made by employers for employed persons

(a)

Prepare a basic SIC computation in respect of employees under labour agreements, under civil
law agreements and under copyright agreements.[2]

(b)

Explain how employers report and pay SIC in respect of employees.[2]

Contributions made by individual entrepreneurs with the disbursements


to physical persons

(a)
(b)

Prepare a basic SIC computation for an individual entrepreneur.[2]


Explain how individual entrepreneurs report and pay SIC. [2]

Social funds audits

(a)

State the limitations and conditions under which these specific tax audits can
be carried out. [2]

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Excluded topics

SIC for expatriates employed in Russia


SIC for Russian employees offshore
SIC for agricultural units, North residents and lawyers
SIC exemptions other than specifically stated above
SIC for employees in technoparks (special innovative areas with low rates)

CORPORATE PROPERTY TAX

Scope of corporate property

(a)

Describe the scope of corporate property tax.[2]

(b)

Define the tax base in respect of both head office property and the property of separate
subdivisions of Russian legal entities.[2]

(c)

State the maximum tax rate and tax period.[2]

Computation of corporate property tax liabilities

(a)

Describe the method of property valuation used to determine the corporate property tax base.[1]

(b)

Compute the corporate property tax base for both a head office and its separate subdivisions.[1]

Payment and reporting requirements

(a)
(b)

State the deadline for the filing annual tax return and advance tax calculations (Article 386).[1]
State the deadline for property tax payments and advance tax payments (Article 383).[1]

Excluded topics

Article 373 (taxpayers),

Property taxable for both foreign legal entities with permanent establishments in Russia and
foreign legal entities without activity via permanent establishments.

Article 374 (it.2, 3, 4.2), Article 375 (it.2), Article 376 (it.2.5), Articles 377-378, 381, 382(it.5),
383(it.4-6), 384, 385

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TAX PLANNING, ADMINISTRATION AND CONTROL

Obligations of the taxpayer and/or their agents

(a)

Taxpayers and tax agents:


(i)
(ii)

(b)

(c)

(d)

Differentiate between taxpayers and tax agents.[1]


Explain the rights and obligations of both taxpayers and their agents.[2]

Individual income tax:[2]


(i)

Explain the filing requirements and payment deadlines for employees

(ii)

Explain the filing requirements and payment deadlines for employers (as tax agents)

(iii)

Explain the filing requirements and payment deadlines for individual entrepreneurs
and self-employed persons.

(iv)

Explain the procedure for obtaining deductions and exemptions at source and upon
the year end tax declaration.

Corporate profits tax:[2]


(i)

Explain the filing requirements and payment deadlines for corporate profits tax.

(ii)

Explain taxpayers right for the adjustments of tax base and tax in tax period when
the mistakes have been found out related to previous tax periods (paragraph 3 p.1.
of Article 54). [2]

Explain the refund procedure and deadlines for individual income tax and corporate profits
tax.[2]

Excluded topics

Profits tax administration rules for: low income entities (Article 286, it.3), foreign legal
entities (Article 286, it.4), withholding corporate tax (Article 287, it.2)

Procedures relating to tax audit, appeals and disputes

(a)
(b)
(c)

State the limitations related to tax audits conducted by tax authorities.[2]


State the conditions under which the consequent tax audit can be carried out.[2]
Tax appeal order in respect of first tax decision received (Article 101.2).[2]

Excluded topics

All topics other than specified above.

Sanctions for tax violations, penalties and interest on late tax payments

(a)
(b)
(c)
(d)
(e)
(f)
(g)

Explain and calculate the administrative tax sanctions for non-compliance.[2]


Explain the difference between interest on late tax payments and tax penalties.[2]
State the amounts of penalties for tax underpayments or non-payments.[1]
Compute interest on late tax payments.[2]
State the amounts of penalties for non-filing or late filing of tax returns.[2]
Explain the procedure by which the tax authorities collect penalties from taxpayers.[2]
Explain the procedure of interest accrued in favour of taxpayer in case of tax
authorities breach the term of cancellation the decision on blocking the
accounts in taxpayers bank. [2]

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RATES AND ALLOWANCES


The following tax rates and allowance are to be used in answering the questions
unless the question states otherwise.
Personal and children allowances
Standard personal allowance
Children allowance

400 RR (up to 40,000 RR)


1,000 RR per child (up to 280,000) RR

General limitation on property allowance


Investments in residential property and land for tax purposes 2,000,000 RR (upper limit)
Statutory exclusions from taxable income
Prizes and awards
Gifts at work
Support payments

4,000 RR (upper limit)


4,000 RR (upper limit)
4,000 RR (upper limit)

Maximum limit for social deductions listed below


120,000 RR
(medical, personal educational, non-state pension insurance and voluntary pension
insurance and additional insurance contributions for the accumulated part of labour
pension subject to certain conditions set out in the law)
Educational deduction for children

50,000 RR (upper limit)

Professional deduction general


architects
photographers
sculptors

20%
30%
30%
40%

Gains on property sales:


immovable property
movable property

1,000,000 RR (upper limit)


250,000 RR (upper limit)

Housing allowance (deduction)

2,000,000 RR (upper limit)

Statutory per diem rate for personal income tax:


for domestic business trips
for foreign business trips

700 RR per day


2,500 RR per day

Threshold interest rates for personal income tax purposes


Rouble bank deposits
CB refinancing rate increased by 5%
Foreign currency bank deposits
9%
Rouble loans
2/3 of CB refinancing rate
Foreign currency loans
9%
Threshold interest rates for profits tax purposes
From 1 January 2011 up to 31 December 2012
Foreign currency bank loans CBR refinancing rate * 0.8
Rouble loans received 1.8 times the CBR refinancing rate

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Single threshold for social insurance contributions for the year 2011
Income amount
Rate
For employers (general) and individual entrepreneurs up to 444,050 RR 34 %
For employers (license, copyrights, civil contracts)
up to 444,050 RR 31.1%

Expenses for profits tax purposes


Voluntary medical insurance expenses (subject to conditions set out in the law) are
limited to 6% of labour costs.
Voluntary life insurance expenses (subject to conditions set out in the law) are limited
to 12% of labour costs.
Voluntary personal insurance against accident at work resulting in death or permanent
physical disability are limited to 15,000 RR per insured employee per annum.
Certain advertising expenses listed in the law are limited to 1% of sales revenue.
Reimbursement of interest on employees mortgage loans is limited to 3% of labour costs.
Entertainment expenses (subject to conditions set out in the law) are limited to 4% of
labour costs for the reporting period.
Special depreciation ratios
Fixed assets received in financial leasing
Historic cost of fixed assets

3 (upper limit)
40,000 RR per unit (minimum)

Allowances for receivables


General limitation
Aged 0-44 days
Aged 45-90 days
Aged more than 90 days

10% of sales
0% of receivable
50% of receivable
100% of receivable

Value added tax (VAT) rates


Standard
Exports

18%
0%

General profits tax

20%

Tax on dividends for residents


Tax on dividends for foreign companies

9%
15%

Property tax rate

2.2%

Personal income tax rates


Basic rate
Higher rate

13%
35%

Tax on dividends for residents

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RATES AND ALLOWANCES

Central Bank refinancing rates (notional)


1 January to 30 June 2011
1 July to 30 September 2011
1 October to 31 December 2011

25%
20%
10%

Number of days in calendar months for the year 2011


January
February
March
April
May
June
July
August
September
October
November
December

31
28
31
30
31
30
31
31
30
31
30
31

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RUSSIAN TAX SYSTEM

OVERVIEW
Objectives

To explain the tax regulatory framework in Russia.

To summarise the types of taxes levied on legal and physical persons in


Russia and explain each tax and its operation.

To introduce the concept of transfer pricing.

To explain rights and obligations of taxpayers and tax agents in Russia.

To summarise the types of business activities in Russia.

FUNCTION AND
PURPOSE OF
TAXATION

REGULATORY
FRAMEWORK

CONDITIONS OF
TAXATION

DIFFERENT TYPES
OF TAXES

Funding for government spending


Redistribution of income and
wealth
Correcting market inefficiencies

Tax Code
Amendments to the Tax Code
Calculation of time-limits (art.
6.1)
Regional and local tax legislation
Tax regulatory bodies
International tax legislation
Court system

Elements of taxation
Definitions

TYPES OF
BUSINESS
ACTIVITIES

TAXPAYERS AND
TAX AGENTS

Federal, regional and local taxes


Direct and indirect taxes
Profits tax
Personal income tax
Value added tax
Social insurance contributions
Corporate property tax
Transfer pricing rules

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FUNCTION AND PURPOSE OF TAXATION

1.1

Providing funding for government spending

Taxation is the process whereby charges are imposed on entities, individuals or


property and collected to raise finance for the state and public purposes.
So, the primary purpose of taxation in an economy is to provide funds for government
spending on areas such as education, health care, defence and law and order.
This primary function is normally guided by principles of:

Economic efficiency the tax system will affect the incentive people have to
work. If taxes are high, this may provide a disincentive to work.

Equity the system should be fair.

Simplicity the more complex a tax system is, the more expense tax payers
will incur in minimising their taxes.

International competitiveness in the modern world, where economies have


become much more open, there is a risk that high tax economies suffer, as
companies move their operations to lower tax economies. Also, individuals may
prefer to move from high tax countries to lower tax jurisdictions.

1.2

Redistribution of income and wealth

Some policy makers see the taxation system as a way of redistributing wealth
imposing higher taxes on the rich, and redistributing it to the poor.

Providing support to poorer families through unemployment benefits and


child benefits is one means commonly used to redistribute income.

1.3

Correcting market inefficiencies

Where markets fail to factor in pollution or the health effects of certain behaviour (e.g. drinking and
smoking) policy makers may use indirect taxation to correct these. For example, by imposing excise
duties on fuel, alcohol and tobacco products.
2

REGULATORY FRAMEWORK

2.1

Tax Code

The Tax Code is the main tax legislative act, which consists of two parts:
(1)

Defines the basic concepts used throughout the Code (e.g. types of taxes,
definition of taxes, sales revenue, market price for tax purposes, etc), provides
general rules for tax payment and collection, lists rights and responsibilities of
tax payers and tax authorities, etc.

(2)

Is designed to govern the procedure of calculation and payment of specific


taxes and other fees.

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2.1.1

Tax Code (Part I)

Tax Code (Part I) contains the following main sections:

types of taxes and fees levied in the RF


rights and obligations of taxpayers;
rights and obligations of tax authorities;
grounds for origination (amendment, termination) of tax liability;
forms and methods of tax control;
tax fines and penalties;
tax appeal procedure.

Part I of the Code came into force (except for a few provisions) on 1 January 1999.
2.1.2

Tax Code (Part II)

The following chapters of Tax Code (Part II) are effective in 2011:

Chapter 21 (VAT);
Chapter 22 (Excises);
Chapter 23 (Personal Income Tax);
Chapter 25 (Corporate Profits Tax);
Chapter 25.1 (Tax on Objects of Wild Nature, Water and Biological Resources)**;
Chapter 25.2 (Tax on Water)**;
Chapter 25.3 (State Duty)**;
Chapter 26 (Tax on Excavation of Mineral Resources)**;
Chapter 26.1 (Unified Agricultural Tax)**;
Chapter 26.2 (Simplified System of Taxation)**;
Chapter 26.3 (Unified Tax on Imputed Income)**;
Chapter 26.4 (Taxation of Product Sharing Agreements)**;
Chapter 28 (Transport Tax)**;
Chapter 29 (Tax on Gambling Activities)**;
Chapter 30 (Property Tax);
Chapter 31 (Land Tax)**.

Chapter 24 (Unified Social Tax) became inoperative from 01.01.2010 when the
Federal Law from 24.04.2009 # 212-FZ came into force. In accordance with this law
unified social tax was replaced with social insurance contributions.

** Are not examinable in F6-Rus.


2.2

Making amendments to the Tax Code

Any changes in the Tax Code are made through the adoption of
corresponding federal laws.

All federal laws are adopted first by the State Duma and then the Federation
Council, and signed by the President. They enter into force not earlier than
after their official publication.

2.2.1

Article 5, Part 1

Acts of tax legislation that increase tax rates, or which in any other way
worsen the position of taxpayers, may not apply retroactively.

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Tax acts become effective not earlier than one month after the date of their
official publication and not earlier than the first day of the following tax
period for the corresponding tax.

The provisions of laws, which improve a taxpayers position, may be retroactive


and can become effective from the date of their official publication.

Example 1
Suppose that a new Law introducing a change to the Tax Code Chapter 22 Excises
was officially published on 5 January 2011. The law states that it comes into force
from the date of official publication. According to the new Law the excise rate on beer
is reduced retroactively starting 1 January 2011. Assume one month as a tax period for
excises.
Required:
Briefly comment on the effective date of the law.

Example 2
Facts as in Example 1 except that according to the new Law the excise rate on beer is
increased retroactively starting 1 January 2011.
Required:
Briefly comment on the effective date of the law.
2.3

Calculation of time-limits (art. 6.1)

The time-limit on taxes and fees is determined by a calendar date or the


expiry of a period of time that is calculated in terms of years, quarters,
months, weeks or days.

Commentary
It may also be determined by reference to an inevitable occurrence.
Time calculated
in terms of:

Expiry

Explanation of period

Years

In the corresponding month and on the


day of the last year of the period.

Any period of 12 successive calendar


months is recognized as a year

Quarters

Last day of the last month of the period.

A quarter is 3 months. Counted from


beginning of the year.

Months

In the corresponding month and on the


day of the last month of the period

A calendar month is a month. If there


is no corresponding day then the last
day (e.g. 28th or 29th in February).

Weeks

Last day of a week.

Five working days in a row.

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2.4

Regional and local tax legislation

The constituent republics of the Russian Federation, krais, oblasts,


autonomous formations, federal cities Moscow and St. Petersburg (commonly
referred to as regions or subjects of the Russian Federation) issue laws on
regional taxes and regional rules affecting some federal taxes.

Municipal (local) legislative authorities within the regions issue acts on local taxes.
Regional tax laws and local tax acts must not contradict federal tax laws.

2.5

Tax regulatory bodies

Tax Code states that the tax legislation is comprised of:

the Tax Code itself and other federal laws;


laws of the subjects of the Russian Federation;
legislative acts of municipal authorities adopted in accordance with the Tax Code.

Commentary
For example, regions can set rates of corporate profits tax and corporate property tax
within stipulated federal limits.

The Government, the Ministry of Finance, the Federal Tax Service (FTS) of
the Russian Federation, State Customs Committee, Central Bank, etc may
regulate the tax rules only in the cases specifically provided by the tax
legislation; they cannot amend the tax legislation.

Illustration 1
Chapter 25 (corporate profits tax) of the Tax Code has given Russian Government the
right to establish the classification of fixed assets into depreciation groups for profits
tax purposes, therefore this classification approved by the Government is binding for
taxpayers. Ministry of Finance has the right to issue clarifications on taxation issues.

Instructions, letters, telegrams and other regulations issued with respect to federal,
regional, and local taxes by the FTS, state tax inspectorates in the regions and
municipalities, as well as by other executive bodies may not introduce tax rules affecting
principal tax matters (i.e. should generally cover administrative tax issues only).

2.6

International tax legislation

One of the constitutional principles is the rule that international agreements


concluded by the Russian Federation take precedence over its national legislation.

This rule is reiterated by the Tax Code and is equally applicable to conventions for
avoidance of double taxation and prevention of fiscal evasion with respect to taxes
(double tax treaties) and other international tax agreements of the Russian Federation.

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2.7

Court system

The Russian tax regulatory framework does not explicitly recognise the concept of a
precedent as a legal source. However, decisions and clarifications of the Supreme
Arbitration Court of the Russian Federation, which is the highest court in resolving
disputes between corporate taxpayers and the tax authorities, are binding for the lower
arbitration courts, which handle the majority of tax cases.

Commentary
Thus, such decisions and clarifications effectively establish the ultimate approach
towards a disputed tax matter.

The other two of Russias highest courts (the Constitutional Court and the Supreme Court)
play an active role in testing the legality of tax acts and, thus, also effectively change the tax
rules by means outside the scope of the legislative process. In quite an impressive number of
decisions, parts of tax laws have been declared invalid as contradictory to the Constitution
(by the Constitution Court), and Presidential Decrees, Governmental Regulations, FTS
Instructions contradictory to tax laws (by the Supreme Court).

CONDITIONS OF TAXATION

3.1

Elements of taxation

A tax is established if tax payers and all elements of taxation are defined:

tax object;
tax base;
tax period;
tax rate;
procedure for tax calculation;
procedure and deadlines for tax payment.

3.2

Definitions

Tax object any object (property, profit, income etc.) having a cost, quantitative or
physical characteristic whose existence is linked to the emergence of a tax liability of
the taxpayer is deemed to be an object of taxation. Each tax has an independent object
of taxation defined in compliance with part II of the Tax Code (art.38).

Tax base represents a value, physical or other parameter of a taxable item (art.53)

A tax period is a year or any other period of time with regard to a taxpayer's liabilities for
individual taxes after the end of which the tax base is determined and the due amount of
tax assessed. The tax period may consist of one or more reporting periods (art.55).

Tax rate represents the amount of tax levied on a unit of measurement of a tax base (art.53).

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DIFFERENT TYPES OF TAXES

4.1

Federal, regional and local taxes

The Russian tax system consists of federal, regional and local taxes:

Federal taxes:

Regional taxes:

corporate profits tax (CPT);


value-added tax (VAT);
customs duties, customs fees;
excise duties;
personal income tax;
other federal taxes.

corporate property tax;


transportation tax;
gambling tax.

Local taxes:

land tax;
individual property tax;
other local taxes and fees.

Federal taxes are levied throughout the territory of the Russian Federation,
while regional and local taxes are levied on the taxpayers registered or
operating within the territory of the region (municipal district).

No federal, regional or local taxes can be established which are not provided
for by the Tax Code.

The rates (within the limits set at the federal level) of regional/local taxes are
normally set and respective tax concessions are granted at the regional/local
level. The results vary over the territories:

some territories introduce as many taxes as possible and raise their


rates to the maximum;

others refrain from introduction of excessive number of taxes and


use their authority to establish lower tax rates, thus, offering a more
favourable tax regime to lure inbound investments.

4.2

Direct and indirect taxes

Direct tax is normally taken to mean situations where the tax authorities collect tax
from the person who is being taxed so most taxes are categorised as direct taxes.

Indirect tax is where the tax is collected from another party not the party who is
suffering the tax. VAT is an example of an indirect tax. The seller of the goods
adds VAT on to the price so the final consumer is the person who suffers the tax.
However, it is the seller who collects the tax and passes it on to the tax authorities.

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4.3

Profits tax on corporate incomes

Profits tax is payable in Russia on the profits of Russian legal entities and foreign
legal entities carrying out business activities in the Russian Federation, calculated as
operational and non-operational income less tax deductible expenses and losses.

Commentary
Profits tax levied on foreign legal entities is not examinable.

It is still possible for profits taxation purposes to recognise revenues either on


a cash basis or on an accruals basis for CPT purposes.

Commentary
The choice of cash method for CPT is not available to taxpayers with average
quarterly income exceeding 1 mln. RR (excluding VAT).

Under the accruals method operational income and expenses are recognised when they
are accrued, while under cash method they are recognised when paid.

Starting January 1, 2002 a corporate taxpayer must maintain tax accounting system for
purposes of calculating corporate profits tax (CPT) liabilities. Reconciliation between
accounting and taxable profits is not performed.

Deductibility of certain categories of business expenses and losses is restricted under


the Russian taxation rules, while a few types of expenses are wholly non-deductible.

The profits tax rate is set at 20% of the taxable business profits, where 2% is payable to
the federal budget and 18% to the regional budget. The regions have been granted the
power to decrease the regional rate down to 13.5% for certain categories of taxpayers.

Some categories of income are subject to withholding profits tax. For example
dividend income payable by a Russian company to another Russian company with a
participatory share less than 50% is taxable at source at the rate of 9%.

Commentary
Unified tax on imputed corporate income (a simplified tax for small businesses) and
withholding income tax on income of foreign legal entities are not examinable.
4.4

Personal income tax

Personal income tax (PIT) applies to income of individuals.

Base PIT rate in 2011 is 13%. Rates of 9%, 30% and 35% apply to certain
types of income.

A taxpayer is granted a number of standard, professional, social and property


deductions (allowances) when calculating his taxable income.

All Russian legal entities are required to withhold individual income tax from the
salaries of their employees (individuals engaged under labour contracts) and
income paid to other individuals engaged by them under civil-law contracts.

Individual entrepreneurs pay PIT themselves and make regular advance payments of PIT.

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4.5

Value added tax

Value added tax (VAT) is generally chargeable on sale of all goods and services in
Russia and on importation of goods into the territory of the Russian Federation.
The standard rate of VAT is 18%. Certain food products and goods for children
are charged a 10% VAT, while exports of goods and related works and services are
subject to VAT at 0% rate.

Sales of certain goods (works, services) are VAT exempt.

Key point

VAT rules for exempt operations and operations subject to 0% rate are very
different.

Input VAT (i.e. VAT paid to suppliers) is generally allowed as a credit against
output VAT (i.e. VAT charged to customers and payable to the budget) after the
services/materials/fixed or intangible assets are reflected on the books.

Exemption from VAT of certain sales may be disadvantageous to the supplier since
VAT incurred on inputs may not be recovered and so charged to the costs of
production. Sales subject to 0% VAT (e.g. exports) allow recovery of input VAT.

There is a uniform invoicing procedure for VAT purposes applicable to all


taxpayers providing goods, works, or services. VAT invoices of a standard
format (schet-factura) are to be issued and registered in a sales journal of
the seller and incoming VAT invoices from suppliers are to be recorded in a
purchases journal of the buyer. Compliance with the VAT invoicing
procedures is critical to the buyers ability to recover input VAT.

Commentary
The VAT withholding requirement (reverse charge VAT) applicable to payments
made to foreign companies is not examinable.
4.6

Social insurance contributions

Social insurance contributions (SICs) are not taxes; they are obligatory payments for
the mandatory social insurance, so they are not regulated by the Tax Code, but by
the Federal Laws and respective regulatory legal acts. SIC legislation provides rules
for calculations, payments, reporting and control and can be changed and amended
more easily than tax legislation.

At the moment the main regulation rules established by the Federal Law # 212-FZ
are very close to the Tax Code rules but there are some differences (e.g. concerning
the guarantee of SIC payers rights).

SICs combine payments to several state funds, which are made by employers and
individual entrepreneurs to secure state medical, pension and social insurance.

Commentary
Although the contributions go to several specific funds, for exam purposes these
contributions are usually treated as one obligatory payment.
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SICs represent:

for employers an additional cost (on top of the salaries) which is


allowed as a deduction in arriving at the corporate profits tax base;

for an individual entrepreneur an additional cost generally


deductible from taxable business income.

4.7

Corporate property tax

Property tax is payable on assets of Russian and foreign legal entities located
in Russia based on the annual average net book value of fixed assets. The
property tax rate is set at the regional level and may not exceed 2.2 %.

4.8

Transfer pricing rules

For tax purposes the amount of revenue is determined based on the figures
provided in the agreement. This is a general rule. However tax authorities
may check if the amounts stipulated in the contract indeed correspond to the
market price in four cases (art. 40):
(1)
(2)
(3)
(4)

when seller and buyer are considered to be related parties;


when barter agreement is concluded;
when sale agreement is concluded with foreign legal entity;
when price fluctuations exceed 20% of average price for identical
(similar) goods within reasonable time period.

Related parties are created if one entity has more than 20% of direct or
indirect ownership in another entity.

Identical (similar) goods are defined as the goods with identical (similar)
qualities such as:

physical qualities;
reputation on the market;
producer;
country of origin.

The terms of agreements on which the prices are being compared should be
similar with regard to quantities of goods sold, locations of buyers, etc.

Where tax authorities prove that the market price was different from the price
provided for in the agreement an additional tax liability and related penalties arise.

A taxpayer can justify fluctuations in sales price by its marketing policy and
seasonal changes in demand.

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Example 3
Consider the following goods:
(1)

Vodka Stolichnaya and vodka Gzhelka produced by the different


companies.

(2)

Vodka Stolichnaya and vodka Gzhelka produced by the same company.

(3)

Cherry and apple yogurts produced by the same company with the same fat
content.

(4)

Car Ford Focus produced in Russia and the same car imported from US.

(5)

Milk produced by the same company, in the same packaging, with the same
fat content distributed to different customers.

Required:
Explain with reasons whether the goods are similar or identical.

There is no official source of information for tax authorities (except the prices
of identical or similar goods). Thus a problem arises if such goods are not
available. However the Tax Code provides for two approaches in this case:
(1)
(2)

the method of subsequent sale price (this method must be used first);
the method of cost plus mark-up.

Illustration 2 Method of subsequent sale price


AO Primus sells to ZAO Krokus unique goods for 100,000 RR. Then ZAO
Krokus re-sell these goods for 250 000 RR. (VAT is ignored). Selling costs of
Krokus are 40,000 RR. Usual profits margin of Krokus is 30% which is 250,000
30% = 75,000 RR. The market price for ZAO Primus for tax purposes will be
defined as 250,000 40,000 75,000 = 135,000 RR.

Illustration 3 Method of cost plus mark-up


ZAO Primus sells to ZAO Krokus unique goods for 100,000 RR. Cost of goods
sold is 70,000 RR. Additional selling costs for Primus are 20,000 RR. Usual markup to cost for this industry 20% (or 90,000 20% = 18,000 in this case).
The market price of ZAO Primus for tax purposes will be defined as
90,000 + 18,000 =108,000 RR.

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TAXPAYERS AND TAX AGENTS

5.1

Taxpayers

Taxpayers and payers of levies are organisations and individuals having an


obligation to pay taxes and/or fees, respectively.

In most cases a taxpayer will need to register, file regular tax returns and
make tax payments.

5.1.1

Principal rights (art. 21)

To receive from the tax authorities at the place of registration free information on
current taxes and levies (including information on laws on taxes and levies and
other tax related acts).

To use established tax allowances.

Not to comply with illegitimate acts and requirements of the tax authorities.

To appeal against the decisions of the tax authorities as well as their actions.

To claim full compensation of any losses incurred due to the unlawful


decisions, actions (inaction) of the tax authorities.

To receive timely offset or reimbursement of the tax amounts paid or


collected in excess of the correct amount.

5.1.2

Principal obligations (art. 23)

To register for tax purposes if required by the Tax Code.

To pay lawfully established taxes.

To file tax declarations.

To maintain records of their income (costs) and taxable subjects.

To provide the tax authorities with the necessary information and documents
required to calculate and pay taxes.

To comply with the lawful demands of tax authorities to rectify violations of


tax and levies legislation.

To keep for four years the accounting records and other documents required
for the calculation of taxes and confirming payment of taxes and levies.

5.2

Tax agents

Definition
Persons (both individuals and legal entities) who, in accordance with the Tax Code,
must calculate and withhold relevant taxes from payments to taxpayers and remit these
amounts to the budget.

A tax agent does not bear the cost of the tax himself but rather acts as a collecting agent.

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Examples are:

an employer with regards to salaries paid;


a payer of dividends.

Tax agents generally have the same rights as taxpayers.

Tax agents have the following main obligations:

to notify within one month local tax authorities of the inability to


withhold tax and the amount of the taxpayers liability;

to maintain records of income paid to taxpayers, taxes withheld and remitted to


budgets (non-budget funds), including personalised data on each taxpayer;

to file with the tax authorities documents necessary for the tax authorities to
monitor accuracy of the calculation, withholding and remittance of taxes.

The Tax Code provides for a penalty for failure to transfer the tax that should
have been withheld and transferred to the budget. The penalty is established
at 20% of the relevant tax amount.

Example 4
Darya starts employment for ZAO Sterling as a translator. On joining she advises
Ilya, the chief accountant, that the company should not deduct any tax from her salary
as she has income from other sources, including publishing books. She demands to be
paid gross declaring that her tax adviser will account for her liabilities when submitting
returns.
Required:
Explain whether the company can agree to Daryas request.
6

TYPES OF BUSINESS ACTIVITIES

6.1

General

Business activities in Russia may be conducted in the following forms:


(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)

full partnership (polnoie tovarischestvo);


commandite partnership (tovarischestvo na vere);
limited liability company;
company with additional liability (obshestvo s dopolnitelnoi otvetstvennostju);
closed joint stock company;
open joint stock company;
production co-operative;
individual in business (individual entrepreneur);
simple partnership (created under a joint activities agreement);
branch of Russian entity;
branch of foreign entity.

Entities listed under items 1-7 are legal persons subject to corporate taxes.

Individual entrepreneurs are liable to personal income tax (PIT) and social
insurance contributions. They are also VAT payers with certain limitations.

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A simple partnerships profit is added to other income of the partner and


taxed according to corporate or personal income tax rules as appropriate.

6.2

Branches of Russian legal entities

The Tax Code operates with a notion of a separate sub-division of a legal entity.

Definition
Any sub-division with permanent working places in a location other than the location
of the head office.

The working place is considered to be permanent if it is created for more


than one-month period.

Branches (separate sub-divisions) are not considered to be independent


taxpayers. The organisation has the obligation to pay taxes locally at the
place of location of its separate sub-divisions.

Corporate profits tax is allocated between a branch and its head office according
to special rules which will be explained in detail in relevant sections.

Property tax of a branch is calculated based on the value of the property of the
branch and is paid to the tax inspectorate at the branch location at that local rate.

Individual income tax on wages and salaries of the employees in the branch
are calculated based on the salaries of relevant employees.

Commentary
Taxation of branches of foreign legal entities is not examinable.
FOCUS
You should now be able to:

describe the purpose (economic, social, etc) of taxation in a modern economy;

explain the tax regulatory framework in the Russian Federation including the process for
making changes and amendments to the Tax Code (art. 5 of Part I);

explain how the tax terms set by the Tax Code (art. 6.1 of Part 1) are determined;

outline the application of regional and local tax laws, defining the relevant tax regulatory bodies;

explain the difference between direct and indirect taxes;

recognise the types of taxes levied on legal entities and physical persons in the Russian Federation;

list the legal forms of business activities in Russia and identify the relevant taxes for each
type of business activity;

explain the concept and basic rules relating to transfer pricing;

differentiate between taxpayers and tax agents;

explain the rights and obligations of both taxpayer and their agents;

define sub-division as applied to corporate profits.

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EXAMPLE SOLUTIONS
Solution 1
The Law establishes more favourable rules for taxpayers and may therefore be
retroactive. There is nothing wrong with the effective date being 1 January 2011.
Solution 2
The Law worsens the taxpayers position and cannot be retroactive. It will enter into
force one month after the date of its official publication (February 5th) but not earlier
than the first day of the reporting period (March 1st). Therefore, the effective date is 1
March 2011.
Solution 3
(1)

The goods are neither similar nor identical as their reputation, quality and
producers are different.

(2)

The goods are neither similar nor identical as their reputation, quality are
different.

(3)

The goods are similar insofar as they are produced in the same product line
and the only difference is flavour.

(4)

The goods are neither similar nor identical as their countries of origin are
different.

(5)

The goods are identical. However special attention should be paid to the
comparability of the terms of deals with these goods.

Solution 4
No. ZAO Sterling is the tax agent in respect of Daryas salary and must withhold personal
income tax. Failure to do so would result in the company being liable to penalties.

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OVERVIEW
Objectives

To understand the scope of corporate profits tax.

To demonstrate the computation of corporate profits tax liability.

To explain the methods of income and expense recognition for tax purposes.

SCOPE

TAX LIABILITY

Taxpayers
Tax object and tax base
Tax and reporting periods
Tax rates

Computation
Income classification
Expense classification
Exclusions
Direct vs indirect expenses

ACCRUALS
METHOD OF
INCOME
RECOGNITION

CASH METHOD
OF INCOME
RECOGNITION

General rules

Sales income
Production and sales expenses
Allocation of direct production and sales expenses
Non-operational income
Non-operational and other expenses
Accruals method summary
Special rules of income/expense recognition

Income
Expenses
Taxable profits

Note: All article references are to the Tax Code unless otherwise stated.

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SCOPE

1.1

Taxpayers (art. 246)

Enterprises and organisations, that are legal entities created under Russian Law, are subject
to the corporate profits tax (CPT) with certain exceptions (none of which are examinable).

1.1.1

Exceptions

Entities subject to unified tax on imputed income (a simplified tax for small business).
Small enterprises using simplified tax and accounting systems.
Gambling businesses (this income is subject to special tax on gambling business).
Agricultural entities (with the exception of agricultural enterprises of industrial type).

Specific taxation rules relating to certain categories of taxpayers (e.g. banks, credit
institutions, insurance companies, pension funds, etc) are not examinable (art. 290 300).
Taxation of foreign legal entities acting in Russia through permanent establishments
(art. 306-308) is not examinable. Withholding profits tax on income of foreign legal entities
from sources in the Russian Federation (art. 309-312) is also not examinable.
1.2

Tax object and tax base (art. 247, 274)

Tax object for CPT is the taxpayers profit, calculated as gross income (operational
and non-operational) reduced by tax deductible expenses and losses.

Tax base is the profit defined as a tax object in money terms.

Income received in-kind (non-monetary) is determined based on the agreement terms taking
into account the market price (art.40).
1.3

Tax and reporting periods (art. 285)

The tax period (nalogovyi period) is a calendar year.

The reporting period (otchetnyi period) may vary, depending on the CPT
payment system, used by a taxpayer:

if a taxpayer uses a quarterly system, the reporting periods are first


quarter, half a year and 9 months of the year;

if a taxpayer makes monthly advance payments of CPT based on actual


profits, the reporting period is a month, two months, three months and so
on until the end of the calendar year.

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Illustration 1
XYZ Companys data follows (in mln. RR):
1st quarter

2nd quarter 3rd quarter 4th quarter

200

180

220

300

Deductible expenses (non-cumulative) (80)

(70)

(100)

(150)

9 months

year

350

500

Taxable revenue (non-cumulative)

st

st

1 quarter 1 half
Taxable profits (cumulative)

120

230*

* taxable profits for the half of the year include 120 from the 1st quarter and 110 from the 2nd
1.4

Tax rates (art. 284)

1.4.1

General profits tax rates

The general CPT rate is fixed at 20%

The total rate is comprised of the federal and regional portions.

In 2011:

the federal portion of the tax is fixed at 2%;


the regional portion of CPT is set at 18 %.

The regional rate can be decreased by the local legislative body for certain
categories of taxpayers by 4.5% maximum (i.e. from 18% to 13.5%).

These rates are provided in the examination.

1.4.2

CPT rates on dividends

The Tax Code provides for special tax rates on dividend receipts and distributions.

If an entity pays dividends it must withhold CPT at source at:

0% if dividends are paid to a Russian legal entity which has owned for at
least 365 days not less than 50% of the entity);

9% if dividends are paid to a Russian legal entity (unless the recipient is


entitled to 0% rate);

15% if dividends are paid to a foreign legal entity.

If an entity receives dividends it pays CPT at:

0% if dividends are received from a Russian legal entity (as either specifically
qualifying for zero rate or already subject to 9% tax at source);

9% if dividends are received from a foreign legal entity.

These rates will be provided in the examination.

For more details see Session 4.

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TAX LIABILITY

2.1

Computation

Taxable profit includes profits from sales of goods (works, services) and nonoperational profits.
Outline of computation of tax liability
+

Sales income

Sales expenses

Operational profit

Non-operational income (Session 4)

Non-operational expenses ( Session 4)

Tax base (before loss carry forward)

Loss carried forward from previous years (Session 4)

Tax base (after loss carry forward)

Tax rate

Tax liability

Detailed proformas for the calculation of tax liabilities for production and trading
companies are set out in Session 4.
2.2

Income classification (art. 248, 249, 250, 315)

Taxable income consists of sales income (dohodi ot realisatsii art. 249) and nonoperational income (vneralizatsionnie dohodi art. 250).

Income in tax accounting is classified into the following main baskets* (art. 315):

BASKET 1 - income from sales of goods (works performed, services rendered);


BASKET 2 - income from trading operations (sales of purchased goods
(merchandise inventory));
BASKET 3 - income from sales of fixed assets;
BASKET 4 - non-operational income.

Income is determined without including taxes (mainly VAT in all examinable


cases) to be reimbursed by the buyers according to the Tax Code.
* The term baskets (korzini) is used for convenience only, as there is no such
definition in the Tax Code. There are more baskets according to the Tax Code
classification, however for exam purposes only the main baskets are covered.

Non-operational income is all other types of income than sales, for example, it can
be rental income, foreign currency exchange gains, interest income, etc. Nonoperational income and the moment of its recognition are described more fully in
section 3.5 below (and Session 4).

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2.3

Expense classification (art. 252, 315)

The Tax Code (art. 252) defines expenses as justifiable (obosnovannyie) and
documentary proved costs. Justifiable expenses mean economically sound expenses.

For deductibility purposes an expense must be linked to income-generating activity.

Like income, expenses are classified into production and sales expenses (rashodi,
svjazannie s poizvodstvom i realisatsiei) and non-operational expenses
(vneralizatsionnie rashodi).

The basket concept is applicable to expenses as well. For exam purposes there
are three baskets of production and sales expenses and one basket for nonoperational expenses. Profit (or loss) is established for each basket first and then
the results are added up to determine the total taxable profit or loss.

Note: Losses received in certain baskets cannot decrease profits in others or can
only decrease it according to special rules (Session 3).

Expenses in tax accounting are classified into the following baskets:

BASKET 1 expenses on production and sales of goods (works, services);


BASKET 2 expenses incurred on sales of merchandise inventory;
BASKET 3 expenses incurred on sales of fixed assets;
BASKET 4 non-operational expenses.

Other types of expenses are not examinable.

For the purposes of taxable profits calculation on accrual basis, sales and production
expenses are further split into direct and indirect categories (see section 2.5).

Non-operational expenses are not split into direct and indirect. They decrease the
taxable base of the period when they are recognised for tax purposes (see section 3.6).

Deductibility of certain expenses is limited by statutory norms (see next session).

Losses incurred by taxpayer can also be attributed to expenses according to special


rules (Sessions 3 and 4).

2.4

Exclusions (art. 251, 270)

Certain types of income/expenses are excluded from taxable base, which means that
although they represent economic income for the company they are not subject to profits tax.

2.4.1

Excluded income (art. 251)

The following items are not taken into account when defining the tax base:

advances received by taxpayers using accruals method of income recognition;

property received as a deposit (guarantee) for enforcement;

contributions received to charter capital (including additional paid-in capital);

VAT received within contributions to charter capital which is subject to


deduction by the receiver (according to Chapter 21 of the Tax Code);

property (including cash) received by commissioner (except commission income);

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loans received;

interest amounts received from the State budget in respect of tax


overpayments (art.78, 79, 176 and 203 of the Tax Code);

investments in the form of integral improvements to rented property made


by the lessee (or made by a borrower who has free use of such property);

property received free of charge by a Russian legal entity from a legal


entity which owns more than 50% of the taxpayer;*

property received free of charge by a Russian legal entity from a legal


entity which is more than 50% owned by the taxpayer;*

property received by a Russian legal entity from a physical person who


owns more than 50% in the capital of the taxpayer.*

* This property (with the exception of cash) is excluded from income unless it is
transferred to a third party within one year from the date of receipt.
2.4.2

Excluded expense (non-deductible)

The following items should be remembered (art. 270):

advances for goods (works, services) made by taxpayers who recognise income/
expenses on an accruals basis;

dividends and profits distributions;

penalties and fees paid to budget and state bodies;

contributions to charter capitals;

expenses incurred for purchase or production of depreciable property (Session 3);

partially deductible expenses in excess of statutory norms;

property (including cash) transferred to a commissioner (except commission


expense);

loans given to other companies or payments (cash or other property) transferred


for redemption of the principal amounts of loans received;

gifts in cash or in-kind and related expenses payable to employees which are not
included in a labour contract;

property given free of charge and expenses related to such commitment;

financial aid to employees (materialnia pomosch);

price differences when selling goods (works, services) to employees below


market prices;

free or subsidised meals to employees, compensation of commuting expenses to


and from the work place (except such costs provided under labour contracts);

various other benefits for employees (i.e. non business travel, recreation, sports,
entertainment) (art.270). These are excluded even if provided for in the contract;

payments to the members of the board of directors of the taxpayers organisation;

taxes that are included in the sales price (e.g. VAT, excises);

expenses, which are not justifiable and/or documentarily proved.

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2.5

Direct vs indirect expenses (art. 318, 320)

The Tax Code further classifies production and sales expenses (baskets 1 and
2 only) into direct and indirect for the purposes of tax accounting for those
organisations applying the accruals method.

Tax-deductible direct expenses of the reporting period partially decrease taxable


base, partially are allocated to work-in-progress and finished goods (see 3.4 below).

Tax deductible indirect expenses incurred in the reporting period decrease the
taxable base of this period.

This classification is not applied to non-operational expenses. Classification rules


are different for production and trading operations (see section 3.4).

ACCRUALS METHOD OF INCOME AND EXPENSES RECOGNITION

3.1

General rules (art. 271, 272)

Under the accruals method income and expenses are recognised in the reporting
period to which they relate, regardless of the timing of money and/or property
receipts/payments.

Income and expenses under the accruals method should be matched with each
other. Those expenses which relate to several income generating activities should
be allocated between them based on percentage from these activities.

If income/expenses are related to different reporting periods they must be split


according to the terms of the sales agreement.

Income is recognised for CPT purposes under the accruals method on shipment
(transfer) date:
This date is defined (art. 39) as the date of transfer of the title of ownership for
goods (works, services). Thus, if the goods were shipped to customer but the title
of ownership remains with the seller (goods in transit not delivered to
customers warehouse or special conditions of the contract) the shipment date in
a tax sense has not occurred yet.

Under the accruals method advances (prepayments) received from customers are
not subject to CPT until the dispatch (title transfer) takes place.

If the sale is performed through commissioner (agent), the shipment date is defined
according to the sale date indicated in the commissioners report. However the Tax
Code provides that a commissioner must inform the principal about the sale within
three days after the end of the reporting period in which the sale took place (art. 316).

3.2

Sales income (art. 271)

The following table summarises the timing of sales income recognition under the
accruals method:

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Type of income

Timing of recognition

Income on sales of goods

The date of transfer of the title to goods

Income on sales of securities

The date of transfer of the title of securities


or the date of offsetting of counter-claims

Income on sales of works

The date of transfer of the results of


completed works to customer

Income from services (other than factoring


services)

The date of services provision (as per


acceptance act)

Income on sale of property rights


(i.e. factoring)

The date of transfer of these rights to a new


creditor

Income from factoring services


(not on initial debt assignment)

The date of receivable collection or its


subsequent sale by its new holder

Income from sale of goods (works, services),


property rights through commissioner (agent).

The sale date indicated in the


commissioners report (see above).

Income received in foreign currency is converted to roubles on the date when it is


recognised (art. 271.8).

Example 1
State the date of income recognition for CPT purposes for the following transactions.
Assume that the company uses the accruals method and pays CPT on a monthly basis:
(1)

On January 20 Company Alfa made a delivery to Company Beta, which issued


a promissory note with a two-month payment term. Alfa received the money on
the notes redemption on March 20.

(2)

On January 25 Alfa shipped 10 mln. worth of goods to Beta. According to the


terms of agreement title to the goods passes to Beta only after Beta receives
and inspects them in its warehouse. The receipt and inspection occurred on
February 5.

(3)

Alfa sells its goods through a commissioner Beta. Alfa has delivered the
goods to Beta in February. Beta has delivered the goods to a final customer in
May. The customer paid to Beta in June. Beta paid to Alfa in July.

(4)

Alfa has shipped some goods to a foreign customer on March 1. It presented the
package of export confirmation documents to the tax authorities on November 20.

(5)

Continuing from (4), assume that a prepayment for exported goods was received in
January.

(6)

Alfa has an account receivable, which it considered as non-collectible. The


delivery was made in January. In August Alfa has sold this receivable to Beta,
which paid for it in September.

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Solution
(1)
(2)
(3)
(4)
(5)
(6)
3.3

Production and sales expenses (art. 272)

The table below summarises the timing of recognition of production and sales
expenses under the accruals method:
Type of expense

Timing of recognition

Raw and other materials used in


production

The date of transfer from warehouse into production

Depreciation/amortization expense*

Monthly at the date of accrual of this expense

Wages and salaries expenses


Works, services used in production

The date services are provided (as per acceptance act)

Mandatory and voluntary insurance


expenses

The date of payment. For payments covering more than


one reporting period the expense is allocated in equal
portions over the agreement term based on the number of
days. This means that there is an additional condition (i.e.
they must be paid for) for such expenses to be recognized
for CPT on accruals basis.

* This starts from the month following the month when the asset was put into use.

Expenses incurred in foreign currency are recalculated to roubles on recognition.

Example 2
State the timing of inclusion in deductible expenses of the following items for an accrual
basis taxpayer, which pays and reports CPT on a monthly basis:
(1)

Materials booked in February, consumed in production in March, paid in April.

(2)

Fixed assets booked and put in use in April, paid in June.

(3)

Capital repair services received in July, prepaid in June.

(4)

Intangible assets with estimated 5-year service life, purchased in January, booked
and put in use in February.

(5)

Voluntary medical insurance paid on the 15th March for the period from 5th March
2011 to 5th March 2012.

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Solution
(1)
(2)
(3)
(4)
(5)
3.4

Allocation of direct production and sales expenses (art. 318, 319, 320)

Split of operational expenses into direct and indirect with their further allocation is
performed only if the accruals method is used for CPT purposes.

3.4.1

Trading operations (art. 320)

In tax accounting production and sales expenses are classified into direct and
indirect. This does not apply to non-operational expenses. Classification rules are
different for production and trading operations.

For trading operations the rules are straightforward and easy to remember:

direct expenses are the purchase cost of merchandise inventory and related
transportation costs on delivery of goods to the warehouse of taxpayer;
indirect expenses are all other expenses incurred on purchase and sales
of merchandise inventory.

Note that bonuses from a seller to a customer subject to certain conditions in


agreements (volume bonuses) are included in non-operational expenses.

Tax deductible indirect expenses incurred in the reporting period decrease taxable
base of this period and are not prorated (allocated between different tax periods).

Direct expenses of the reporting period partially decrease taxable base and partially
are allocated to work-in-progress and finished goods.

Cost of closing merchandise inventory is determined using one of the following


costing methods (art. 268):

FIFO;
LIFO;
weighted average;
actual unit cost.

Transportation costs, which are billed separately (i.e. delivery is not included in the
purchase cost and paid for as an additional expense) are allocated to the closing
merchandise inventory using the following steps:

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Step 1:

Add up transportation costs allocated to the opening merchandise


inventories and incurred in the current reporting period.

Step 2:

Add up the cost of closing inventory and merchandise sold.

Step 3:

Divide the result in Step 1 by the result in Step 2.

Step 4:

Multiply the average percentage (Step 3) by the cost of closing inventory


to give the transportation costs to be allocated to the closing inventory.

Illustration 2
Company A has started its operation in January 2011. The following data is available for
January (VAT is ignored for simplicity):
On January 5 the company purchased 3000 units at 160 RR per unit. Agents commission
80,000 RR, insurance costs 50,000 RR, transportation costs 140,000 RR.
On January 15 the company purchased 3000 units at 190 RR per unit. Agents commission
100,000 RR; loading costs 30,000 RR; transportation costs 175,000 RR.
In January the company sold 4000 units at 320 RR per unit.
LIFO method is used for tax accounting purposes.
(1)
(2)
(3)
(4)
(5)

Cost of goods purchased is 1,050,000 RR ((3,000 160) + (3,000 190))


Cost of goods sold is 730,000 RR ((3,000 190) + (1,000 160))
Closing inventory 320,000 RR (1,050,000 730,000)
Indirect expenses are 260,000 RR (80,000 + 100,000 + 50,000 + 30,000)
Direct expenses (transportation costs) are 315,000 RR

Allocation of direct expenses:


Step 1:

Sum of transportation costs in the opening inventory and costs incurred in January:
0 + 315,000 = 315,000 RR

Step 2:

Sum of the cost of goods sold and closing inventory 1,050,000 RR

Step 3:

Average percentage 315,000/1,050,000 = 0.3

Step 4:

Transportation expenses allocated to closing inventory 320,000 0.3 = 96,000.


The remainder (219,000) decreases the CPT taxable base of the reporting period.

Calculation of taxable profits:


RR 000
Sales income
Less:
cost of goods sold
direct transportation costs
indirect expenses

(730)
(219)
(260)
______

Taxable profits

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RR 000
1,280

(1,209)
_____
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3.4.2

Production operations (art.319)

All expenses of production company must be prorated (i.e. apportioned or split)


between:

cost of sales (i.e. decrease taxable base);


inventories (work-in-progress, finished goods, goods in transit).

Illustration 3
Direct expenses allocated to opening inventory 50,000 RR
Direct expenses incurred in the reporting period 200,000 RR
Direct expenses in goods sold 180,000 RR
Direct expenses allocated to closing inventory: 50,000 + 200,000 180,000 = 70,000 RR

For production operations expenses are classified into direct and indirect as follows:
- direct expenses direct materials, depreciation of production fixed assets, direct
wages and salaries and related social insurance contributions (SIC);
- indirect expenses all other production expenses which are not connected directly
to production process. These expenses include:

material expenses other than direct;


depreciation of fixed assets which are not used in production directly;
10% (30%) write-off of initial cost of fixed assets;
depreciation of intangible assets;
indirect wages and connected SIC and voluntary insurance; and
other production costs according to art.264.

Direct materials are defined as materials and components directly used in


production (art. 254). The purchase price of materials includes related
transportation fees, commission expenses, and customs duties.

Indirect materials include materials used for packaging, fuel and energy,
instruments, special cloths, low-value items that do not fall into fixed assets category.

Tax deductible indirect expenses incurred in the reporting period decrease taxable
base of this period and are not prorated (i.e. not allocated between periods).

Direct expenses of the reporting period partially decrease taxable base, partially are
allocated to work-in-progress and finished goods. The allocation principles must be
stated in the tax accounting policy of the company.

Allocation of direct expenses depends on the types of taxpayers activities:


Type of activities

Method of allocation of direct expense

Production of finished goods (processing


of raw materials)

Percentage of raw materials in closing


inventory to total raw materials (in natural
units)

Works and services

Direct expenses in this case could be


recognized in the reporting period without
allocation (item 2 art. 318).

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Allocation of direct expenses of a production processing company is illustrated as


follows:

Illustration 4
A company processes apples into apple juice.
Opening inventory included:

Work in progress (1,000 kg of apples consumed) valued at 900 RR;


Finished goods (30,000 kg of apples consumed) valued at 29,000 RR;

During the reporting period 79,000 kg of apples worth 81,100 RR were purchased for
production.
Direct wages and salaries, related SIC and direct depreciation of the reporting period were
78,000 RR.
Closing inventory included:

Work in progress (8,000 kg of apples consumed)


Finished goods (25,500 kg of apples consumed)

Direct expenses will be distributed as follows (VAT is ignored for simplicity):


Work-in-progress
(a)

Total weight of apples in the opening WIP + weight of apples purchased during the
period: 1,000 + 79,000 = 80,000 kg

(b)

Weight of apples consumed in production (i.e. transferred from WIP to finished


goods): 80,000 8,000 = 72,000 kg

(c)

Allocation percentage to finished goods: 72,000/80,000 100% = 90%

(d)

Direct expenses allocated to finished goods (900 + 81,100 + 78,000) 0.9 =


144,000 RR

Finished goods
(e)

Total weight of apples in the opening finished goods + weight of apples consumed
into juice during the period: 30,000 + 72,000 = 102,000 kg

(f)

Total weight of apples in juice, which was sold in the period 102,000 25,500 =
76,500

(g)

Allocation percentage 76,500/102,000 100%= 75%

(h)

Deductible direct expenses (29,000 + 144,000) 0.75 = 129,750 RR

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Allocation of direct expenses of a service company is illustrated as follows:

Illustration 5
A company performed repair services to five customers for 20,000 RR in total. However,
one customer has not accepted the work (amount of the bill 3,000 RR). Total direct
expenses for the period are 12,000 RR (no direct expenses exist as at the beginning of the
reporting period).
Direct expenses will be allocated as follows (VAT is ignored for simplicity):
(a)
(b)
(c)

average percentage 3,000/20,000 = 15%;


direct expenses allocated to ending balance 12,000 15% = 1,800 RR
direct expenses decreasing taxable base of the reporting period (12,000 1,800) =
10,200 RR

3.5

Non-operational income (art. 271)

The table below summarises the timing of recognition of non-operational income


under the accruals method:
Non-operational income

Interest income on loans and liabilities


(debt securities)

The earlier of the last day of each month (if the loan
term exceeds the reporting period) or the date of
agreement termination (or cancellation of liability).

Claw-backs of allowances and provisions


(Session 4)

Last day of reporting (tax) period.

Income from participation in simple


partnership
Rental income*
Licence payments (including royalties)*
Penalties for the breach of commercial
contracts

The invoicing date as provided in the agreement or


the last day of the reporting (tax) period.
Date of debtors acceptance of the claims or effective
date of court decision.

Compensations for losses


Income of previous years identified in the
current year

Either the date of income discovery or previous


period (see Session 4 section 1)

Gifts in-kind (i.e. property, works, services)

The date of signing the act of property (works,


services) transfer.

Gifts in cash

The date of cash receipt.

Dividends
Property (materials) received due to
dismantling of liquidated fixed assets

The date of official act of fixed asset liquidation

Surpluses of commodity materials exposed


due to stocktaking

The date of discovery of surpluses (the date of


physical inspection)

* For exam purposes this income is recognised on the earlier of the invoicing date as
provided in the agreement or the last day of the reporting (tax) period.

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Non-operational income
Positive sum differences** for a buyer.

The date of payment of liability or the receipt date in


case of prepayment for goods (works, services).

Positive sum differences for a seller.

The date of payment of receivable or the shipment


date in case of prepayments.

Foreign exchange gains.

Receivables and payables expressed in foreign


currency are recalculated into RR on the earlier of :

** When a purchaser is invoiced in a


foreign currency payable in RR at the
Central Bank rate on the day of payment,
a sum difference may arise due to
exchange rate differences (between the
day of receiving the invoice and the
payment date).

their fulfilment; or
the last day of each month.
Assets expressed in foreign currency are recalculated
into roubles on the earlier of:
transfer of title date; or
the last day of reporting (tax) period.

Example 3
State the timing of inclusion of the following items in taxable income for an accrual basis
taxpayer, which reports and pays CPT on a monthly basis (VAT is ignored):
(1)

Company Alfa rented one of its buildings for 12 mln. RR. The term of rental
agreement is 1 year, starting January 1, 2011. The agreements provide for 4 equal
rental payments to be made on the last day of each quarter.

(2)

In June 2011, Alfa has discovered that sales income pertaining to 2010 was not
accounted for tax purposes in that year.

(3)

On January 1, 2011 Alfa gave its subsidiary a loan of 10 mln. RR for 1 year.
Interest on loan is 12% per annum paid on January 1, 2012.

(4)

The same as above with the exception that interest is to be paid in 2 equal portions
on July 1, 2011 and on January 1, 2012.

(5)

Alfa shipped goods worth 100 mln. RR to Beta on March 11, 2011. The
payment term indicated in the agreement is 20 days after the shipment date.
Starting 21st day (1st April) 0.1% fine should be applied for the delay in payment.
No payment was received in 2011. No court case was filed.

(6)

In January 2011 Alfa received 1 mln. RR of dividends from OOO Gamma (a


Russian company). These dividends relate to the 2010 profits of Gamma.

Solution
(1)
(2)
(3)
(4)
(5)
(6)

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3.6

Non-operational and other expenses (art. 272)

The table below summarises the timing of recognition of non-operational and other
expenses under the accruals method:
Other expenses

Accrual of those taxes, which are recognised as


expenses by the Tax Code

Accrual date

Commission fees

The invoicing date as provided in the


agreement or the last day of the reporting
(tax) period.

Works, services rendered by third parties


Business travel expenses

Date of approval of expense report


(avansovyi otchet).

Business entertainment expenses


Compensation for usage of private cars for
business purposes

Compensation payment date.

Non-operational expenses
Interest expense on loans and on debt securities
(bonds and notes)

Earlier of the last day of each month (if the


loan term exceeds the reporting period) or
the date of agreement termination (or
cancellation of liability).

Rental payments

The invoicing date as provided in the


agreement or the last day of the reporting
(tax) period.

Creation of tax deductible allowances

Accrual date.

Penalties for the breach of commercial contracts

Date of debtors acceptance of the claims or


effective date of court decision.

Compensations for losses


Foreign exchange losses

As for foreign exchange gains.

Negative sum differences for a seller

The date of payment of receivable or the


shipment date in case of prepayments

Negative sum differences for a buyer

The date of payment of liability or the


receipt date in case of prepayment for goods
(works, services)

Bank services costs

The last day of the reporting (tax) period (in


accordance with the documents)

Expenses of the shareholders meeting

The invoicing date

Bonus (discount) paid to a customer for the


fulfilment of certain conditions (e.g. volume of
purchases)

The invoicing date as provided in the


agreement or the last day of the reporting
(tax) period.

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3.7

Accruals method summary

In order to calculate taxable profits under the accruals method the following steps
are necessary:
Step 1:

Find right income basket for income received.

Step 2:

Recognise income in the appropriate basket at the date of its receipt for
tax purposes.

Step 3:

Find right expense basket for expense incurred.

Step 4:

Analyse whether expense is deductible in full or partially.

Step 5:

Analyse whether expense is direct or indirect (for baskets 1 and 2


only). If indirect include in the appropriate expense basket in the proper
amount. If direct prorate between cost of sales and closing inventory.

Step 6:

Results per each basket are added up to come to overall taxable profits/loss.
Exceptions: losses on fixed assets sales and losses on factoring which are
treated separately (not mixed with results in other baskets).

3.8

Special rules of income/expense recognition

3.8.1

Simple partnerships (art.278)

The purpose of simple partnership is to separate revenue and expenses of joint


business efforts of several companies without creating a separate legal entity.

Simple partnership has its own balance sheet on which it accounts property
received from partners. It also separately determines the profits or loss from its
operations not later than at the end of each reporting period. This profit is then
added to the financial results of each participating partner.

Illustration 6
Two companies created a joint partnership which generated profits of 1 mln. RR. The share
of the first partner is 40%, while the remaining 60% belongs to the second one.
The first company will add 400,000 RR to its taxable profits, the second company 600,000
RR.
3.8.2

Commission income and expenses

Income received by a commissioner from the final customer should be allocated to the
principal in the full amount. Agents commission represents an expense for the principal.

Illustration 7

Some goods were sold by an agent for 10,000 RR (this is the amount received from
customers) and the agent withheld 10% commission.

The revenue of the principal will be 10,000 RR. Commission expense will be 1,000
RR. The revenue of the agent is 1,000 RR.

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The principal must report its income in the period when shipments were made by
the agent to customers.

Example 4
In July 2011 ZAO Alfa delivered its products to OOO Beta which acted as a
commissioner for Alfa for a commission fee, which was determined as 5% of the sales
proceeds (net of VAT at 18%) received from the final customer.
Beta delivered the products to the final customer in November 2011. The final customer
paid 18,880 RR (gross) to Beta in December 2011. Beta paid the sales proceeds net of
commission fee to Alfa in January 2012.
Required:
Explain the tax treatment of the above for Alfa.
Solution

CASH METHOD OF INCOME RECOGNITION (ART. 273)

4.1

Income

A taxpayer can use cash method only if its average sales of goods (works, services)
(without VAT) for the previous 4 quarters did not exceed 1 mln. RR each quarter.

If a taxpayer chooses a cash method, but during the tax period taxpayers average
sales of goods (works, services) (without VAT) exceeded 1 mln. RR per quarter, it
must recalculate its sales on accruals basis starting the beginning of the tax period.

Income is recognised under cash method on:

receipt of cash to bank account or petty cash fund;


receipt of property (works, services) or property rights;
cancellation of liabilities to the taxpayer by any other means.

For example, under cash method income will be recognised in the following cases:

mutual settlement (zachet) is performed;


receivable is factored to a third party (in the amount of cash received from
factor);
property in-kind (including securities) is received.

The issuance of a promissory note by the buyer to the seller of goods (works,
services) does not constitute a cash receipt for the seller. The payment is
recognised on the day when the payment against the note is actually made or on the
day when the note is sold or transferred to a third party.

Under the cash method advance payments received from customers are taxable upon
receipt.

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4.2

Expenses

Expenses are recognised on the cash basis only after they are actually paid. The
term payment is understood as cancellation of liability to the seller for the
purchased goods (works, services).
List of expenses (art. 273)

Timing of expense recognition

Raw materials

When paid and consumed in production.

Wages and salaries, interest expenses and


services rendered by third parties

When paid.

Depreciation

Amounts accrued for the reporting (tax)


period on fixed assets paid for and used in
production.

Sum differences (Summovie raznitsi)

Not recognised under the cash method.

Example 5
State the timing of inclusion of the following items in deductible expenses for a cash basis
taxpayer (assume CPT monthly reporting and payment system):
(1)
(2)
(3)
(4)
(5)

Materials booked in February, paid in March, consumed in production in April.


Fixed assets booked in March, put in use in April, paid in June;
Capital repair services received in July, prepaid in June;
Rent of the building accrued for January March was paid in April.
Interest on loan accrued for January June was paid in August.

Solution
(1)
(2)
(3)
(4)
(5)
4.3

Taxable profits

In order to calculate taxable profits under the cash method the following steps are
necessary:
(1)

Find right income basket for income received.

(2)

Recognise income in the appropriate basket at the date of its receipt for
tax purposes.

(3)

Find right expense basket for expense incurred.

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(4)

Analyse whether expense is deductible in full or partially.

(5)

Recognise expense in the appropriate basket at the expense date for tax
purposes. A split of expenses into direct and indirect is not required
under the cash method.

(6)

Results for each basket are added up to come to overall taxable profits.
Exceptions: losses on fixed assets sales and losses on factoring which are
treated separately (not mixed with results in other baskets).

Example 6
Company ABC uses the cash method for CPT purposes. Data for 2011 is as follows:
Billings to customers
Cash receipts
Bad debts write-offs
Materials purchased
Wages accrued
Depreciation accrued

RR000
200
120
10
80 (paid 60, consumed 55 all paid for)
30 (paid 25)
15 (all fixed assets are paid for)

Required:
Calculate taxable profits for 2011. (Ignore VAT.)
Solution
RR 000

RR 000

Sales income
Deductible expenses:

________
_________

Profits
________

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FOCUS
You should now be able to:

describe the scope of corporate profits tax and the types of taxpayer to which it applies;

define the two income recognition methods (cash and accruals);

explain and apply the effect of both methods on the timing of income recognition;

explain the timing of income recognition for the principal on sales made via commissioners
and calculate taxable income of both principal and commissioner;

apply the expense allocation rules between commissioner and principal;

state the rules for the taxation of simple partnership income;

define the method of expense recognition for tax purposes;

explain the matching principle of expense recognition if the cash method is used for profits tax
purposes;

state the expense allocation rules between activities taxed at different rates;

explain the rules for recognition of direct and indirect expenses in profits tax accounting for
manufacturing and trading companies.

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EXAMPLE SOLUTIONS
Solution 1
(1)

January 20, assuming that the title passes upon the delivery.

(2)

February 5, which is the title transfer date.

(3)

May. In this month the delivery is made to the final customer. The commissioner
must inform Alfa about the sale within 3 days from the end of reporting period.

(4)

March, no special rules of income recognition apply to export sales under profits
tax rules.

(5)

March, as the prepayment is not recognised for CPT purposes under the accruals
method.

(6)

January, assuming that the title passes upon the delivery.

Solution 2
(1)

March (after materials are consumed in production).

(2)

Tax deductible depreciation will start in May (the next month after April when
assets were put into use).

(3)

July.

(4)

1.67% of the original value per month starting March.

(5)

In March 27/365 of the total insurance deductible amount, in April 30/365 of the total
insurance etc.

Solution 3
(1)

Rental income is recognised at the end of each month.

(2)

Amended tax return for 2010 must be submitted. Taxable income for 2011 is not
affected.

(3)

Interest income is recognised at the end of each month.

(4)

Interest income is recognised at the end of each month.

(5)

If Beta accepts the claim (which should be stated by the Examiner) Alfa should
accrue penalty income starting April 1, 2011 and include it in CPT taxable base at
the end of each month. If not, no accrual of interest is performed. If this data is
missing from the question write your assumption and base your solution on it.

(6)

Dividends are income of 2011 (the year when cash is received). Dividends from a
Russian company are subject to withholding tax payable by Gamma at 9% rate.

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Solution 4
Alfa should recognize the income on the sale of products in November 2011 when delivery
is made to the final customer in the amount of 18,880 RR (including VAT of 2,880).
The amount of the commission fee expense will be recognised by Alfa when either the
acceptance act is signed or at the date when invoice from Beta is received depending on the
provisions of the commission agreement.
The commission amount is 944 RR (including VAT of 144 RR).
Solution 5
(1)

April after materials are consumed in production AND paid.

(2)

Tax deductible depreciation will start in June (the month paid).

(3)

June (i.e. the month when payment took place).

(4)

April (i.e. the month when payment took place).

(5)

August (i.e. the month when payment took place).

Solution 6
Sales income
Cash receipts
Deductible expenses:
Materials
Wages paid
Depreciation accrued:

RR 000

RR 000
120

55
25
15

____

95

____

Profits

25

____

SELF-TEST QUESTIONS
(1)

Which of the following are excluded from taxable income?

foreign exchange gains;


advances received by taxpayers using cash method of income recognition;
contributions received to charter capital;
commission income received by commissioner;
loan received;
property received by a Russian legal entity from a legal entity which owns
30% of the taxpayer;
property received by a Russian legal entity from a legal entity which is
more than 50 percent owned by the taxpayer;
property received by a Russian legal entity from a physical person who
owns more than 50% in the capital of the taxpayer;
penalties received for the breach of commercial contract.

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(2)

Which of the following is excluded from deductible expenses?

(3)

advances for goods made by accruals basis taxpayers;


dividend distributions;
penalties and fees paid to budget and state bodies;
contributions to charter capitals;
cash transferred to a commissioner (excluding commission expense);
gifts in cash or in-kind and related expenses payable to employees;
financial aid to employees (materialnaja pomosch);
price differences when selling goods to employees below market prices;
free meals to employees that are not provided in the labour contracts;
recreational and medical benefits provided to employees).

Which of the following expenses incurred by a production company are classified


as direct?

wage of a chief accountant;


depreciation of production building;
amortisation of a trademark;
SIC assessed on wages of production employees;
cost of materials used in production;
fuel costs;
depreciation of administrative building.

SELF-TEST SOLUTIONS
(1)

Excluded items:

contributions received to charter capital;


loan received;
property received by a Russian legal entity from a legal entity which is
more than 50% owned by the taxpayer;
property received by a Russian legal entity from a physical person who
owns more than 50% in the capital of the taxpayer.

(2)

All the listed items are excluded from deductible expenses.

(3)

The following expenses are classified as direct:

depreciation of production building;


SIC assessed on wages of production employees;
cost of materials used in production.

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OVERVIEW
Objectives

To explain deductible expenses and allowances in deferring and minimising


corporate profit tax liability.

DEDUCTIBLE
EXPENSES

PARTIALLY
DEDUCTIBLE
EXPENSES

FIXED (NONCURRENT) ASSETS

General
Interest
Business travel
Advertising
Business entertainment
Business training/educational
Insurance
Compensation of interest expenses
Thin capitalisation rules
TAX
DEPRECIATION

General provisions
Straight-line method
Non-linear method
Special depreciation coefficients
Direct/indirect classification
Amortisation of intangible
assets

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LOSSES ON
PROPERTY

LEASED ASSETS

Depreciation
Capital improvements

0301

Depreciable property
Tax cost of depreciable
property
Depreciation groups

Fixed and intangible


assets
Materials and other
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PARTIALLY DEDUCTIBLE EXPENSES

1.1

General

Certain expenses may be partially deductible or totally disallowed for


corporate profits tax (CPT) purposes.

The examination calls for the application of tax rules relating to certain nondeductible and partially deductible expenses. The deductibility norms will be
provided in the tax tables in the examination.

1.2

Interest (art. 269, art. 328)

1.2.1

General

Treatment of interest does not depend on the loan purpose and the type of the
loan provider. Interest may be deductible even if the debt is overdue.

Debt obligations of a taxpayer in particular include commercial credits, bank


loans, loans received from enterprises and individuals, and debt securities
issued by a taxpayer (i.e. notes and bonds).

For taxation purposes interest will be calculated for the period of actual usage
of the borrowed funds (even if the obligation is overdue).

Interest calculation is based on the number of days of the loan (i.e. rounding
up is not possible).

Interest starts accruing on the date following the loan receipt date and stops
accruing on the loan payment date (including this date).

Illustration 1
If a loan is taken out on 1 January 2011 and paid back on 3 February 2011 (both
principal and interest), the interest will be calculated for 33 days (30 days in January
and 3 in February).

For accruals basis taxpayers, accrued interest should be recognised on the


earliest of:

the last day of each month of the reporting period (if the loan term
exceeds the reporting period); or
the date of agreement termination (or cancellation of liability).

If a loan is taken in foreign currency by an accruals basis taxpayer the interest


is also calculated at the end of each month of the reporting (tax) period using
the exchange rate on this date.

1.2.2

Interest deductibility limits

The Tax Code provides two methods of calculating interest deductibility


limits. The first method should be applied first, however if there is
insufficient data for its application, a taxpayer may apply the second method.

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Method 1

This requires comparison of actual interest rate on each loan with the average
interest rate on loans of similar types received on similar conditions in the
same reporting (tax) period.
Loans are regarded as similar if ALL of the following conditions are met:

same currency;
same loan term;
close amounts;
same quality of guarantees.

If the actual rate exceeds the average rate by more than 20% the deductible
interest amount will be limited by the average rate + 20%, otherwise actual
interest will be fully deductible.

Method 2

This method is simpler. The limit for rouble loans is based on Central Bank
refinancing rate adjusted by:

1.8 times for rouble loans; and


0.8 times for loans in foreign currency.

The statutory rate is fixed on the loan receipt date unless the loan agreement
contains a provision that the interest rate per agreement can be changed.

If, by agreement, the interest rate is changed, the Central Bank rate effective
on the date of the recognition of interest expense is taken into consideration.

Interest on debt obligations is included in non-operational expenses of a taxpayer.

Special rules (so-called thin capitalisation rules) apply to interest on loans


received from a foreign legal entity or from an affiliated company of a
foreign legal entity (see section 1.9).

The table below provides a short summary of the topic:


Classification of
interest expense

Non-operational expenses of the current month

Types of loans on
which interest
may be deductible

Debt obligations of any type, arising from business


activities

Interest
deductibility
period

The term of actual usage of the borrowed funds


expressed in days

Limitations on the
interest amount

The rules are uniform for all types of debt obligations;


statutory limits are different for loans in roubles (CB
rate 1.8) and loans in foreign currency (CB rate 0.8).

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Illustration 2
ABC Company took a 1 mln. rouble loan on 2 February 2011 to finance the
construction of a new warehouse. The loan was paid back on July 26, 2011. The loan
interest rate is 40%. 2011 Central Bank rates (notional): 1 January 30 June 25%; 1
July 30 September 20%. ABC pays CPT on a monthly basis.
Option 1: Loan does not contain a provision for a possible change in the interest rate.
Number of days: 26 + 31 + 30 + 31 + 30 + 26 = 174 days
Deductible %: 1,000,000 174/365 40% = 190,685 RR
Option 2: Loan contains a provision for a possible change in the interest rate.
Number of days:
February 3 June 30: 26 + 31 + 30 + 31 + 30 = 148 days
July 1 July 26: = 26 days
Deductible %:
(1,000,000 148/365 40%)
(1,000,000 26/365 20% 1.8)

RR
162,192
25,644
_______
187,836
_______

ABC Company took a currency loan of USD 100,000 on 10 May 2011. The loan is
paid back on 10 July 2011. Interest rate on the loan is 18%. ABC pays CPT on a
monthly basis.
Exchange rates USD/RR (notional):
May 31 30.7; June 30 30.6, July 10 30.3
Deductible interest:
May 11 May 31: 100,000 21/365 18% 30.7
June 1 June 30: 100,000 30/365 18% 30.6
July 1 July 10: 100,000 10/365 16% 30.3

RR
31,793
45,271
13,282
______

Total deductible interest

90,346
______

(In July the interest reduction is restricted to CB rate 20% 0.8 = 16%.)

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1.3

Business travel (art.264)

1.3.1

Types of expenses

Business travel expenses include:

travel expenses (including transfer);


accommodation expenses including additional services provided by the
hotel (except meals, laundry, sports and recreational facilities);
per diem allowance;
costs incurred on visas and passports preparation;
consulate, transit and airport fees;

Accommodation expenses are deducted in full provided that they are


confirmed by supporting documents. In the absence of such documents
accommodation expenses are non-deductible.

Per diem allowance is fully deductible in any amounts as it is not limited for
CPT purposes (since 01.01.2009). However to meet the requirement of
documentary proof the specific amount (internal norm) should be stipulated
by the taxpayers themselves in the internal documents of the organization
(e.g. order of the general director).

Note, however, that for PIT purposes per diem allowance is limited (see
Session 6).

Travel expenses (cost of bus/air/train tickets) are deductible in full where they
are incurred to get to the place of business trip from the working place and
back. Transfers by taxi from/to airports (railway station) to the hotel are also
deductible for CPT. (Clarifications by the Ministry of Finance in this area are
conflicting, but they should be considered to be deductible for examination
purposes.)

Business phone expenses, incurred by an employee in the hotel are


deductible. Cost of personal services (e.g. laundry) is non-deductible.

Business travel expenses are classified as other expenses (prochie


rashodi) on production and sales. Consequently, such expenses are
considered to be indirect under the accruals method.

The table below provides a short summary of the topic:


Type of expense

Deductibility limits

Accommodation expenses

Deductible in full with supporting documents.


No deduction without supporting documents.

Per diem allowance on


business trips.

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Example 1
An employee of a Moscow based company went on a business trip to St. Petersburg for
3 days. The train ticket cost was 950 RR (net of VAT). Per diem allowance is fixed in
the amount of 2,000 RR per day in the companys rules for business trips in Russia.
The hotel bill included the following (net of VAT):
Accommodation
Restaurant
Laundry services
Cable TV in hotel room
Taxi transfer from and to the train station
Taxi for sightseeing
Business phone charges

RR
1,500
6,500
100
1,500
500
3,000
180

Required:
Calculate the deductible amount for profits tax purposes.
Solution
RR

_________

Total deductible amount


1.3.2

_________

Special case (travel outside Russia)

For business trips outside of Russia, the following special rules should be considered:

Per diem allowance amounts (internal norms) should also be stipulated for
business trips abroad in internal documents and in practise can vary from
those in Russia and for different countries.

The internal norms for a specific foreign country will apply starting from the
date of crossing the border to this country from Russia.

Russian internal norms will apply from the date when the border of a foreign
country to Russia is crossed.

If an employee travels from one country to another within one day, the internal
norms of the last country he visits that day apply (in case they are different).

If an employee travels to foreign country and back within one day, 50% of
the internal norm of the foreign country apply.

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1.4

Advertising (art. 264 item 4)

The deductibility of advertising expenses depends on the type of advertising.

The following types of advertising expenses are deductible in full:

mass-media advertising (TV, radio, press, telecommunication networks);


out-door advertising (street posters and lights);
participation in exhibitions/fairs, maintenance of demonstration halls,
printing of advertising catalogues and brochures.

Expenses on prizes used during mass advertising campaigns are deductible up


to 1% of the sales revenue (net of VAT).

VAT on advertising expenses, which are partially deductible, is recoverable


only in the part relating to deductible expense portion.

Illustration 3
In 2011 ZAO Alfa spent 8.64 mln. RR (including VAT of 1.44 mln. RR) on the
acquisition of prizes awarded to winners of prize draws during a mass advertising
campaign.
2011 sales revenue of Alfa was 210 mln. RR (including VAT of 35 mln. RR)
Calculation of deductible expense:
8.64 1.44 = 7.2 (expense net of VAT)
(210 35) 1% = 1.75 maximum deductible limit
Thus, only 1.75 mln. RR is deductible for CPT.
Recoverable VAT is 1.75/7.2 1.44 = 0.35
Remaining portion of VAT is written off and is non-deductible for profits tax purposes.
Topic summary
Deductible limit on
advertising expense

For general advertising expenses (art. 264) no limit is


established.
For expenses on prizes used during mass advertising
campaigns 1% of sales revenue (net of VAT).

Base for taxable limit


calculation

Sales revenue for all types of entities including trading


companies (net of VAT).

Advertising expenses are classified as other expenses (prochie rashodi)


on production and sales. Consequently, such expenses are considered to be
indirect under the accruals method.

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1.5

Business entertainment (art. 264 item 2)

Business entertainment expenses are connected with the reception and


servicing the representatives of other organisations (including foreign), who
conduct business negotiations with the taxpayer. They may also be incurred
with relation to the meeting of the Board of Directors.
Expenses incurred on cultural and entertaining events, recreation, sports or
medical treatment of the above mentioned representatives are not tax deductible.

Business entertainment expenses include:

costs of official reception (breakfast, lunch, dinner);


transportation costs;
cost of buffet (meals) held during negotiations;
cost of external translators.

There are some very strict rules on how the business entertainment expenses
should be documented. Tax deduction (within the statutory limit) is allowed
only if these rules are obeyed.

The deductibility of business entertainment expenses is restricted by statutory norms.

The deductibility norms are based on taxpayers labour costs for the reporting
(tax) period. These costs include wages and salaries accrued, incentive
bonuses, meals (if provided in the contract), on voluntary pension insurance
and non-state pension security, voluntary life and medical insurance and other
items (art. 255).

The deductible limit is set at 4% of deductible labour costs. Any excess


amount is not counted for tax purposes. Labour costs include wages and
salaries deductible for CPT purposes, deductible bonuses and deductible life,
medical and pension insurance of workers. They do not include SIC on
wages and salaries and direct wages and salaries allocated to closing
inventories in a production company.

Composition of expense

Expenses incurred on cultural and


entertaining events, recreation, sports or
medical treatment are no longer tax
deductible

The base for calculation of


deductible amount

Labour costs

Statutory deductible norm

4% of labour costs (including insurance of


employees).

Business entertainment expenses are classified as other expenses (prochie


rashodi) on production and sales. Consequently, such expenses are
considered to be indirect under the accruals method.

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1.6

Business training/educational (art. 264 item 1, item 3)

Business training/educational expenses are deductible in full only if ALL of


the conditions listed below are met:

taxpayer concludes the agreement for education/training with a licensed Russian


or foreign educational institution (which also has an educational status); and

taxpayer pays for education/training of:

(1)

employees who have a labour agreement with taxpayer (employer); or

(2)

persons who have concluded an agreement with a taxpayer to work in


future for at least one year starting three months after finishing
education; and

taxpayer stores all documents confirming educational expenses for


the entire period of education plus one year of employees work but
not less than four years.

If a labour agreement with the educated person was not concluded within
three months of finishing education or the agreement was interrupted within
one year of it coming into force, training/educational expenses should be
added back to the non-operational income for CPT.

No deductibility limit is set, which means that such expenses are either
deducted in full or completely disallowed.

Business training/educational expenses include basic and additional professional


educational programmes, professional basic trainings and additional ones.
Therefore there is no limitation on the level of educational programmes and can be
higher, middle-special or special professional courses.

Expenses on entertaining, recreation or medical services are not tax deductible.

Training and education expenses are classified as other expenses (prochie


rashodi) on production and sales. Consequently, such expenses are
considered to be indirect under the accruals method.

1.7

Insurance (art.255 item 16, 263)

1.7.1

Mandatory insurance of property and some types of third party liability (art. 263)

Premiums paid on mandatory property insurance contracts are tax deductible


within insurance tariffs set by the legislation.

1.7.2

Voluntary insurance of property and some types of third party liability

There is no deductibility limit on premiums for voluntary insurance of property and


some types of third party liability. Although not all types of voluntary insurance
contracts will generate deductible expenses this is not examinable.

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1.7.3

Voluntary insurance of employees (art. 255.16)

The following table provides a summary of deductibility rules on insurance


premiums made under voluntary insurance contracts:

Type of insurance

Required conditions of insurance


agreement for deductibility

Voluntary life insurance

(1) No payments during 5 year term


(except payments in case of incident
or death)

Deductibility limit

(2) Term of the agreement not less than


5 years; the agreement should be
concluded with Russian insurance
companies with relevant licence.
Voluntary pension
insurance (dobrovolnoje
pensionnoje
strahovanije)

(1) Non-state pension fund has a license

Non-state pension
security
(negosudarstvennogo
pensionnogo
obespechanija)

(1) Fund has a license

Additional contributions
by the employer to labour
pension

(1) Documented by the internal order in


the taxpayers organisation or in
collective or personal labour contracts

(2) Pensions are paid up to death of


employee
(3) Payments start from the pension age
established by the Law.

The limit is set for total


amount of both life and
pension insurance
premiums as 12% of
deductible labour costs*

(2) Pensions are accumulated on personal


pension accounts of insured
employees
(3) Pensions are paid from personal
account for not less than 5 years.

(2) Employer should inform pension Fund


of RF within 3 days after the request
of the employee
(3) Employer can start payments not early
than next month after the request is
received.
Voluntary medical
insurance

Term of the agreement not less than 1


year.

6% of deductible labour
costs*

Voluntary insurance
against incidents

Insurance covers incidents which caused


injury or death (not only at work place).

15,000 RR per year per


employee (calculated as
total payments divided by
total employees with
insurance).

* For the purpose of calculation of this limit labour costs are taken net of any
employees related voluntary insurance expenses.

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Expenses on other types of employee insurance are non-deductible.

If the terms of insurance agreements initially satisfy deductibility conditions but then
are changed and those conditions are not met anymore, tax should be recovered.

Illustration 4
Company ABC has signed a one-year voluntary medical insurance contract for one of
its employees in January 2011. The contract provided for monthly payments of 10,000
RR. ABC made 7 payments and took a tax deduction of 70,000 RR (it is assumed that
70,000 RR is less than 6% of labour costs).
However, in August the employee left the company and the insurance contract was
terminated.
Therefore, in August 2011 ABC will have to include 70,000 RR in its taxable income.

Expenses on mandatory and voluntary insurance of employees are classified as


labour costs. However, such expenses should not be considered direct even if
they relate to main production workers and thus, should not be pro-rated.
This is an exam approach.

Illustration 5
In 2011 ZAO ABC (production company) signed a one-year voluntary medical
insurance contract for its employees. The contract provided for an insurance premium
of 900,000 RR.
In 2011 ABC accrued 9 mln. RR of wages and salaries of personnel involved in
production process and 4.5 mln. RR of wages and salaries of administrative staff.
Only 80% of direct expenses for 2011 were deducted for CPT purposes.
Deductible insurance is limited by 6% of deductible wages and salaries, i.e.
(9 0.8 + 4.5) 6% = 0.702 mln. RR
Thus, only 702,000 RR qualifies for deduction, while 198,000 is paid out of after tax
profits.

Mandatory and voluntary insurance expenses recognition date is the date of


payment. For payments which cover more than one reporting period, expense is
allocated in equal portions over the agreement term according to the number of
days. This means that there is an additional condition (i.e. they must be paid for)
for such expenses to be recognized for CPT on accruals basis.

1.8

Compensation of interest expenses

A limited deduction is now allowed (since 2009) for certain benefits provided
by employers, including compensation of interest on loans used for the
purchase or construction of residential premises.

The labour cost for CPT purposes includes such compensation of interest expense
to employees (art. 255). The deduction is applicable until 01.01.2012.

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Compensation to employees for their interest expenses is deductible if the


loan is obtained to finance the purchase of apartments or construction of
houses. The deductible expense is limited to 3% of labour costs.

1.9

Thin capitalisation rules (art. 269)

Thin capitalisation rules relate to taxation of interest on loans provided to a


taxpayer by a foreign legal entity (FLE) or by a Russian legal entity (RLE),
which constitutes an affiliated company with regard to FLE.

Thin capitalisation rules apply in the following cases:

if a FLE-lender has more than 20% (directly or indirectly) in the


share capital of RLE-borrower; or

if a loan is given by an affiliated company (RLE) of a FLE; or

if FLE or its affiliated company (RLE) pledges a guarantee on loan repayment; and

the loan amount (including any unpaid interest) exceeds net assets*
of a RLE by 3 times on the last day of the reporting period*.

* Net assets are defined as the difference between total assets and liabilities
of a RLE (liabilities should be taken excluding tax liabilities).
Illustration 6
(1)

FLE has 25% in RLE. FLE gives a RLE a loan.

(2)

FLE has 50% in RLE-1. RLE-1 has 50% in RLE-2. FLE gives a loan to RLE-2.

(3)

FLE has 40% in RLE-1 and 60% in RLE-2. RLE-1 provides a loan to RLE-2.

(4)

FLE has more than 20% (directly or indirectly) in the capital of RLE. It pledges
a guarantee for repayment of a loan taken by RLE from any source.

In all the above mentioned cases loans potentially can be considered as controlled if
other conditions are met.
In (2) indirect ownership share is 25% (50% 50%).
In (3) direct ownership of 60% is taken into consideration.

If the above-mentioned conditions are met the loan from foreign legal entity
(FLE) is considered as controlled and taxpayer must calculate
capitalisation coefficient on the last day of reporting (tax) period.
Capitalisation coefficient =

Amount of controlled loan


(Net assets % of FLE' s ownership) 3

(Controlled loan includes accrued interest on loan not paid on the due date).

On the last of each reporting (tax) period a taxpayer must calculate the maximum amount
of interest on controlled loan, which is recognised as expense for CPT purposes:
Maximum amount of interest =

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Actual interest rate cannot exceed:

0.8 CB rate on currency loans; or


1.8 CB rate for rouble loans.

The difference between the actual interest accrued on a controlled loan and
the maximum amount of interest constitutes deemed dividends for CPT
purposes, which are taxable at the foreign shareholder rate of 15%.

Thin capitalisation rules summary:


Step 1:

If a loan is received from a foreign legal entity define whether it is controlled.

Step 2:

If the loan is not controlled apply regular taxation rules. If the loan is
controlled calculate capitalisation coefficient.

Step 3:

Using the coefficient determine maximum deductible amount of interest on


controlled loan, which is recognised as expense for CPT purposes.

Step 4:

Calculate tax at 15% rate on the deemed dividends (i.e. on the difference between
actual accrued interest and maximum deductible amount calculated in Step 3).

Illustration 7
Russian company ZZZ owes 60% of shares in ABC Company. A foreign company
XYZ owes 50% of shares of ZZZ.
ABCs data at January 31:
Assets
Liabilities

RR mln.
300
292 (including loan from ZZZ and tax liabilities of 2)

On January 1 2011 ZZZ gave a 60 mln. RR loan to ABC at 50% per annum. Interest is
paid on a quarterly basis. ABC pays CPT monthly. CB rate 1.8 = 45% (notional).
Step 1. Define whether the loan is controlled.
First condition (i.e. FLE has more than 20%) is met. FLE (XYZ) indirectly owns 50%
60% = 30% and the loan is given by the affiliated company of a FLE.
Second condition (i.e. the loan amount exceeds net assets of a RLE by 3 times) is also
met.
Accrued interest for January is 2.47 (60 50% 30/365), first day is not counted. Loan
plus interest is 62.47.
62.47/(300 290) = 6.247 is > 3 (tax liabilities are not taken into consideration). Thus,
the loan is considered as controlled.

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Step 2. Calculate capitalisation coefficient


Capitalisation coefficient = Amount of controlled loan/(Net assets % of FLEs
ownership 3) = 62.47/ (10 30% 3) = 62.47/9 = 6.94
Step 3. Calculate maximum deductible interest
First calculate interest under statutory rate 60 25% 1.8 30/365 = 2.22
Maximum deductible amount of interest = statutory deductible interest accrued on
controlled loan/capitalisation coefficient = 2.22/6.94 = 0.32
Step 4. Calculate tax on deemed dividends i.e. on the difference between actual
accrued interest and maximum deductible amount (2.47 0.32) 15% = 0.32
2

FIXED (NON-CURRENT) ASSETS

2.1

Depreciable property (art. 256)

The Tax Code defines depreciable property as:

property;
capital improvements made by lessee in leased property with consent of lessor;
results of intellectual activities;
other object of intellectual rights.

All of the above-mentioned property should be:

The following items are not depreciable property:

used for income generating activities; AND


have a term of useful life of more than one year; AND
have an original value of more than 40,000 RR.

land and natural resources;


inventory;
unfinished capital construction;
securities.

In certain cases even depreciable property cannot be depreciated for tax


purposes. For example, tax depreciation is not accrued on:

fixed assets put in conservation with a conservation term exceeding 3 months;


fixed assets being in the process of reconstruction and modernisation
for more than 12 months;
fixed asset given by the owner (taxpayer) to another company for
temporary usage free of charge.

Note that fixed assets received as gifts can be depreciated for tax purposes.

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Illustration 8
Company A gave a fixed asset for free to company B.
The original cost of the asset is 200,000 RR with accumulated depreciation of 100,000
RR. The fair market value of the asset is 80,000 RR.
Tax consequences of this transfer are the following:
Company A will realize non-deductible loss in the amount of net book value (NBV)
100,000 RR (200,000 100,000). It will also pay VAT on the NBV in the amount of
18,000 RR (100,000 18%) as VAT is assessed on free-transfers and is paid by the
donor. VAT liability for A and taxable gain for B are based on the greater between the
NBV (100,000) and the fair market value (80,000 RR). (Note that this is an exam
approach for both CPT and VAT although the Tax Code uses it for CPT only and says
that VAT on a free asset transfer should be assessed on the fair market value.)
Company B will realize taxable gain of 100,000 RR for CPT purposes unless the
transfer is exempt under art. 251 (see Session 2 section 2.4). There will be no VAT
consequences for B as it does not incur any VAT.
Tax depreciation for B will be based on the NBV of 100,000 RR.

Leased property is depreciated by the taxpayer, which accounts for it on its


balance sheet (see section 3).

Acquisition (creation) of certain type of depreciable property (e.g. cars) requires


state registration. Depreciation on these property types can be calculated for tax
purposes only after the proper documents are submitted to registration bodies.

Note that the following sections 2.2 2.4 cover tax depreciation of tangible
(fixed) assets. (Tax amortisation rules for intangibles are covered in section 3.6.)

2.2

Tax cost of depreciable property (art. 257)

Original tax cost of a fixed asset purchased from third parties includes its
purchase price and all costs incurred in transporting, installing and testing it.

The following items are not included in fixed asset cost and are instead
treated as other expenses for CPT purposes:

interest on loans used to finance fixed asset acquisitions;


registration fees and state duties;
foreign exchange and sum differences (see Session 2) arising on fixed asset
acquisitions.

Original tax cost of fixed assets does not include any taxes, which are
reclaimed or included in taxpayers expenses.

Fixed assets received free of charge are valued based on their market value, but
cannot be less than their tax net book value on the balance sheet of the donor.

The original cost can be changed in case of reconstruction, modernisation, or partial


liquidation. Repairs (even capital) do not affect the original tax cost of fixed asset.

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2.2.1

Revaluations of fixed assets

Revaluations of fixed assets performed after January 1, 2002 are ignored for
tax purposes.

Illustration 9
Fixed asset with a book value of 100,000 RR is revalued in 2011 to 200,000 RR.
Tax depreciation is still based on the old cost of 100,000 RR. Calculations of taxable
gains and deductible losses on sale of this asset are also based on the old cost.
2.3

Depreciation groups (art. 258)

All depreciable fixed assets are distributed between 10 depreciation groups in


accordance with the terms of their useful lives.
Depreciation group

Term of fixed asset useful life

from 1 year up to 2 years

more than 2 years up to 3 years

more than 3 years up to 5 years

more than 5 years up to 7 years

more than 7 years up to 10 years

more than 10 years up to 15 years

more than 15 years up to 20 years

more than 20 years up to 25 years

more than 25 years up to 30 years

10

more than 30 years

Although the term of an asset useful life is determined individually by each


taxpayer on a case-to-case basis, this is done within the minimum and
maximum terms of useful life provided for the assets group in the statutory
classification approved by the Government of the Russian Federation.
For example, suppose the statutory classification attributes an asset to the 6th
group. This means that its term of useful life can be between 10 years and 1
month and 15 years, but not less or more. The choice of the term (within the
limits) is made by the taxpayer.
For fixed assets which are not indicated in the statutory classification
taxpayer determines the useful life in accordance with the technical
conditions or producer recommendations.

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The term of a depreciable fixed assets useful life is determined by a taxpayer


on the date when it is put into operation. A taxpayer cannot increase the
already established term unless there is a modernisation or reconstruction of
this asset. Even in these cases increased terms cannot exceed the maximum
limit as per the statutory classification.

The Tax Code gives all taxpayers an option to write-off 10% of fixed assets
cost (30% for fixed assets included in the 3rd 7th depreciation groups).
10% (30%) write-off is also applicable to capital improvements and
modernization of fixed assets.
10% (30%) write-off is NOT applicable to fixed assets received for free.

If 10% (30%) write-off option is used then the depreciation is charged on the
remaining asset value (i.e. on 90% (70%) of assets initial cost). 10% (30%)
write-off takes place in the month in which depreciation starts accruing.

If a taxpayer purchased fixed assets, which already had been used they are
included in the same group in which were included by the previous owner.

Fixed assets for which title of ownership should be registered according to


the law are included into the depreciation group in the month when
documents for registration are submitted. Examples include buildings, capital
construction objects, vehicles, etc.

TAX DEPRECIATION (ART. 259)

There are two methods of depreciation calculation:

straight-line method; and


non-linear method.

3.1

General provisions

Methods of depreciation are chosen by taxpayer and defined in Tax


accounting policy. The taxpayers should inform tax authorities before 1
January of the chosen method of depreciation by Tax accounting policy
submission.

It is possible to change from one method to another beginning in the next tax
period. However it is allowed to change non-linear method to linear one no
more than once in 5 years.

The chosen method of depreciation is applied to all fixed assets independent


of the date of acquisition.

Non-linear method is not available for buildings and transportation


mechanisms included into the classification groups 8, 9 and 10 (but is
available for some machinery and equipments included in these groups).

Depreciation is calculated starting the 1st day of the month following the
month when the fixed asset was put in use.

Taxpayers rendering services in the area of IT technologies have the right not
to follow the rules of depreciation for computers. The cost of computers is
considered as material expenses of the current period (art. 254 item1.3).

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3.2

Straight-line method (art.259.1)

Depreciation is calculated for each asset.

Depreciation per month for each fixed asset is calculated as the original tax
cost (after deduction of the 10% or 30% initial write-off if applicable)
multiplied by the depreciation rate determined for the specific fixed asset.

Under straight-line method depreciation rate for each fixed asset is calculated
using the formula:
k = (1/n) 100%,
where
k depreciation rate in % to original tax cost;
n term of useful life, expressed in months.

Depreciation calculation ceases in the month following the month when full
cost has been depreciated, or when the asset is written-off or sold.

If a taxpayer purchased fixed assets, which had already been used (including fixed
assets transferred into share capital), then the term of useful life can be decreased
by the number of years/months used during previous ownership (art. 258.7).

Depreciation accrues from the 1st day of the month following the month when
the fixed asset was returned from free of charge usage or reconstruction
(modernisation) and conservation stopped.

The usage of the straight-line method is illustrated below:


Illustration 10
Company purchased and put into use a fixed asset in January 2011. The asset cost is
40,000 RR (net of VAT). Estimated useful life is 3 years (36 months). Company used
the right to write-off 10% of the cost in February 2011.
Depreciation will be calculated starting February 2011 based on 36,000.
Under straight-line method depreciation expense is equal to 1,000 RR per month
(36,000 RR/36 months) or 11,000 for the whole year 2011.
Example 2
The following information is available for company As fixed assets (net of VAT):

Production line

Initial value

Tax depreciation rate

Date put into use

500,000

10%

March 2009

In April 2011 the asset was modernised. The cost of modernisation consisted of:
services 200,000 (net of VAT);
materials 100,000 (net of VAT).
The new tax life of the asset after the modernisation is 15 years.
Required:
Calculate the tax net book value of the production line as at 31 December 2011 and the
total depreciation expense for 2011.

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Solution
RR
Tax depreciation to 31 December 2010
Tax depreciation for January April 2011

Depreciation for May December 2011


__________

Total depreciation expense for 2011

__________

Tax NBV as at 31 December 2011


__________

Example 3
A fixed asset was received for free and booked in August 2011. The net book value of
this asset on donors books was 100,000 RR. Annual depreciation rate 12%.
Required:
Calculate tax depreciation of the asset for 2011 using the straight-line method.
Solution

3.3

Non-linear method (art. 259.2)

Under the non-linear method depreciation is calculated for each depreciation


group (subgroup) based on its total net balance value. Fixed assets are
included in particular depreciation group (subgroup) depending on the terms
of useful life which was assigned on the date of input into use.

If the taxpayer uses special increasing/decreasing coefficients (see next section) for
depreciation such fixed assets are included in subgroups within respective group. The
rules about creation/liquidation for groups, increase/decrease of total balance value are
applied for such subgroups separately (independent from group). Special coefficients are
applied to the rates of depreciation for such fixed assets and consequently
decrease/increase the terms of useful life. However fixed assets are included in the
subgroups based upon the terms of useful life determined according to the classification
without increase/decrease of useful life terms (without application of coefficients).

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3.3.1

Total net balance value of the group (subgroup)

Total NBV for each depreciation group (subgroup) is determined as the sum of all
values of fixed assets included in this group (subgroup) minus accumulated depreciation
of the group (subgroup). This determination was introduced beginning 01.01.2009.
(Before 2009 the non-linear method was applied for each fixed asset separately.)

In case of change of tax depreciation policy, from linear to non-linear, total NBV
of the group (subgroup) is determined by including NBV for each fixed assets on
the 1st day of the month of the start of non-linear depreciation. Fixed assets should
be included in the same groups in which they were included when put into use.

New fixed assets are included into total NBV and increase its value by the original
cost starting the 1st day of the next month after the month they were put into use.

On the 1st day of the next month the total NBV of depreciation group (subgroup)
is decreased at the amount of depreciation calculated for the current month.

3.3.2

Depreciation for each group (subgroup)

This is determined as follows:

A = B k/100

A depreciation per month for specific depreciation group (subgroup);


B total NBV of corresponding depreciation group (subgroup);
k rate of depreciation of corresponding depreciation group (subgroup).

Depreciation rates for the non-linear method (art. 259.2) will be given in the examination:
Depreciation group

Depreciation rate (per month)

14.3

8.8

5.6

3.8

2.7

1.8

1.3

1.0

0.8

10

0.7

The total balance value of the group is decreased by the net balance value of the fixed
assets written-off or sold. NBV of this fixed asset is determined on the 1st day of the
month according to the formula below (art.257 item 1):
Sn = S (1 (0.01 k))n
Sn net balance value after n months of usage,
S original tax cost;
n number of months of usage;
k depreciation rate of corresponding depreciation group (taking into account special coefficient).
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If the total balance value is decreased to zero due to disposal of fixed asset
then the depreciation group should be eliminated.

The depreciation group (subgroup) can be eliminated when the total balance
value is less than 20,000 RR and no new fixed assets in the next month are
added to this depreciation group (subgroup). The remaining value of the
group is written-off as non-operational expenses of the current period.

Illustration 11
XYZ purchased and put into use a fixed asset A in December 2009. The asset cost 240,000
RR (net of VAT). Estimated useful life is 3 years and 1 month (37 months). XYZ did not use
the right to write-off 30% of the cost. XYZ used the straight-line method in 2009 and 2010.
Accumulated depreciation for asset A on 01.01.2011 was 77,838 RR.
In January 2011 fixed asset B was purchased and put into use. The initial cost was 200,000
RR (net of VAT). The useful life of this asset is 4 years. XYZ did not use the right to writeoff 30%.
In March 2011 fixed asset A was sold.
Starting 2011 XYZ decided to apply the non-linear method of depreciation.
(1)
(2)
(3)

Total NBV on 01.01.2011 of the group (only asset A


NBV: (240,000 77,838)
Asset A is included in 3 depreciation group.
Depreciation rate is 5.6%
Depreciation for January 2011: (162,162 5.6%)

RR
162,162
(9,081)
______
153,081
______

(4)
(5)

Total NBV of the group on 01.02.2011:


(includes asset B belonging to same depreciation group)
Depreciation for February 2011: (353,081 5.6%)

(6)

Total NBV of the group on 01.03.2011

333,308

(7)

Depreciation for March 2011: (333,308 5.6%)

(18,665)

(8)

Next month after sale of asset A the total NBV of the group should be decreased
by the NBV of the sold fixed asset calculated according to the formula.
Attention! Use NBV on 01.01.2011 (not initial cost), when the non-linear
method of depreciation started after change from straight-line method.
NBV of fixed asset A: (162,162 (1 (0.01 5.6))3

(9)

353,081
(19,773)
______

(136,416)
______

Total NBV of the group on 01.04.2011

178,227

Depreciation for April 2011: (178,227 5.6%)

(9,981)
______

Total NBV on 01.05.2011

168,246
______

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Example 4
The following information is available in respect of company As fixed assets (net of
VAT):
Fixed asset Initial value

Useful life

Date put into use

Date of sale

A
B
C

65 months
70 months
84 months

December 2010
January 2011
February 2011

February 2011

100,000
120,000
150,000

Required:
Calculate the depreciation expense for March 2011 according to the non-linear method.
The company did not use the right for 30% write-off.
Solution
RR
Total NBV of the group on 1 January
Depreciation for January
Asset B brought into use in January

______

Total NBV of the group on 1 February


Depreciation for February
Asset C brought into use in February
NBV of the sold asset A on 1 March

______

Total NBV of the group on 1 March


Depreciation for March
3.4

Special depreciation coefficients (art. 259.3)

Depreciation rates in certain cases can be increased or decreased by special coefficients.

Increasing coefficient up to 2 (max) may be used at taxpayers choice for


fixed assets functioning in aggressive environment and/or working nonstop. Under non-linear method of depreciation this coefficient cannot be
used in respect to 1-3 depreciation groups.

Increasing coefficient up to 3 (max) may be used at taxpayers choice for:


(1)

leased fixed assets under financial lease. The depreciation is


calculated by the taxpayer, who accounts for the asset on its balance
sheet. However, in this case this coefficient cannot be used for
the assets in the 1-3 groups under any method of depreciation.

(2)

fixed assets used only for scientific-technical activities.

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It is allowed to apply lower rates than those stipulated in the Tax Code
according to the decision of the general director of the company (taxpayer).
In this case net balance value is determined based upon actual rates.

3.5

Direct/indirect classification

Under the accruals method depreciation of fixed assets which are directly used in
production will be classified as a direct expense for production companies.

Under the accruals method depreciation of fixed assets which are not directly used
in production, will be classified as an indirect expense for both production and
trading companies.

3.6

Amortisation of intangible assets (art. 257 item 3, art. 258 item 2)

For tax purposes intangible assets are classified as:

results of intellectual activities;


rights to intellectual property

purchased or created by a taxpayer used for income generating activities, with


a term of useful life of more than one year and with an original value of more
than 40,000 RR. Therefore, for example, expenses on the purchases of
exclusive rights for computer programs costing less than 40,000 RR can be
deducted in the period immediately (art 264 item 1.26).

Original tax cost of an intangible asset includes purchase cost and related costs.

The term of useful life of intangible assets is established by a taxpayer based upon
the terms of validity of patents, certificates and/or restrictions of agreements and
legislation for intellectual property in Russia or foreign countries.

If the term of useful life is impossible to determine, the term is established as


10 years.

Intangible assets are included into corresponding amortisation group


according to their terms of useful life.

Amortisation of intangible assets can be calculated either on straight-line or


non-linear methods.

Non-linear method is not available for intangible assets included in


classification groups 8, 9 and 10.

Mechanism of calculation of amortisation of intangible assets is the same as


that for tangible fixed assets.

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LEASED ASSETS

4.1

Depreciation (art. 264.1.10, art. 272.8.1)

4.1.1

Operating lease

Under such an agreement the lessor (arendodatel) provides an asset to the lessee
(arendopoluchatel), but this asset is still accounted for on the lessors books.

The lessor therefore depreciates an asset under general rules. The lessee
claims deduction for the rental payments, not for depreciation.

4.1.2

Financial lease

Under such an agreement the lessor provides an asset to lessee, but this asset
may be accounted for on the lessees books (subject to the terms of the actual
lease agreement).

If a fixed asset is transferred to the lessees balance sheet the consequences are:

the lessor can no longer depreciate the fixed asset (as it is removed from
its balance sheet), instead it deducts the cost of the fixed asset over the
leasing period in proportion to leasing income accrued (i.e. not
necessarily in equal amounts (art. 272.8.1));

the lessee depreciates the fixed asset which is now recorded on its
balance sheet. Lease payments to the lessor are still deducted but not in
the full amount. Deductible lease payment is the total payment less
depreciation accrued on the leased asset.

Illustration 12
In January 2010 company ABC (lessor) purchased and gave a fixed asset with
depreciable cost of 12 mln. to company DEF (lessee) under a lease agreement for 3
years. The fixed asset has a useful life of 5 years. Depreciation is accrued under a
straight-line method. Assume that no increased coefficient applies and 30% write-off
option is not used. DEF pays to ABC lease payments under the following scheme (all
amounts are in RR, VAT net):
2010 8 mln., 2011 5 mln., 2012 3 mln.
Option 1: An operating lease agreement was concluded.
Leased fixed asset is still on ABCs balance sheet. ABC calculates depreciation as:
2010: 12 11/12 20% = 2.2 mln. RR
2011: 12 12/12 20% = 2.4 mln. RR
2012: 12 12/12 20% = 2.4 mln. RR
DEF takes a deduction of 8 mln. in 2010, 5 mln. in 2011 and 3 mln. in 2012 for lease
payment to ABC. (On the other hand ABC recognises these amounts as an income.)

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Illustration 12 continued
Option 2: A financial lease agreement was concluded. The parties agreed that
fixed asset will be recorded on DEFs balance sheet.
ABC deducts 12 mln. of fixed asset cost under the following scheme:
In 2010: 12 8 (rent income for 2010)/16 (total rent income) = 6 mln.
In 2011: 12 5/16 = 3.75 mln.
In 2012: 12 3/16 = 2.25 mln.
DEF calculates depreciation and deducts rental payments but not in the full amounts as
shown below:
Deductible depreciation for 2010: 12 11/12 20% = 2.2 mln.
Deductible depreciation for 2011 and 2012: 12 20% = 2.4 mln.
Deductible rental payment for 2010: 8 mln. 2.2 = 5.8 mln.
Deductible rental payment for 2011: 5 mln. 2.4 = 2.6 mln.
Deductible rental payment for 2012: 3 mln. 2.4 = 1.4 mln.
4.2

Capital improvements (art. 258.1, art. 259.2)

If a lessee invests in capital improvements to a leased fixed asset two


different scenarios are possible.

Scenario 1: Lessor agrees AND reimburses lessee for these improvements

In this case the lessor depreciates these improvements starting the 1st day of
the following month after they were put into usage.

The lessor has a right to perform 10% (30%) write-off on the improvements
in the month when depreciation starts.

Scenario 2: Lessor agrees BUT does not reimburse lessee for these improvements

The lessor does not have a right to depreciate the capital improvements in
this second scenario.

The capital improvements should be subject to depreciation by the lessee


within the period of lease agreement.

The useful life of the leased fixed assets would be based on the fixed assets
classification approved by the Russian Government, which does not
necessarily match the rent period.

Depreciation starts from the 1st day of the month following the month of
putting the fixed asset into use.

The lessee has a right to apply the 10% or 30% write-off to the cost of capital
improvements incurred by him.

Note that capital improvements on leased fixed assets have been examined frequently.

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Illustration 13
On 1 January 2011 a fixed asset was rented (not a financial lease) from ABC (lessor)
by DEF (lessee). In February 2011 DEF made some capital improvements to the fixed
asset in the total value 300,000 (net of VAT). The improvements were put into usage
in March 2011. The statutory tax useful life of these improvements is 3 years. The
agreement term is 2 years.
Scenario 1: ABC agrees to the improvements and reimburses them in May 2011.
In April 2011 ABC can perform a write-off up to 10% of capital improvements, i.e.
30,000 RR.
ABC starts to depreciate capital improvements in April 2011.
Depreciation for 2011: 270,000 9/36 = 67,500 RR.
Depreciation for 2012 and 2013 each: 270,000 12/36 = 90,000 RR
Depreciation for 2014: 270,000 3/36 = 22,500 RR
Scenario 2: ABC agrees to the improvements but does not reimburse costs to DEF.
No depreciation for ABC. Depreciation for DEF starts from April. DEF does not use
right for 10% write off
Depreciation for 2011 is: 300,000 9/36 = 75,000 RR
Depreciation for 2012 is: 300,000 12/36 = 100,000 RR
NBV of the capital improvements on 31 December 31 2012 (125 000 RR) cannot
decrease CPT tax base.
5

GAINS AND LOSSES ON PROPERTY DISPOSALS

5.1

Fixed and intangible assets (art. 268)

Income on sale of depreciable property is defined as the sales proceeds less


indirect taxes (e.g. VAT) included in price.

Taxpayer can decrease income on sales of depreciable property by net book


value of this property and sale related expenses (e.g. storage, transport costs)

Note: If a fixed asset is sold which has been used for less than 5 years since the date
of putting it into use the amount of write-off (10% or 30%) should be included in the
CPT base as non-operating income (without change to the fixed asset NBV).
Selling price
less: VAT
less: tax net book value (NBV)
= gain/loss

Net book value (also referred to as residual value) is defined as a difference between
original values less accumulated depreciation for linear method of depreciation and
according to the formula for non-linear method of depreciation (art. 257).

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If a property is depreciated under decreased norms no recalculation of


depreciation is performed at the moment of disposal.

If the sale of depreciable property results in a loss, such loss is to be spread


evenly over the remaining useful life of the asset starting the month
following the disposal (this is an exam approach). Remaining useful life is
the difference between the total estimated useful life less the actual period of
usage (including the month of disposal).

Illustration 14
In July 2011 Company Z sold a fixed asset with remaining useful life of 15 months. A
loss of 1,500 RR was realised on the sale.
Company Z will recognise monthly losses of 100 RR (1,500/15 = 100 RR) during the
remaining useful life of the fixed asset sold each month starting August 2011.

Taxation of operations with securities is not examinable.

Taxation of barter transactions (property exchanges) will also not be


examined.

When calculating gain/loss on disposal it is important to keep in mind VAT


rules on property disposals (see 5.1 in VAT session):

if VAT on initial purchase of a fixed asset was recovered then all


revenue from fixed asset sale is subject to VAT at 18/118 rate;
if VAT on initial purchase of a fixed asset was capitalised (i.e. added
to its cost) then VAT is assessed only on the margin between sales
price and net book value of fixed asset at 18/118 rate. Note that net
book value is calculated based on accounting rules.

Illustration 15
Company A sells fixed asset for 20,000 RR (including VAT). Tax net book value of
the asset is 18,000 RR. Accounting net book value is 10,000 RR.
Option 1: All VAT incurred on purchase of this asset was recovered.
Revenue
VAT
(20,000 18/118)
Tax net book value
Loss on sale

20,000
(3,051)
(18,000)
(1,051)

Loss on sale is to be spread evenly over the remaining useful life of the asset.
Option 2: All VAT incurred on purchase of this asset was capitalised.
Revenue
20,000
VAT
(20,000 10,000) 18/118
(1,525)
Tax net book value
(18,000)
Gain on sale
475
Gain on sale is included into the overall taxable profits.

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Example 5
On 4 December 2011 ZAO ABC sold a fixed asset for 20,500 RR (including VAT).
ABC acquired this asset in June 2011 for 32,000 RR (including VAT) and depreciated
it under the straight-line method under the same rules for tax and accounting. ABC
used its right to 30% write-off. The fixed asset was used in activities subject to VAT.
The useful life of the asset was determined by the company as 7 years. ABC received
payment for the asset disposed in February 2012.
Required:
(a)

Calculate the taxable gain/deductible loss on disposal. State the moment of


gain/loss recognition for CPT purposes.

(b)

The same but assuming that the asset was used in VAT exempt activities and
all VAT on purchase was capitalised (i.e. added to fixed asset cost).

Solution
(a)

Activities subject to VAT


Cost
30% write-off

_______

Depreciable value
Depreciation

_______

Net book value

_______

Sales revenue
VAT

_______

Net revenue
Net book value

_______

Taxable gain/(deductible loss) on sale

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(b)

VAT exempt activities


Cost
30% write-off

_______

Depreciable value
Depreciation

_______

Tax net book value

_______

Cost
Depreciation

_______

Accounting net book value

_______

Sales revenue
VAT on sales margin
Tax net book value

_______

Taxable gain/(deductible loss) on sale

_______

5.2

Materials and other property (art. 268)

Income on sale of materials and other property is the sales proceeds less
indirect taxes (e.g. VAT) included in price.

Taxpayer can decrease income on sales of non-depreciable property by this property


purchase price and sale related expenses (e.g. storage, transport costs).

Taxpayer can decrease income on sales of the rights (shares, participation in


other companies) by expenses related with its purchase and sales.

If the sale of non-depreciable property results in a loss, such loss decreases


taxable profits of the reporting (tax) period.

Summary of taxation rules on property disposal


Taxable gain/loss on
fixed/intangible assets disposal

Sales proceeds (excluding VAT) less net book value


less sale related expenses

Taxable gain/loss on materials and


other property disposals

Sales proceeds (excluding VAT) less purchase price


less sale related expenses

Treatment of loss on
fixed/intangible assets disposals

Loss is included in other expenses of a taxpayer and


is spread evenly over its remaining useful life.

Treatment of loss on materials and


non-depreciable property disposals

Full amount of loss is decreasing taxable profits of the


reporting (tax) period

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Example 6
In 2011 company A made the following property disposals:
(1)

In February it sold a fixed asset for 47,200 RR (including 18% VAT). The
net book value of the asset was 54,000 RR. The remaining term of the assets
useful life was 16 months. The sale-related transportation costs were 2,360
RR (including VAT of 360 RR).

(2)

In March the company sold materials for 1,180 RR (including 18% VAT).
These materials were purchased for 1,300 RR (excluding VAT).

Required:
Calculate taxable gains/losses on the above transactions and explain their treatment.
Solution
(1)

Fixed asset
RR
Sales revenue
VAT

______

Sales revenue
Net book value
Transportation costs

______

Taxable gain/(deductible loss) on sale

(2)

______

Materials
RR
Sales revenue
VAT

_____

Sales revenue net of VAT


Purchase price

_____

Profit/(loss) on sale

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CORPORATE PROFITS TAX DEDUCTIBLE EXPENSES

FOCUS
You should now be able to:

state the main types of partially deductible and non-deductible expenses;

define and apply the deductibility limits on bank loan interest including the sum differences
on liabilities denominated in notional currency units and thin capitalisation rules (Art. 269);

calculate adjustments for other types of partially deductible expenses (statutory limits
provided);

explain the treatment of expenses incurred on fixed asset acquisitions (including bank interest);

explain the differences in the rules for recognition of repair and capital improvement expenses;

explain and apply the rule for the initial 10% or 30% write-off available for new fixed assets;

define depreciable tangible and intangible assets;

explain and apply the allowable depreciation methods for tax purposes;explain and apply the
rules for capital improvements to leased assets (Art. 258;1, 259;2);

calculate the deductible expenses of both the lessor and the lessee under the different
accounting treatments of leased assets;

compute the taxable income arising from leasing transactions;

compute the taxable gain or loss on fixed asset disposal (including the valuation of
depreciable property);

apply the relevant tax rules for losses on fixed assets disposals (Art. 323).

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EXAMPLE SOLUTIONS
Solution 1
RR
950
500

Fully deductible
Ticket cost
Taxi transfer
Deductible accommodation expenses:
Accommodation
Phone charges
Per diem allowance (2,000 RR 3 days)

1,500
180
6,000
_____

Total deductible amount

9,130
_____

All other expenses are non-deductible.


Solution 2
Tax depreciation up to 31 December 2010:
500,000 10% (9 + 12)/12

87,500

__________

Tax depreciation for January April 2011:


500,000 10% 4/12

16,667

Modernization cost (200,000 + 100,000)


30% write-off
Depreciation for May December 2011:
710,000 (W) 8/(12 15)

300,000
(90,000)
31,556

__________

Total depreciation expense for 2011

48,223

__________

Tax NBV as at 31 December 2011:


710,000 (W) (87,500 + 16,667 + 31,556)
(W)

574,277
__________

New depreciable value: 500,000 + 210,000 = 710,000 RR

Tutorial note: To some students it seems more logical to use net book value as at 1 May plus
modernization cost, however the solution above reflects the approach used in the June 2007 exam.
Solution 3
Calculation of depreciation will start in September.
Cost net of VAT is 100,000 RR.
Accumulated depreciation under straight-line method for September December 2011 is:
100,000 12% 4/12 = 4,000 RR
No 30% write-off option is available.

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Solution 4
All fixed assets (A, B, C) will be included in one depreciation group 4 as their
corresponding useful life is within 5 7 years limits. Depreciation rate is 3.8%
Total NBV of the group on 1 January (includes only one fixed asset A)
Depreciation for January: (100,000 3.8%)
Asset B brought into use in January

RR
100,000
(3,800)
120,000
______

Total NBV of the group on 1 February:


Depreciation for February: (216,200 3.8%)
Asset C brought into use in February
NBV of the sold asset A on 1 March: (100,000 (1 (0.01 3.8))2)

216,200
(8,216)
150,000
(92,544)
______

Total NBV of the group on 1 March:


Depreciation for March: (265,440 3.8%)

265,440
(10,087)

Solution 5
(a)

VAT on purchase of fixed asset was recovered


Cost of fixed assets (net of VAT)

27,119

30% write-off

(8,136)
______

Depreciable value
Depreciation (18,983 1/(712) 6 months)

18,983
(1,356)
______

Net book value

17,627
______

Sales revenue
VAT (20,500 18/118)

20,500
(3,127)
______

Tax net revenue


Net book value

17,373
(17,627)
_____

Taxable gain/(deductible loss) on sale

(254)
_____

The loss will be spread evenly over the remaining life of the asset, i.e. 78
months (84 6), starting from January 2012, therefore the financial result
from this disposal should not affect the 2011 CPT tax base.

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(b)

VAT on purchase of the fixed asset was capitalized

Cost of fixed assets (incl.VAT)


30% write-off

32,000
(9,600)
_______

Depreciable value
Depreciation (22,400 1/(712) 6 months)

22,400
(1,600)
_______

Tax net book value

20,800
_______

Cost of fixed asset (including VAT)


Depreciation (32,000 1/7 6/12)
(no 30% write-off is allowed in accounting)
Accounting net book value

32,000
(2,286)
_______
29,714
_______

Sales revenue
VAT on sales margin ((20,500 29,714) 18/118)
Tax net book value

20,500
0
(20,800)
______

Taxable gain/(deductible loss) on sale

(300)
______

The loss will be spread evenly over the remaining life of the asset, i.e. 78 months
(84 6), starting from January 2012, therefore the financial result from this disposal
should not affect the 2010 CPT tax base.
Tutorial note: Remember that the 30% write-off should be included in non-operational
income in 2011 in both cases.
Solution 6
(1)

Fixed asset
Sales revenue (including VAT)
VAT

RR
47,200
(7,200)
______

Sales revenue (VAT net)


Net book value
Transportation costs (VAT net)

40,000
(54,000)
(2,000)
______

Loss on sale:

(16,000)
______

Loss will decrease taxable base for 1,000 RR per month. (16,000 RR/16 months)
(2)

Materials
Sales revenue
VAT

RR
1,180
(180)
_____

Sales revenue net of VAT


Purchase price

1,000
(1,300)
_____

Loss on sale

(300)
_____

Loss will decrease taxable base of the reporting period in which the sale took place.
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CORPORATE PROFITS TAX OTHER INCOME AND EXPENSES, BRANCHES AND PAYMENTS

OVERVIEW
Objectives

To explain the taxation of special types of income and expense, including


allowances and losses.

To describe the tax calculation for different types of entity and the allocation
of taxable profits to branches.

To describe reporting and payment procedures for corporate profits tax.

OTHER INCOME
& EXPENSE

DIVIDENDS

NON-OPERATIONAL
INCOME/EXPENSES

LOSS CARRY
FORWARD

ALLOWANCES

General
Assets received for no
consideration
Profits and losses of previous
years
Forex and notional units
gains/losses
Commercial debt factoring
Fines and penalties

Setting up

Limitations on amount
Usage

TAX
CALCULATION

SEPARATE
SUBDIVISIONS

TAX ACCOUNTING

Allocation of profits tax

Payment

General provisions (art.313)


Tax base calculation (art.315)
Analytical tax accounting
registers (art.314)
Tax accounting policy as a tax
optimisation instrument

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CPT rates
Payments
Dividends

General rules

Production company
Trading company

REPORTING AND
PAYMENT
PROCEDURES

Monthly estimated profits


Monthly actual profits
Quarterly payment system

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CORPORATE PROFITS TAX OTHER INCOME AND EXPENSES, BRANCHES AND PAYMENTS

NON-OPERATIONAL INCOME/EXPENSES

1.1

General (art. 250 and art. 265)

Non-operational income items, which may be examined include in particular:

rental income;
copyright income;
interest income;
fines and penalties for breach of commercial contracts;
free property receipts;
foreign currency exchange gains;
gain from the transactions denominated in notional units (positive
sum differences (summovie raznitsi));
income of past years discovered in the reporting period;
income from participation (dohodi ot dolevogo uchastija) in other entities;
income from simple partnership;
income from claw-back of previously created allowances and
provisions (e.g. bad debt allowances, repair provision); and
income received as a result of accounts payable write-offs.

Timing of non-operational income/expense recognition depends on the


method (cash or accruals) of income recognition (see Session 2).

Illustration 1
Company XX leased equipment to Company ZZ. According to the agreement ZZ pays
XX monthly not later than the last day of the current month 11,800 RR (including
VAT) for the rent invoiced. The agreement stipulates a late payment penalty of 1% of
monthly payment per day. Leasing is not a main object of XXs activities. XX is an
accrual-basis taxpayer calculating and paying CPT on a quarterly basis. ZZ paid the
January invoice on 10 February but only recognised the penalty for the breach of the
agreement on 15 February.
The date of rent income recognition is defined as the date of settlement or the
taxpayer's submitting the documents in accordance with the terms of the concluded
agreements or as the last day of the reporting period. Therefore XX recognises rental
income at the end of each month (at the date of primary documents issue). So 10,000
RR on 31 January.
The date of penalty income recognition is the date when the claim is accepted by the
debtor or the date of entry of a court decision into legal force. So penalty income
accrues on 15 February amounting to 1,500 RR (10,000 1% 15 days).
Both amounts increase XXs CPT base as non-operational income.
1.2

Assets received or transferred for no consideration

Assets received for free are booked at fair market value but not less than NBV (art.250).

The value of assets received for free is subject to CPT, unless the assets are received from
a parent (subsidiary) company with more than 50% ownership share (see Session 2).

A loss on a free transfer of fixed and other assets is disregarded for tax purposes.

VAT is assessed on the asset fair market value and is paid by the donor.

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Illustration 2
Company A gives a photocopy-machine valued at 100,000 RR to company B.
Company A will pay VAT of 18,000 RR (100,000 18%). Loss on donation is
disregarded for Company A. Company B will be potentially subject to CPT only as
VAT is paid by A.
1.3

Profits and losses of previous years, discovered in the current year

There are often accounting mistakes discovered in the current period but
relating to previous years. These mistakes can influence profits and losses of
previous years.

These mistakes are corrected in the tax returns for the period(s) to which they
relate (i.e. a taxpayer is required to file an amended tax return for the period
to which the mistake relates).

Profits of previous years discovered in the current year result in late interest
charge. Tax penalties may be applicable as well (see Session 12).

If it is not possible to identify the period in which the mistake was made, or where a
mistake led to the overpayment of tax, the tax base is corrected for the period in
which it is discovered (art.54). Any such income of past years discovered in the
reporting period is classified as non-operational.

1.4

Foreign exchange (forex) and notional units gains/losses

Gains/losses arising on forex and notional units transactions are


taxable/deductible.

Forex gains and losses are defined and calculated in accordance with
accounting rules.

Example 1
On 31 January 2011 ZAO ABC received a 3-year loan in the amount of
500,000 USD. The interest rate is fixed at 12% p.a. The interest is paid semi-annually:
the first payment was due on 1 August 2011 and the second payment was due on 1
February, 2012. In accordance with the term of the contract the loan principal amount
should be repaid on 1 February 2012. All funds received under the loan agreement
were converted into roubles at the date of receipt of the loan. ABC calculates and
pays CPT on a quarterly basis.
Exchange rates (notional): 31/01 29.2; 31/03 29.4; 30/06 29.5; 31/07 29.8;
01/08 29.9; 30/09 30.2; 31/12 31.4
Required:
(a)
(b)
(c)

Calculate the interest expense recognised for 2011.


Calculate the foreign exchange loss on the loan recognised in 2011.
Calculate the foreign exchange loss in interest recognised in 2011.

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Solution
(a)

Interest expense
RR

st

1 quarter:
2nd quarter:
3rd quarter:
July:
Aug-Sept:

________

4th quarter:
Total
(b)

________
Foreign exchange differences on loan principal
USD

Ex-rate

RR 000

Loan principal at 31 January


At 31 December

_____

Exchange difference
(c)

_____

Foreign exchange differences on interest


RR

Interest accrued as at 1 August


Actual payment at 1 August

________

Exchange difference

________

Restatement of interest accrued for August September:


USD

Ex-rate

RR

Interest accrued at 30 September


At 31 December

_____

Exchange difference

_____

Total foreign exchange difference on loan principal and interest:

Gain/loss from the transactions denominated in notional units arises from


the operations when the liability is put into notional units but payment
should be made in roubles.

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Illustration 3
Company A concluded an agreement with Company B for the delivery of materials.
According to the agreement the cost of the materials is 1,000 notional units and
payment should be made in RR within 30 days after delivery using CB rate. One
notional unit equated to 1 USD. Exchange rates (notional):
03/03 29.3; 02/04 29.4.
Materials were supplied by Company B on 3 March and accounted for at 29,300 RR.
Payment was made by Company A on 2 April amounting to 29,400 RR.
The 100 RR difference is the loss on transactions denominated in notional units and is
deductible for CPT purposes .
1.5

Gains and losses on commercial debt factoring (art. 279)

Calculation of gain/loss on commercial debt factoring depends on the timing of


the factoring (i.e. before or after the payment term of the main agreement).

1.5.1

Before

If factoring took place before the payment term indicated in the main agreement, then
any negative difference between income received and receivable transferred is
considered a loss for the taxpayer. The amount of this loss for tax purposes is limited.

The limit on loss is calculated in the following way (RR contracts):

revenue received on factoring is multiplied by Central Bank refinancing


rate (valid on the factoring date) increased by 80% (i.e. 1.8); also

multiplied by the number of days left up to the payment date of the


main agreement and then divided by 365.

If factoring takes place in foreign currency 0.8 of CB rate is used in calculations.


This is the exam approach although Tax Code (art. 279) requires calculation of
the loss limit in accordance with interest deductibility rules set in art. 269 (see
Session 3), i.e. 1.8 and 0.8 of CB rates apply only if there is no data on interest
on comparable loans.
Example 2
In January 2011 Company Alfa made a shipment to Company Beta. Invoice
amount is 170,000 RR. Payment date as per agreement is 15 July 2011.
On February 5 2011 Company Alfa sold the receivable to Company Gamma for
130,000 RR under a factoring arrangement.
Central Bank rate for January June 2011 is 25%, for July 2011 20% (notional).
Required:
Calculate deductible loss on factoring (ignore VAT).

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Solution
RR
Income from factoring
Receivable value

_______

Actual loss on factoring

_______

Deductible loss:

1.5.2

After

If factoring took place after the payment term indicated in the main agreement,
than the resulting loss will be accounted for tax purposes as follows:

50% will be recognised as non-operational expense at the factoring date;


50% will be included in non-operational expense within 45 days after
the factoring date.

If the debt which was sold to a third party is further sold, gains/loss on such sale is
treated as profits/loss from financial services (i.e. fully taxable/deductible).

Example 3
On January 22, 2011 Company Alfa made a shipment to Company Beta. Invoice
amount is 70,000 RR. Payment date as per agreement is January 23, 2011.
On February 22, 2011 Company Alfa sold a receivable to Company Gamma for
61,000 RR under factoring arrangement.
Required:
Calculate the deductible loss on factoring, indicate its timing (ignore VAT).
Solution
RR
Income from factoring
Receivable value

______

Loss on factoring

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1.6

Fines and penalties for the breach of commercial contracts

There are two possible treatments:

(1)

Include in non-operational income only if they are recognized by the debtor or


confirmed by the court (art.250). Amounts are included in income on the date of
debtors acceptance of the claims or effective date of court decision (art. 271);

(2)

Record in accordance with the terms of the contracts (art. 317) independently
of the debtor confirmation. If a measure of the penalties is not specified in the
contract, no income should be recognised.

For exam purposes, the first approach (art. 271) should be used (i.e. only
confirmed amounts should be booked as income/expense).

Example 4
In accordance with the terms of the contract between ZAO ABC and one of its debtors,
ZAO ABC is entitled to charge late payment interest in the amount of 0.2% per day for
late payment of invoiced amounts.
The outstanding debtors liability as at 31 December 2011 was 48,000 RR, of which
20,000 was due for payment on 1 November 2011 and the remaining part was due on
14 December 2011. As at 31 December 2011 the debtor accepted the late payment
interest claim. The principal debt and the late payment interest for the whole period of
delay were paid to the company on 10 January 2012.
Required:
Calculate ZAO ABCs income for 2011 resulting from the above transactions assuming
that ZAO ABC is an accruals basis taxpayer. Ignore VAT.
Solution

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ALLOWANCES

The only examinable topic here relates to allowances for receivables (bad debt provisions).

2.1

Setting up an allowance for receivables (art. 266)

The Tax Code defines a bad debt as any debt which is:

not paid in the term provided by the agreement; and


not covered by guarantees.

An allowance for bad debts is created based on the examination of outstanding


accounts receivable as at the last day of the reporting (or tax) period.

The main criteria (provided in the examination) is the age of the debt:
Age of debt

Amount of allowance

More than 90 days

100%

45 to 90 days

50%

Less than 45 days

0%

Amounts posted to receivables allowance tax account are included in the nonoperational expenses at the last day of the reporting period.

The allowance for bad debts for tax purposes is available to accrual basis
taxpayers only.

Specific rules for banks and insurance companies are not examinable.

2.2

Limitations on amount of allowance

The maximum amount of the allowance cannot exceed 10% of sales revenue
of the reporting period excluding VAT (art. 249).

The term sales revenue is understood here as the revenue from sales of goods
produced or purchased by the taxpayer including sales of fixed and other assets.

2.3

Usage of allowance

The allowance is used for the write-off of the following types of debts:

debts with expired statute of limitation (generally three years for trade receivables);

debts, which were cancelled due to the decision of the state body, or liquidation
of the debtor.

If the amount of actual debts to be written off exceeds the allowance, the
difference is included in non-operational expenses for tax purposes.

If the allowance exceeds the actual bad debt write-offs, then the difference can be carried
forward to the following the reporting period. Carry forward rules are illustrated below.

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Illustration 4
ABC Company is an accrual-basis taxpayer. ABC reports profits tax on a quarterly
basis (i.e. quarter is a reporting period for CPT). It commenced operations in January.
At the end of the first quarter an allowance for bad debts amounting to 2 mln. RR was
created. No bad debt write-offs took place in this quarter.
In the second quarter, bad debts amounting to 0.5 mln. RR were written-off. The
examination of bad debts at the last day of the reporting quarter indicated that the new
amount of allowance is:
(a) 3 mln. RR; or
(b) 1 mln. RR.
Sales revenue of ABC (not including taxes) is 100 mln. and 10 mln. RR in the 1st and
2nd quarters respectively.
Tax consequences of these transactions are as follows:
First quarter: In both cases ABC will have a tax-deductible non-operational expense of
2 mln. 10% limitation does not apply (100 mln. 10% > 2 mln.)
Second quarter:
Option (a): the allowance will be decreased by 0.5 mln. (actual write-offs) and
increased by 1.5 mln. to reach the new level of 3 mln. The result is a tax-deductible
non-operational expense of 1.5 mln. (10% limitation does not apply, 110 mln. 10% >
3 mln.)
Option (b): the allowance will be decreased by 0.5 mln. (actual write-offs) and further
decreased by 0.5 mln. to reach the new level of 1 mln. This 0.5 mln. is included in the
taxable non-operational income of the six months.

Example 5
Company Y had a bad debt allowance of 10 mln. as at 1 January 2011. According to
the accounts receivable evaluation as at 31 December 2011 this allowance should be 25
mln. RR. The companys sales (including VAT) for 2011 are 236 mln. In 2011 one
account receivable of 1.18 (including VAT) was written-off.
Required:
Calculate the bad debt expense for 2011.
Solution

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Example 6
ABC Company is an accrual basis taxpayer. ABCs policy in 2010 was not to create
debt allowances. The companys tax accounting register shows the following
information about the companys debts in 2011 (in mln. RR and including VAT at
18%):
Age of bad debt
More than 90 days
From 45 to 90 days
Less than 45 days

As at 1 January 2011
72
28.8
48

As at 31 December 2011
40.8
108
88

The statute of limitation in respect of one debt amounting to 14 mln. RR (including


2.33 mln. RR of VAT) expired in August 2011, and this debt was then written off from
the tax accounting register. ABC decided to create an allowance for receivables.
Sales revenue for 2011 was 495.6 mln. RR (including VAT at 18%).
Required:
Calculate the bad expense for the year 2011.
Solution
RR
Sales revenue (net of VAT)
Bad debt allowance limitation
Closing bad debt allowance
Write-off
Total bad debt expense

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LOSS CARRY FORWARD (ART. 283)

3.1

General rules

If calculation of a taxable base has resulted into a loss, such loss can be
carried forward and utilised over 10 subsequent years.

There is no limit on the proportion of losses that may reduce future reporting
profits (i.e. 100% can be used).

If a taxpayer incurred losses over several tax periods, they are utilised under
first-in first-out (FIFO) principle.

Illustration 5
ABC Company had a 100 mln. RR tax loss in 2009. In 2010 ABC Company had a
taxable income 40 mln. RR before loss carried forward. In 2011 ABC had also a
taxable income 100 mln before loss carried forward.
Tax loss of 100 mln. can be carried forward and utilised in 10 subsequent years to
decrease taxable profits without any limitations.
Therefore in 2010 year 40 mln. RR of tax loss can be utilised and the part of 60 mln.
RR will be carried forward to 2011 and potentially further on. In 2011 year the
remaining part of 60 mln. RR of tax loss will be fully utilised.

Example 7
On 1 January 2010, the balance of allowable unused losses brought forward consists of
the following:
Tax loss from 2008
Tax loss from 2009

24 mln. RR
28 mln. RR

Taxable profits before loss utilisation were 25 mln. RR in 2010, 60 mln. in 2011.
Required:
Calculate the losses utilized in 2010 and 2011 and losses (if any) to be carried forward
to future years.
Solution

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DIVIDENDS

4.1

CPT rates on dividends (art. 284, 275)

The Tax Code provides for special tax rates on dividends receipts and
distributions.

If an entity pays dividends it must withhold CPT at source at:

9% if dividends are paid to a Russian legal entity (unless entitled to 0% rate


see below);
15% if dividends are paid to a foreign legal entity.

The tax should be remitted to budget not later than the day following the
payment date.

4.2

Payments to Russian legal entity

Dividends paid by one Russian legal entity to another Russian legal entity are
subject to 0% CPT rate if the following conditions are all met on the
dividend announcement date:

a Russian legal entity, which receives dividends (i.e. the recipient)


owns at least 50% shares in the capital of another legal entity which
pays the dividends (i.e. the payer);

the above mentioned ownership must be constant during at least 365


calendar days before the date of the decision to pay dividends;

the dividends received constitute at least 50% of all dividends


accrued by the dividend payer;

Note that Russian legal entities dividend-recipients should prove their right for 0% rate by
submitting to tax authorities the relevant documents listed in Tax Code (art. 284 item 3).
4.3

Dividends received

If an entity receives dividends it pays CPT at:

0% if dividends are received from a Russian legal entity;


9% if dividends are received from a foreign legal entity.

CPT rates applicable to dividends will be provided in the exam.

When making calculation of dividend amount subject to withholding tax at 9%, tax
agent takes all dividends subject to distribution and deducts the amount of dividends
received (except the dividends taxed at 0% rate) by the tax agent itself in the same or
preceding reporting tax period. The remaining portion is subject to tax withholding.
The same rules apply to personal income tax withholding on dividends payable
to individuals (see Session 6).

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Gross dividends for distribution in the reporting period


Less:

dividends received by the company itself in the same or


preceding reporting period

Equals: Taxable dividends


Taxable dividends
Multiply: Tax rate
Multiply: Recipients shareholding (%)
Equals: Tax which should be withheld

Illustration 6
ZAO ABC holds 800 shares out of 4,000 shares of AO XYZ placed with shareholders.
AO XYZ acquired 70% of shares of another Russian company OOO NFQ in
November 2009. The total value of investment equals 550 mln. RR.
In December 2011 ABC received dividends from XYZ.
XYZ distributed all of its after-tax profits for 2011. Its taxable profits amounted to
40,000,000 RR and it paid profits tax at 20% rate.
In July 2011 XYZ received interim dividends for 2011 from its daughter company
OOO TTN in the amount of 7,000,000 RR (CPT on these dividends was withheld at
9% rate at the source of payment).
In December the NFQ shareholders decided to pay dividends to XYZ amounting to
10,500,000 RR which is more than 50% of all dividends to be paid. The dividends
were transferred on 15 of December 2011
The calculation of CPT withheld by XYZ on dividends paid to ABC is as follows:
XYZ profits tax for 2011: 40 mln. RR 20% = 8 mln. RR
After-tax profits for distribution: (40 mln. 8 mln.)
Less: dividends received by XYZ itself:
Received from TTN (tax withheld at 9%)
Received from NFQ (tax not withheld as all conditions are met for 0% rate)
Dividends subject to withholding tax

(7)
0
___
25
___

CPT to be withheld (25 mln. 9%)


ABCs share in total dividends: 800 shares/4,000 shares
CPT on ABCs dividends: (2.25 mln. 20%)

RR mln
32

2.25
20%
450,000 RR

The above procedure does not apply to dividends paid to foreign legal entities, where
15% should be multiplied by the total amount of dividend income accrued to such entities.

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TAX CALCULATION

5.1

Production company

The suggested format of the answer presentation for a production company


is shown below:
Amounts
X
Income from sales of produced goods (works, services)

Expenses incurred in the production and sale of goods (work,


services), including:
Direct expenses (note 1):
Materials
Wages/salaries and related SIC of direct production
Workers
Depreciation on production fixed assets

(X)
(X)
(X)
(X)

Indirect expenses
Wages and salaries of other personnel and related SIC
Depreciation of other fixed assets
Services rendered by third parties
Amortisation of intangible assets
Repair expenses
Property insurance
Business travel expenses
Business entertainment expenses
Business training expenses
Advertising expenses

(X)
(X)
(X)
(X)
(X)
(X)
(X)
(X)
(X)
(X)
(X)

Total expenses:
Profits/loss on sale of produced goods (works, services)

X/(X)

Income from sale of fixed, intangible assets and other property


Tax net book value of fixed/intangible assets or purchase price of
other property plus related expenses

X
(X)

Profit/loss on sale of fixed/intangible assets/other property

X/X

Non-operational income
Non-operational expenses

Interest expense
Bad debt expense
Loss on factoring
Other non-operational expenses

(X)
(X)
(X)
(X)

Profits or loss from non-operational activities

X/(X)

Less loss carried forward from previous periods if any


Tax base for the reporting/tax period

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Tax rate
Tax accrued
Tax already paid

@X%
X
(X)

Tax payable

Dividends
Tax on dividends

X
X

Sample note 1:
Direct expenses: Direct expenses were prorated between cost of goods sold and
closing inventory based on the given percentages.
Cost of goods sold (X%)

Closing inventory (X%)

Direct materials

Direct wages and SIC

Direct depreciation

Total

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5.2

Trading company

The suggested format for the answer presentation for a trading company is
shown below:
Amounts
X
Income from sales of merchandise inventory

Expenses incurred in sale of goods, including:


Direct expenses:
Purchase cost of merchandise inventory
Transportation expenses

(X)
(X)

Indirect expenses:
Depreciation of fixed assets
Wages and salaries
Depreciation of other fixed assets
Amortisation of intangible assets
Repair expenses
Property insurance
Business travel expenses
Business entertainment expenses
Business training expenses
Advertising expenses

(X)
(X)
(X)
(X)
(X)
(X)
(X)
(X)
(X)
(X)

Total expenses:

(X)

Income from sale of fixed, intangible assets and other property


Tax net book value of fixed/intangible assets or purchase price of
other property plus related expenses

X
(X)

Profit/loss on sale of fixed/intangible assets

X/X

Non-operational income
Non-operational expenses

Interest expense
Bad debt expense
Loss on factoring
Other non-operational expenses

(X)
(X)
(X)
(X)

Profits or loss from non-operational activities

X/(X)

Less loss carried forward from previous periods if any

(X)

Tax base for the reporting/tax period

X/(X)

Tax rate
Tax accrued
Tax already paid

@X%
X
(X)

Tax payable

Dividends
Tax on dividends

X
X

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SEPARATE SUBDIVISIONS (ART. 288)

6.1

Allocation of profits tax

A taxpayer with separate subdivisions (branches) must allocate profits tax


to these subdivisions.

Where subdivisions are all located within one subject of the Russian
Federation it is permitted not to do the allocation between them. The
taxpayer can choose the subdivision which will pay tax for all subdivisions in
this territory and inform the respective tax inspectorate about this.

CPT allocation is based on the following formula:


Total CPT of organisation (A (or B) + C)/2

A % calculated by dividing the average number of employees of a


branch to the total average number of employees for the reporting
period;

B % calculated by dividing wages and salaries expenses of a


branch to the total wages and salaries of the company for the
reporting period;

C % calculated by dividing tax net book value of fixed assets of the


branch to the total value of fixed assets of the company for the
reporting period.

If the taxpayer uses the non-linear method of depreciation it is allowed to


determine NBV of fixed assets according to the data from accounting registers.

The head office must select between A and B for calculation purposes and
inform the tax inspectorate about the method chosen. The formula must be
used consistently throughout a tax period (calendar year).

6.2

Payment

The head office pays the federal portion of profit tax relating to branches to
its tax inspectorate.

The head office should make advance and final payments of regional and
local share of CPT to regional and local budgets.

The above payments are made to the budgets at branches locations at regular
deadlines (see later). Branches can also make the payments themselves on behalf of
head office based on the information received from the head office. This is usually
the case when a branch has a separate balance sheet and bank account, although the
Tax Code does not distinguish between branches based on these criteria.

CPT on profits allocated to a branch is paid at the rates existing in the place
of branch location.

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Example 8
Moscow based company has branches in St. Petersburg, Samara and Omsk.
The following data is available for the reporting period:
Moscow
Average employees number
for the reporting period

St. Petersburg

Samara

Omsk

750

330

300

120

Tax net book value of fixed asset


value for reporting period (RR mln.) 16

12

Federal CPT rate


Regional CPT rate

2%
18%

2%
18%

2%
13.5%

2%
14%

Companys taxable profits are 370,000 RR.


Required:
(a)

Calculate profits tax liability of head office and branches.

(b)

Explain how the tax is paid (do not state the deadlines). Assume that
branches in St. Petersburg and Samara have balance sheets and separate bank
accounts, while branch in Omsk does not.

Solution
(a)

Head office and branches


Moscow

St. Petersburg

Samara

Omsk

Total

(1) % of average employees


(2) % of fixed assets
(3) Average of (1) and (2)
(4) Taxable profits allocated
(5) Federal portion of CPT
(6) Regional portion of CPT
(b)

How paid

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TAX ACCOUNTING

7.1

General provisions (art.313)

Tax accounting is defined as a system for summing up information for


defining the tax base on the basis of the data from the basic documents
grouped in accordance with the procedure stipulated by the Tax Code.

The tax accounting system should be organised by the taxpayer and in


accordance with established tax accounting policy.

Any changes in the tax accounting policy can be effected from:

the beginning of a new tax period; or


the moment that changed legislation comes into force.

7.2

Tax base calculation (art.315)

Taxpayers calculate the tax base on the results of every reporting period
based on the data in the tax records.

The tax base for the reporting period is calculated cumulatively in conformity
with the norms established by the Tax Code, from the start of the year.

The tax base calculation should contain the following data:


(1)
(2)

Period of calculation; and


The sum of income, expenses, profit or loss, as shown below:

Sales income, including income from:

sales of goods (works performed, services rendered);

trading operations (sales of purchased goods (merchandise


inventory));

sales of fixed assets

Sales expenses, including expenses incurred on:

production and sales of goods (works, services);


sales of merchandise inventory;

sales of fixed assets;

Operational profit

Non-operational income

Non-operational expenses

Non-operational profit/loss

Tax base (before loss carry forward)

Loss carried forward from previous years (Section 3)

Tax base (after loss carry forward)

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7.3

Analytical tax accounting registers (art.314)

7.3.1

General provisions

The sum making up the tax base must be confirmed by the underlying
accounting documents and analytical tax registers.

Analytical tax accounting registers are consolidated forms for the systematisation
of the tax accounting data, grouped in accordance with the Tax Code requirements
(i.e. in the baskets). Therefore, each tax register should display a list of
operations providing the specific income or expenses basket (or a part thereof).

Taxpayers can use statutory accounting registers with necessary


corrections/additions or independent registers.

The primary analytical tax register form should contain the following details:
Tax register name
Period
The operations
measuring indices in
volume terms
(if possible)

The operations
measuring indices in
RR

Transaction description

Signature of the responsible person


Date

The forms of the tax accounting registers and the way of reflecting in them
the analytical data should be established in the Appendices of the
organisations tax accounting policy.

These registers may be kept on paper or in electronic form.

7.3.2

Depreciable property (art.323)

The profit/(loss) from the disposal (sale or retirement) of depreciated property


is determined on analytical accounting of all objects.

Analytical accounting should contain information on the following:

date of acquisition, putting into operation and original cost of


depreciated property disposed of in the reporting period;
changes in original cost of such fixed assets;
period of beneficial use accepted by the organisation;
cumulative amount of depreciation and net book value of the
disposed fixed assets depreciated using straight-line method only;
cumulative amount of depreciation and summary balance of each
depreciation group and sub-group (for non-linear method);
date and proceeds (if any) of disposal;
related expenses (e.g. storage, dismantling, transportation);
profit/(loss) from the operation.

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A profit on disposal increases the CPT tax base on the date of recognition of
the sale proceeds.

A loss is spread evenly over the remaining useful life of the asset starting
the month after the disposal (see Session 3).

Such losses and their allocation over the remaining period should be shown in
special analytical tax accounting registers.

7.4

Tax accounting policy as a tax optimisation instrument

Tax accounting policy is a document in which an organisation selects and


ratifies the methods and variants of tax accounting. It can be a prime
instrument for tax planning and optimisation.

Each organisation can choose the best variant of tax accounting (where there
are alternatives) according to the specifics of its business.

The most significant variants are as follow:

Depending on the payment terms applied it make sense to consider


the accrual or cash method for income/expense recognition;

As a list of the direct expenses is fixed in the tax accounting policy these can be
defined to maximise available tax reductions and reduce administration issues;

Method of material valuation (e.g. weighted average) should be


clearly defined, especially in conditions of instability;

Using 10% (30%) write-off and non-linear depreciation method to maximize


expenses in the first years after acquiring fixed assets and so defer CPT;

Set up of allowance (e.g. for receivables) facilitates planning of


expenses and defers tax payments.

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PROFITS TAX REPORTING AND PAYMENT PROCEDURES

8.1

Payment bases

ATTENTION! This topic has not been examined in detail and should be
covered after familiarisation with main issues in PIT, VAT and SIC.

The payments of profits tax can be made in any of three ways:

on a monthly basis based on estimated profits;


on a monthly basis based on actual profits;
on a quarterly basis (available to certain types of taxpayers only).

The declarations are prepared on a cumulative basis.

8.2

Monthly payment system based on estimated profits

Under this payment system, there are monthly advance payments of CPT,
which are made by the 28th day of each month in the amount of 1/3 of the
estimated total CPT liability for the quarter.

On the 28th day following the end of each quarter so-called quarterly advance
payment is made. Its amount is calculated as the difference between actual
profits tax for the reporting period less monthly advance payments made.

For example in July taxpayer must calculate actual profits for the six months
of the year and the amount of CPT. On July 28 it must pay the difference
between total CPT liability for 6 months and the total monthly and quarterly
advance payments of CPT already made. On the same date monthly advance
payment for July is also due.

The tax returns are submitted under the following deadlines:

within 28 days following the last day of the reporting quarter for
quarterly returns (in a simplified form);
by 28 March of the following year for annual return.

Final tax payment is due:

by 28 March of the following year for annual return.

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A summary of payment and reporting rules under this system is presented in


the following table :

Type of payment

Payment amount

Monthly advance
payment in 1st
quarter*

Payment is equal to
monthly advance
payment in the 4th
quarter of the preceding
tax period

Monthly advance
payments in 2nd
quarter

Monthly payment is
equal to 1/3 of the total
advance payment of 1st
quarter**

Payment
deadlines

The term of tax


declaration
submission

Not later than on


the 28th day of
every month in
the reporting
period

Not later than 28


days after the end of
the reporting period.
Declarations are
submitted in
simplified form

Monthly advance
payments in 3rd
quarter

Monthly payment is
equal to 1/3 of the total
advance payment of the
1st half of the year less
the advance payment of
the 1st quarter**

Monthly advance
payments in 4th
quarter

Monthly payment is
equal to 1/3 of the total
advance payment of the
9 months of the year
less the advance
payment of the 1st half
of the year**

Quarterly advance
payment after the
end of each reporting
period

(Tax rate) (Actual


cumulative profits
received starting the
beginning of reporting
period) less advance
payments made

Not later than on


the 28th day
following the end
of the reporting
period

Payment after the


end of tax period

(Tax rate) (Actual


cumulative profits
received starting the
beginning of tax period)
less advance payments
made

Not later than on


the 28th of March
of the year
following the tax
period

Not later than on the


28th of March of the
year following the
tax period

** if the resulting amount is equal to zero or negative, the monthly advance payments
are not made in this quarter.
8.3

Monthly payment system based on actual profits

Monthly payment system based on actual profits is also available to


taxpayers. However if this system is chosen, taxpayer must inform its tax
body not later than on 31st December of the year preceding the reporting one.
Once chosen the system should apply consistently over the whole tax period.

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Summary of payment and reporting rules under this system is presented in the
following table:

Type of payment

Payment amount

Payment deadlines

The term of tax


declaration
submission

Monthly advance
payment, calculated
based on actual
profits

(Tax rate) (Actual


cumulative profits
received starting the
beginning of the
year) less advance
payments made

Not later than on the


28th day of the
following month

Not later than on the


28th day of the
following month (in
a simplified form)

Annual balancing
payment

(Tax rate) (Actual


cumulative profits
received for the year)
less advance
payments made

Not later than on the


28th March of the
year following the
tax period

Not later than on the


28th March of the
year following the
tax period

8.4

Quarterly payment system

This applies to the following types of legal entities:

organisations with an average quarterly revenue for the preceding four quarters not
exceeding 10 mln. RR per quarter (if average quarterly revenue exceeds this the
taxpayer must switch to a monthly payment system based on estimated profits.);

budget entities;

foreign legal entities operating in Russia through permanent establishments;

members of simple partnerships;

newly created entities with sales not exceeding 10 mln. RR per quarter

Summary of payment and reporting rules under this system is presented in the
table below:

Type of payment

Payment amount

Payment deadlines

Term of tax declaration


submission

Quarterly
advance payment
after the end of
reporting period

(Tax rate) (Actual


cumulative profits
received from the
beginning of the year) less
advance payments made

Not later than on the


28th day after the end
of the reporting period

Not later than on the 28th


day of the following
quarter (in a simplified
form)

Annual balancing
payment

(Tax rate) (Actual


cumulative profits
received for the year) less
advance payments made

Not later than on the


28th March of the year
following the tax
period

Not later than on the 28th


March of the year
following the tax period

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FOCUS
You should now be able to:

explain taxpayers right for the adjustments of tax base and tax in tax period when the
mistakes have been found out related to previous tax periods (art. 54);

calculate the taxable income on foreign currency transactions and on transactions


denominated in notional units;

explain the timing of income recognition for factoring operations and calculate the
taxable income from trade debt factoring for both parties;

calculate the taxable income on penalty income, rent income and interest income (art. 250);

explain and apply the rules for the creation and usage of an allowance for bad debts (art. 266);

explain and apply the rules for bad debts write-offs;

define allowable net operating losses and calculate the amount of losses qualifying for
the carry forward tax concession;

explain the rules for calculating the maximum amount of losses allowable in
each year and calculate the loss carry forward concession;

explain and apply the rules for the taxation of dividends and calculate profits
tax on dividends paid and received by Russian legal entities;

prepare a computation of total taxable income based on the format of the profits tax return;

compute the corporate profits tax liability, applying the correct rates of tax;

explain the concept of separate sub-division as it applies to corporate profits;

explain the procedure for the allocation of profits between head-office and branches;

prepare calculations of the profits tax payable by branches;

explain the deadlines for corporate profits tax;

define and apply basic tax accounting rules (art. 313-320, art. 322-323);

explain how the maximisation of available tax reductions and concessions


can defer or minimise corporate profits tax liabilities;

identify, compute and apply the right concession/reduction in given circumstances;

explain the filing requirements and payment deadlines for corporate profits tax.

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EXAMPLE SOLUTIONS
Solution 1
(a)

Interest expense

Strictly, the interest expense on the loan should be recognized on the last day of each
month taking into account the date of actual payment of interest. .
USD
Ex-rate
RR
9,699
29.4 285,140
1st quarter: 59/365 days 500,000 USD 12%
2nd quarter: 91/365 days 500,000 USD 12%
14,959
29.5 441,288
3rd quarter:
July 31/365 days 500,000 USD 12%
5,096
29.8 151,858
Aug-Sept 61/365days 500,000 USD 12%
10,027
30.2 302,827
4th quarter: 92/365 days 500,000 USD 12%
15,123
31.4 474,871
________
Total

1,655,984
________

Tutorial note: For exam purposes, when dealing with a taxpayer who reports on a quarterly
basis, interest calculations should be made at the end of the reporting/tax period (i.e. at the end
of each quarter). Using the strict monthly approach will only make a difference if the exchange
rate changes within a quarter (as in 3rd quarter). Also, it is not necessary to present the USD
amounts (which are rounded here) as an intermediate calculation, but they are included here to
show how the interest amounts referred to below arise.
(b)

Foreign exchange differences on loan principal

Since the loan principal amount was not repaid at the end of the reporting period ZAO
ABC must restate the companys foreign currency liability:
USD
500,000
500,000

Loan principal at 31 January


At 31 December

Ex-rate
29.2
31.4

Exchange difference (loss)


(c)

RR000
14,600
15,700
_____
1,100
_____

Foreign exchange differences on interest

The difference in exchange rate on the date of accrual of interest expense and at the end of the
reporting period/actual payment of interest will be recognized as a foreign exchange loss:
Interest accrued as at 1 August:
Actual payment at 1 August:

(285,140 + 441,288 + 151,858)


(500,000 181/365 12% 29.9)

Exchange difference (loss)

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RR
878,286
889,627
________
11,341
________

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Restatement of interest accrued for August September:


Interest accrued at 30 September must be revalued at the year end. Note that interest
for the 4th quarter of 2011 will be accrued on 31 December, so no exchange difference
arises in respect of this.
Interest accrued at 30 September
At 31 December

USD
10,027
10,027

Ex-rate
30.2
31.4

Exchange difference (loss)

RR
302,827
314,860
_____
12,033
_____

Total foreign exchange difference on loan principal and interest:


1,100,000 + 11,341 + 12,033 = 1,123,374 RR
Tutorial note: It is unlikely that the calculations for interest will merit many marks in
the examination. If you are under time pressure it is recommended that you deal just
with the loan principal.
Solution 2
Income from factoring
Receivable value

RR
130,000
(170,000)
_______

Actual loss on factoring

(40,000)
_______

Because the receivable is factored before the payment date provided in the main
agreement, the loss deductible limit is calculated as follows:
Statutory interest for the period from 6 February to 15 July is 160 days:
130,000 25% 1.8 160/365 = 25,644 RR
Allowable loss is 25,644 RR, remaining amount of 14,356 RR (40,000 25,644) is
ignored for taxation purposes.
Solution 3
Income from factoring
Receivable value

RR
61,000
(70,000)
______

Loss on factoring

(9,000)
______

Because the receivable is factored after the payment date provided in the main
agreement, the loss deductible limit is calculated as follows:
4,500 RR (9,000 50%) decrease the taxable base as non-operational expense in
February 2011;
4,500 RR (9,000 50%) decrease the taxable base as non-operational in April 2011
(45 days after 22.02.2011).

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Solution 4
Late payment interest accrued in 2011:
60 days (29 in November and 31 in December) 20,000 0.2% + 17 days 28,000
0.2% = 2400 + 952 = 3,352
Accrued late payment interest should be recognized at the date of debtors acceptance
of the claims, i.e. on 31 December 2011
Solution 5
The balance on the allowance account as at 31 December 2011 is limited by 10% of
sales net of VAT; i.e. by 20 mln.
Bad debt expense for 2011 is: 20 mln. (allowance recognized as at 31.12) 10 mln.
(opening allowance) + 1.18 (bad debt write-off) = 11.8 mln.
Solution 6
Sales revenue (net of VAT) (495.6 18/118)
Bad debt allowance limitation (10% of revenue net of VAT)

420
42

Bad debt allowance as at 31 December 2011:


(40.8 + (108 50%))

94.8

Write-off

14

Since 94.8 > 42, allowance created in 2011 may be deducted only up to the limitation.
Total bad debt expense (42 + 14)

56

Solution 7
Tax loss available for carry forward: 24 + 28 = 52 mln. RR
Maximum amount for loss utilization in 2010 is limited by the amount of taxable
profits 25 mln. RR. Remaining portion of loss (52 25 = 27 mln. RR) is carried
forward to 2011. Therefore taxable profit for 2010 is 0.
The remaining amount of 27 mln. RR loss is utilized in 2011. Taxable profits in 2011
are 33 mln. RR.
Solution 8
(a)

Head office and branches

(1) % of average employees


(2) % of fixed assets
(3) Average of (1) and (2)
(4) Taxable profits allocated
(5) Federal portion of CPT
(6) Regional portion of CPT

Moscow St. Petersburg Samara Omsk Total


50%
22%
20%
8%
100%
40%
30%
20%
10%
100%
45%
26%
20%
9%
100%
166,500
96,200
74,000 33,300 370,000
7,400
7,400
29,970
17,316
9,990
4,662 61,938

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(b)

How paid

The head office pays the federal portion of profits tax relating to branches to its tax
inspectorate.
Branches in St. Petersburg and Samara probably make advance and final payments of
regional and local share of CPT to regional and local budgets on behalf of head office
as they have balance sheet and bank account. The above payments are made to the
budgets at branches locations at regular deadlines. The payments are made based on
information received from head office in Moscow.
With regard to a branch in Omsk, all CPT payments are made by head office. The
federal portion of CPT is paid to the tax inspectorate of head office (Moscow). The
regional and local portions of CPT allocated to a branch are paid to tax inspectorate at
branch location (Omsk).

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PERSONAL INCOME TAX SCOPE, COMPUTATION AND DEDUCTIONS

OVERVIEW
Objectives

To explain the scope of personal income tax.

To compute taxable income from employment and business income of an


individual entrepreneur.

To recognise deductible expenses.

SCOPE

CALCULATION
AT BASE RATE

DEDUCTIONS

Accountancy Tuition Centre (International) Ltd 2011

Personal income tax


Payments of personal income
tax to budget
PIT rates

PIT calculation scheme


Gross income of
individuals
Types of income exempt
from tax

Standard deductions
Social deductions
Property deductions
Professional deductions

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SCOPE

1.1

Personal income tax

Personal income tax (PIT) is applied to the income received by individuals,


i.e. by private citizens (art. 207). Usually PIT is deducted from income by
the party which makes the payment to an individual. Procedure of tax
deduction from the income paid is called income tax withholding. The entity
(a company or an individual entrepreneur), which makes the withholding is
called a tax agent (see Session 7).

Illustration 1
Andreis gross salary for December is 20,000 RR. PIT rate is 13%.
Gross salary
Less: PIT at 13%
Salary net of PIT (or simply net salary)

20,000
(2,600)
17,400

PIT is calculated, withheld and paid to the budget by the company-employer, which
acts as tax agent for PIT purposes.

Tax period for PIT purposes is a calendar year (art. 216). This means that
income subject to PIT and the tax itself are calculated on a cumulative basis
from the beginning of the calendar year and up to December 31.

If an individual stays in the Russian Federation for less than 183 days in a
calendar year, he is considered to be non-resident for income tax purposes in
this year. Taxation of non-residents as well as provisions of art. 208 are not
examinable.

1.2

Payments of personal income tax to budget

In the majority of cases PIT is paid to budget by tax agents, i.e. by the entities
which make the payments to individuals.

However, in some cases PIT withholding at source is not provided for by the
Tax Code (e.g. PIT is not withheld at source on lottery/casino winnings).

If a tax agent does not withhold PIT, it is an individuals responsibility to


calculate and pay the tax. Generally this is done through filing a tax
declaration on PIT with a tax inspectorate.

Illustration 2
Andreis gross salary for December is 20,000 RR. In this month Andrei also won
500,000 RR in a lottery. He also sold his apartment and received 800,000 RR as a
taxable gain.
As was shown in Illustration 1, PIT on Andreis salary will be calculated, withheld and
paid to the budget by his employer which acts as Andreis tax agent on PIT. Andrei
will have to calculate and pay PIT on the lottery winnings and on property sale gain
personally through submitting a tax declaration on PIT to his local tax inspectorate.

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1.3

PIT rates (art. 224)

The majority of income types are taxed at 13% rate. For convenience and
simplicity this is called the main or base rate of PIT.

Increased rate of 35% is applied to the following types of income:

taxable portion of interest on bank deposits;


imputed interest on loans (except for certain type of mortgage loans
and unpaid liability on credit cards);
taxable portion of advertising prizes and awards.

The taxation rules on the above income are further explained in Session 6.

Decreased rate of 9% is applied to dividend income (see Session 6).

All other income of residents is taxed at 13%.

Special rates of 15% and 30% which are applied to income received by nontax residents of Russian Federation are not examinable.

Example 1
State the relevant PIT rates for each of the following types of income:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)

Salary;
Birthday gift;
Casino winning;
Gain on property sale;
Imputed interest on a bank loan to buy a car;
Dividends received;
Taxable interest on bank deposit;
Advertising prize;
Imputed interest on corporate loan to buy an apartment;
Taxable property insurance income.

CALCULATION AT BASE RATE

2.1

PIT calculation scheme

PIT calculation scheme for the income taxed at the main (base) rate of 13%
looks like this:
Tax base on
ordinary income

Main rate of 13%

PIT on
ordinary income

Tax base on the ordinary income means the total amount of income that
is subject to 13% rate of PIT.

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Tax base on the ordinary income is calculated as the total income received in a calendar
year less exempt income, less income subject to special rates, less PIT deductions.

Tax base on
ordinary income

Gross income
from all
sources

Exempt
income &
income
taxed at
special
rates

PIT deductions
standard

property

social

professional
2.1.1

Meaning of terms

Gross income means all income received by a taxpayer from all sources in a calendar year;

Exempt income means income which is excluded from taxation (e.g. state pensions,
alimonies, etc).

Income subject to special rates means types of income taxed at 9%, 30% and 35% rates.

PIT deductions means expenses incurred by taxpayer in a calendar year, which decrease
his taxable income (e.g. medical and educational expenses). The Tax Code strictly regulates
the types and maximum amounts of expenses allowable for deduction (see later).

2.2

Gross income of individuals

2.2.1

Forms of income receipt

Income can be received in cash or in-kind (i.e. in non-monetary form).


Payments in-kind in particular include:

wages and salaries paid in-kind;


partial or full payments for goods (works, services) for employees
(including meals, accommodation);
provision of free goods, works or services to individuals;
gifts in-kind, etc.

Payments in-kind are taxed at their fair market value following the rules of
the Tax Code (art. 40). These rules are not examinable and the fair market
value of any relevant items will be given.

Tax on payments in-kind is calculated and withheld by the tax agent from any
cash payments made to employees. The amount of withholding tax cannot
exceed 50% of cash payment amounts. If tax withholding is not possible a
tax agent must report to its local tax authority about such payment in-kind
within one month from the date of payment (art. 226.4, 226.5).

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Illustration 3
Andrei received a TV set valued at 7,000 RR as a birthday gift from his companyemployer. He also received a DVD recorder valued 14,000 RR from a company-client.
This client company made no other gifts or cash payments to Andrei.
PIT on TV set will be calculated and withheld from Andreis monthly salary by his
employer. The company-client is not able to withhold PIT on the DVD recorder, as it
does not make any cash payments to Andrei.
Thus, the client must report to its tax inspectorate about the gift within one month from
the date when the recorder was given to Andrei. Andrei will pay PIT on the DVD
recorder himself.
2.2.2

Income recognition date (art. 223)

For PIT purposes income is generally recognised when paid. For example, when:

remuneration is paid under civil law contracts, copyright agreements,


performance contracts, etc;
cash payment is made (including wire-transfer to taxpayers bank account);
income in-kind is received;
interest is credited to a bank deposit account;
interest on loan is paid (see imputed interest in Session 6).

The major exception to the above rule relates to employment income (wages, salaries,
performance bonuses, etc), which is recognised for PIT purposes on the last date of
the month of the accrual. For example, December 2011 salary paid in January 2012 is
taxed in December 2011.

2.3

Types of income exempt from tax (art. 217)

2.3.1

Payments and compensations established by Law

The major exemptions from personal income tax listed in the Tax Code (art. 217) are:

government support payments (posobija);


state pensions;
state compensations and financial aid;
official sports awards and prizes (see Session 6);
alimonies, etc.

Note that all income types above are required by and produced under Russian Laws.

2.3.2

Gifts from individuals

Gifts (except real estate property, transport vehicles, shares and securities)
received by individuals from physical persons are PIT exempt.

Gifts received from close relatives are PIT exempt. For gift taxation
purposes the following family members are understood to be close relatives:

spouse;
children;
parents (including step-parents);
brothers/sisters; and
grandparents.

Inheritance is generally exempt (special cases are not examinable).

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2.3.3

Payments by companies to employees

Note the following exempt items related to employment:

financial assistance (materialnaja pomosch) up to 4,000 RR per year per employee;

gifts to employees up to 4,000 RR per year;

compensation of travel expenses up to the statutory norms;

reimbursement of business expenses paid by an employee on his employers behalf;

compensation of relocation expenses to the Far North regions of Russia;

cost of business training and education provided to employee;

payments by employers to Russian recreation and resort facilities (including


children camps) for the benefit of employees and/or members of their families
(spouse, children under 16). These payments are made out of after-tax-profits;

medical treatment payments made by employers for the benefit of their employees
and their spouses, children, parents (i.e. direct payments for medical services).
These payments are made out of after-tax-profits;

cost of medicine purchased (reimbursed) by employer for employees and


their spouses, parents and children up to 4,000 RR per year;

financial aid paid by the employer to employees (parents) in case of the


birth of a child up to 50,000 RR for each child;

additional pension payments made by company to cumulative part of


employees pension up to 12,000 RR per year per employee;

compensation to employees of interest paid on mortgage loans within the


limits deducted for CPT purposes (3% of labour cost).

If provision of goods (works, services) for employees is required by law, their


value is not subject to PIT.

Sick leave payments are subject to PIT in the full amount.

2.3.4

Property sales income

Gains arising on the sale of personal property including residential houses, apartments,
summerhouses, plots of land and motor vehicles (if owned by the taxpayer for three years
or more) is exempt from PIT (see 3.3). This exemption is not applicable to securities.

Income exempt from PIT under art.217 can be excluded from the tax
declaration by taxpayer and tax agent.

2.4

Insurance and pension funds contributions (art. 213)

Insurance contributions made by an employer for the benefit of an employee


are not taxable if:

insurance of employees is required by Law;


it is a voluntary medical or life insurance of employees or any other person.

Contributions, which are made by a company on behalf of its employee under


voluntary pension agreements (dobrovolnogo pensionnogo strahovanija) and under
non-state pension security (negosudarstvennogo pensionnogo obespechenija) are
non-taxable (but pension income will generally be taxed later when received).

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Example 2
Kiril received the following benefits from his employer in addition to his salary:

medical insurance coverage (non mandatory);


pension contributions on his behalf to a non-state pension fund under nonstate pension security;
meal tickets for free meals in the companys cafeteria;
paid for vacation in Turkey;
company mobile phone;
company car.

Required:
Briefly explain which of the above amounts are taxable.
Example 3
In 2011 a company made the following payments to its employee (in RR) (gross amounts):
(1)
(2)
(3
(4)
(5)
(6)
(7)

Salary 180,000
Annual performance bonus for 2011 (accrued in 2011, paid in 2012) 30,000
Financial assistance (materialnaja pomosch) 10,000*
Birthday gift 7,000*
Payment for business training 8,000
Payment for secondary education in Moscow State University 50,000
Reimbursement of business travel expense:
within the norms 6,500
above the norms 3,500
(8)
Free lunches 60,000
(9)
Payment for vacation in Egypt 45,000
(10)
Payment for convalescence in a sanatorium in Moscow resort area 25,000
(11)
Payment for medical operation on employees son 12,000
(12)
Payment under non-state pension security agreement 15,000
(13)
Compensation payment required under Russian Law 14,000
(14)
The cost of working uniform (the uniform is not required by law) 20,000
* Financial assistance and gifts are taxed in excess of 4,000 RR per year.
Required:
Calculate the taxable income of the employee.

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Solution
RR
(1)

Salary

(2)

Annual performance bonus

(3)

Financial assistance

(4)

Birthday gift

(5)

Payment for business training

(6)

Payment for secondary education at Moscow State University

(7)

Reimbursement of business travel expense:


within the norms
above the norms

(8)

Free lunches

(9)

Payment for vacation in Egypt

(10) Payment for convalescence in a sanatorium in Moscow area resort


(11) Payment for medical operation on employees son
(12) Payment under non-state pension security
(13) Compensation payment required under Russian Law
(14) Cost of working uniform not required by law
Total taxable income

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______

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DEDUCTIONS

3.1

Standard deductions (art. 218)

3.1.1

Standard personal and children deductions

Monthly amounts of standard personal and children deductions for 2011:


Standard personal deduction
Deduction for each dependent child

400
1,000

RR per month
RR per month

Childrens deduction is allowed to both parents for each child under 18 years
(under 24 years for ochnyie students).

Standard personal deduction is allowed up to the month at which the gross income
taxed at 13% rate paid by the employer giving this deduction exceeds 40,000 RR.

Children deduction is allowed up to the month at which the gross income taxed
at 13% rate paid by the employer giving this deduction exceeds 280,000 RR.

Standard deductions are allowed to an employee at his written request at only


one place of his employment. If the place of work is changed during the year
the new employer should be presented with the employees previous income
data in order to grant standard deductions.

If no standard deductions were provided to an individual, he may claim them


through the tax declaration (taking into account the above mentioned 40,000
RR and 280,000 RR limitations).

Standard deductions are allowed to individual entrepreneurs based on their


cumulative income through tax declaration submission.

A single (divorced) parent can claim a double size of children deduction for
each child (however the limit of 280,000 RR remains the same).

Illustration 4
Annas monthly salary is 35,000 RR. She has a 12 year-old son.
Anna enjoys a personal deduction of 400 RR only in January and a dependant
deduction of 1,000 RR up to and including August.
Her taxable income is: (35,000 12) (400 1 + 1,000 8) = 411,600 RR
Her PIT liability for 2011 is 411,600 13% = 53,508 RR
Example 4
Andreis gross monthly salary in 2011 is 30,000 RR. Andrei has one child, who
qualifies for the children deduction. Andrei is a Russian tax resident.
Required:
Calculate Andreis personal income tax for 2011.

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Solution
RR

RR

Gross income
Standard personal deduction
Children deduction

______
______

Net taxable income

______

Tax

______

3.2

Social deductions (art. 219)

3.2.1

General

All social deductions are applied only to the ordinary income taxed at 13%
rate.

Social deductions are allowed to an individual at his written request upon


submission of the annual tax declaration.

Any unused social deductions cannot be carried forward to future years.


The maximum amount of the three main social deductions (educational,
medical, pension deduction) is restricted to 120,000 RR (with some
exceptions explained for each specific deduction). This does not relate to
charity deduction, which is restricted to 25% of gross taxable income.

3.2.2

Charity contributions

The following charity donations qualify for tax deduction purposes:

charity donations made in cash to cultural, educational, scientific, health and


social security organisations wholly or partially financed from the budget;
charity donations made in cash to religious organisations;
charity donations made in cash to sports and educational organisations
for sports purposes only (there is no budget financing requirement).

The deduction is limited to 25% of the gross income taxed at 13% rate. The
gross income is understood as ordinary taxable income before all deductions.

3.2.3

Education expenses

Deduction is allowed amounting to the expenses incurred by an individual:

on his own education up to 120,000 RR (aggregated with the two


other deductions detailed below), and

on the education of his children, his sisters and/or brothers (up to


50,000 RR per child in addition to his own educational deduction).

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The tax deduction on a childs education may not exceed 50,000 RR for both
parents for each child. A child must be under 24 years of age.

The tax deduction on a childs education is not allowed if the education was
paid for from the mothers capital (materinskiy capital). (This state support
is PIT exempt so no social deductions can be used against it.)

Since 2010 a taxpayer also has the right to the tax deduction when they pay
study costs for a brother/sister who is an ochnyi student under 24 years old.

No deduction is granted for children studying according to programmes with


correspondence education (zaochnoe obuchenie).

All documents confirming the expenses incurred and the status of the
educational institution (a copy of the education license) must be attached to
the annual tax declaration.

3.2.4

Medical expenses

Deduction is allowed amounting to the expenses incurred by an individual:

on his own medical treatment in medical institutions of the Russian


Federation;
on medical treatment paid for the benefit of the individuals spouse,
parents and/or children under 18 or spouse in medical institutions
of the Russian Federation only.

The total deduction is limited to 120,000 RR (again aggregated with the two
other deductions) except for certain types of expensive medical treatment (as
per a special list approved by the Russian Federation Government). In the
case of expensive medical treatment, the deduction given is the full amount
of the actual medical expenses in addition to the general medical deduction.

Tax qualifying types of medical treatment are defined in the list approved by
the Russian Federation Government.

The cost of medication purchased by a taxpayer in accordance with relevant


prescriptions also qualifies for the deduction.

Medical insurance purchased by a taxpayer for his own benefit or the benefit
of close relatives also qualifies for deduction.

The documents confirming the actual expenses and the status of the medical institution
(a copy of the medical license) must be attached to the annual tax declaration.

3.2.5

Pension deduction

This section concerns personal expenses on non-state pension security and/or voluntary
pension insurance and additional payments to nakopitelnay part of the state labour pension.

This deduction is applied to pension payments made under agreements with non-state
pension security funds (dogovora negosudarstvennogo pensionnogo obespechenija)
for the benefit of taxpayer or his spouse, parents and/or children-invalids.

The deduction is also applicable to insurance payments under voluntary pension insurance
agreements (dogovora dobrovolnoje pensionnoe strahovanija) for the same beneficiaries.

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Additional pension payments (made by taxpayer) to cumulative (nakopitelnay)


part of labour pension also qualify for this deduction.

The documents confirming the actual expenses and the status of the pension
institution (a copy of the license) must be attached to the annual tax declaration.

The total deduction allowed is again limited to 120,000 RR, in aggregate with
the two deductions explained above.

Summary
Type of deduction

Maximum amount

Charity deduction

25% of gross income taxed at 13%


rate

Educational deduction for


taxpayer
Medical deduction (except
expensive medical treatment)

120,000 RR in total for all 3 types


of deductions

Deduction on non-state pension


security and voluntary pension
insurance payments, additional
payments to nakopitelnay part of
labour pension
Educational deduction for
children, sisters and brothers of
the taxpayer

50,000 RR per each child


under 24 years (in total amount for
both parents)

Medical deduction for expensive


medical treatment

In full actual amount per


taxpayer, his parents, spouse and
his children below 18 years.

Note that children deduction is available for all children under 18 years and
ochnih students under 24 years.

In case the taxpayer has educational, medical and pension expenses in the
same year and their total amount exceeds 120,000 RR, then the taxpayer must
choose himself what social deductions he would claim.

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Illustration 5
Karinas income (before social deductions) in 2011 is 700,000 RR out of which
140,000 RR is subject to 13% rate and the remaining amount is taxed at 35%. In 2011
Karina spent:

70,000 on charitable contributions;


42,000 on her own education
48,000 on contribution to non-state pension security ;
10,000 on her sons education.

Karinas husband did not claim any social deductions in 2011 and all amounts listed
qualify for social deductions. Ignoring standard deductions Karinas tax in 2011 is
determined based on the following deductions:
The deductible charitable contribution is limited to 25% of gross income subject to
13% rate, i.e. (140,000 25% = 35,000 RR).
The total social deduction (42,000 RR + 48,000 RR) is less than the 120,000 RR limit
therefore 90,000 RR can be deducted.
10,000 RR spent on the childs education may be deducted in full.
Karinas total deductions are: 35,000 + 90,000 + 10,000 = 135,000 RR
Her PIT liability is calculated as:
(560,000 RR 35%) + ((140,000 135,000) 13%) = Total 196,650 RR
Example 5
Sergei has incurred the following expenses in 2011:
(1)

(2)
(3)
(4)
(5)
(6)

Payment of 12,000 RR for his mothers medical treatment in Kiev Medical


Academy and payment for expensive surgery in Moscow state clinic
amounting to 55,000 RR. Assume that this type of surgery is included the list
of expensive treatment approved by the Government of RF.
Payment of 14,000 RR for his wifes plastic surgery in Moscow Institute of
Beauty;
Payment of 40,000 RR for his sons education in a university (Sergeis wife
has contributed another 20,000 and claimed it in her PIT declaration);
Payment of 68,000 for his own training at evening accounting courses at the
Moscow State University;
Payment of 55,000 RR to non-state pension security fund for his fathers
pension insurance.
Charitable contribution of 30,000 RR in cash to Moscow children music
school.

Sergei is a Russian tax resident. His gross taxable income in 2011 was 250,000 RR.
Required:
Calculate social deductions potentially available to Sergei in the given circumstances.
Explain how the deductions should be claimed.

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Solution
RR
(1)
(2)
(3)
(4)
&
(5)
(6)

3.3

Property deductions (art.220)

3.3.1

Sale of personal property

Gains arising on the sale of personal property are treated as taxable income
and included in the PIT calculation.

Property deductions are allowed to taxpayers on the sale of personal property.


The amount of the deduction depends on property type and length of ownership.

If a taxpayer sells the property which he owns for 3 years or more then the property
deduction is given in the amount equal to the selling price (i.e. no taxable gain arises).

A maximum 1,000,000 RR deduction is allowed for the following property if


it stayed in the taxpayers ownership for less than 3 years:

residential houses;
apartments;
summerhouses;
plots of land.

Income from sale of other property, if it stayed in the taxpayers ownership


for less than 3 years, may be decreased by up to 250,000 RR.

If several individuals jointly own property, the property deduction is allocated


between the owners according to their ownership share percentages (or in accordance
with the relevant agreement between the individuals, if the shares are not defined).

No property deduction is given to individual entrepreneurs upon sale of property used


for business purposes. The taxable amount on such disposals is calculated as the
difference between the selling price and net book value of the property in question.

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The taxpayer may substitute the property deduction for the actual
expenses related to this income (including property acquisition cost).
In accordance with art. 228.2, no tax is withheld by the entity acquiring an
individuals property, however, such an entity (or a registrar of the sale) must
submit to tax authorities the data on the income paid. The tax obligations are
determined upon submission of the tax declaration.

Income on property disposals is taxed at 13%.

In the event of sale of any taxpayers property he must submit tax return to
the tax authority. The exception to the rule is the sale of property which was
in the taxpayers ownership for not less than three years (see 2.3.4 above).

Example 6
Artem, a Russian tax resident, sold the following property in 2011:
(1)

A summerhouse and plot of land that was in his and his wifes joint
ownership (with equal 50% share of each spouse) from 2009, with an
acquisition price of 1,200,000 RR. The spouses bore the costs of acquisition
in equal amounts. The selling price was 2,500,000 RR.

(2)

A car purchased in 2010 for 300,000 RR. The car was in his individual
ownership (no joint ownership with his wife). The selling price was
200,000 RR.

(3)

A garage (his individual property) purchased in 2007 for 60,000 RR.


The selling price was 150,000 RR.

Required:
(a)

Calculate the taxable gain arising from these transactions. If several options
are available, choose the one which minimises tax liabilities.

(b)

Explain the tax payment procedure.

Solution
(a)(i)

Sale of summerhouse

(a)(ii)

Sale of other property

Special rates apply to the sale of securities (see next session)

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3.3.2

Housing incentive on purchase of residential property

An individual may decrease his taxable income subject to 13% rate by the
amount invested in qualifying property but not more than 2,000,000 RR. The
qualifying property includes:

residential houses (or share therein) in RF territory;


apartments (rooms or share therein) in RF territory.
plots of land for individual residential house construction
(individualnoe zhilishcnoe stroitelstvo) and plots of land with
the purchased residential houses (or share therein).

If the acquisition of qualifying property is financed through bank or corporate


loans, taken especially for this purpose the interest paid on such loans is also
taken into account for the purposes of this tax incentive. Such interest is tax
deductible in addition to the deduction allowed in relation to the amounts
paid in acquisition of the relevant property (i.e. the maximum of the incentive
is 2,000,000 RR plus interest on loans taken to finance the acquisition from
Russian entities but not from foreign banks and companies).

Allowable costs in respect of new construction or acquisition of residential


house (or share therein) include expenses incurred for:

development of project documentation;


construction and decoration materials;
construction works and services including decoration;
access to electricity, gas, water, canalization networks;
creating independent sources for water, gas, electricity, etc.

In respect to acquisition of apartment (or shares) allowable costs include:

expenses incurred for acquisition of apartment or rights for


apartment in house under construction;
decoration materials;
decoration works.

In the above cases the contract must contain provision that the apartment
(residential house) is acquired as incomplete residential house or apartment
without specified decoration materials and construction works.

The housing tax incentive is allowed to a taxpayer under two options:


(1)

at taxpayers written request supported by appropriate documents


confirming property acquisition and related payments. This request
and supporting documents are submitted to the tax authorities along
with the annual tax declaration.

(2)

if a taxpayer does not want to wait until the declaration submission


date he can ask his employer to give him this incentive. However
before this request is submitted to employer, the taxpayer should
obtain a written consent from tax authorities. That is, a taxpayer
should first provide all documents to his tax inspectorate, which
makes a decision on the incentive within 30 days and then issues a
written confirmation (or decline) to the taxpayer. Only when this
confirmation is presented by the taxpayer to his employer can the
latter grant an incentive to the taxpayer.

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If a taxpayer claims an incentive with his employer (i.e. Option 2) he can still
submit an annual tax declaration and request for incentive to tax authorities if
he has income taxed at 13% other than employment income and he wishes to
obtain a tax refund on this other income.

If several individuals purchase qualifying property, the incentive is


prorated between them according to their ownership shares.

No incentive is allowed if the purchase deal took place between related


parties (e.g. close relatives).

Any unused incentive amount is carried forward to future years until it


is fully utilised.

The housing incentive is allowed for one acquisition of qualifying property


only. Any property acquisitions in subsequent years will not be subject to the
housing incentive (i.e. this tax benefit is available once in a lifetime).

Illustration 6
In 2011 Stanislav had a taxable income (before housing incentive after allowable
deductions) of 800,000 RR out of which 500,000 RR were subject to 13% rate and
300,000 RR to 35% rate. In 2011 he bought an apartment in his own name for
2,200,000 RR. He has never claimed the housing incentive before.
The property deduction for 2011 will be limited to 500,000 RR (i.e. amount of income
taxed at 13%) with the remaining 1,500,000 to be carried forward to subsequent years.
Ignoring standard deductions Stanislavs PIT liability for 2011 is 105,000 RR (300,000
35%).

Example 7
Pavel and Elena, who are both Russian tax residents, have purchased an apartment in
2011 for 900,000 RR. They have equal ownership shares in this property (i.e. 50%
each).
Pavel has paid 450,000 RR out of his savings, while Elenas share was wholly paid
with a bank loan. In 2011 Elena repaid 50,000 RR of the loan principal and 36,000 RR
of interest on the loan.
Pavels income subject to tax at 13% rate was 240,000 RR; he also had income of
60,000 taxed at 35% rate.
Elenas income in 2011 subject to 13% rate was 120,000 RR. She had no other income
in 2011.
Required:
(a)

Calculate housing tax incentive available to Pavel and Elena in 2011 and
amounts to be carried forward to future years.

(b)

Explain the tax refund procedure.

Assume that neither Pavel nor Elena applied for housing incentive in the past. Ignore
standard deductions.

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Solution
(a)

Housing incentive:

Pavel: Available for 2011

Carry forward:

Elena: Available for 2011

Carry forward:

(b)

3.4

Professional deductions

3.4.1

On business income (art. 221 item 1)

Business income includes the business income of:

registered individual entrepreneurs;


private notaries and of other individuals engaged in private practice
in accordance with the law.

The taxable base in relation to business income may be decreased by:

allowable expenses; or
professional business deduction.

Business losses cannot be carried forward and utilized in future years.

Allowable deductions from business income include:

expenses incurred in generating this income and documentary


proven (only expenses deductible for profits tax purposes are taken
into account, including depreciation allowances); or

a fixed professional deduction amounting to 20% of the gross


business revenue (this deduction is not available to unregistered
entrepreneurs).

If the total amount of tax deductions is more than income in a tax period, the
tax base is zero. The difference between income and expenses (i.e. loss) is
not carried forward to later years (art. 210).

These two types of allowable deductions cannot be used simultaneously.

Social insurance contributions (SIC) accrued by an individual entrepreneur


cannot decrease his taxable income if a fixed professional deduction is chosen.

Professional deduction is applicable only to the ordinary income taxed at 13%.

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Example 8
Igor is a licensed auditor, registered as an individual entrepreneur. Igors gross
business income in 2011 equals 480,000 RR. Igors business expenses (supported by
necessary documents) were 34,000 RR. In addition to these expenses Igor paid SIC in
amount 95,865 RR. Igor is a Russian tax resident.
Required:
Calculate Igors individual income tax obligations based on:
(a)
(b)

actual expenses;
standard professional deduction.

Ignore standard personal deduction and VAT.


Solution
(a)

Income tax based on actual expenses


RR
Gross business income
Business expenses (supported by documents)

SIC

_______

Taxable income

_______

Tax at 13%

(b)

_______

_______

Tax based on standard professional deduction


RR
Gross business income
Standard deduction

_______

Taxable income

_______

Tax at 13%

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3.4.2

On income from intellectual property (art. 221 item 3)

Income from intellectual property includes:

copyright fees;
income from creation, performance and other usage of works of art,
literature and science;
income from inventions, etc.

Allowable professional deductions are:


(1)
(2)

actually incurred expenses (confirmed by appropriate documentation); or


fixed professional deductions (from 20% to 40% of the amount of income
depending on the nature of income). Deduction rates will be provided
in the examination. These two options cannot be used simultaneously.

Professional deductions are allowed to a taxpayer under his written request


by the tax agent (i.e. the entity that makes the payment).

In case when a taxpayer is not able to get the professional deduction from his
tax agent (e.g. income is received from source abroad) then the deduction is
given to a taxpayer by tax authorities (in this case the request for deductions
is submitted along with the tax declaration).

Example 9
A pop star Anna has concluded a CD recording contract with IBF records. At
Annas written request IBF Records has allowed Anna a 20% professional deduction
on the income from CD recordings. Anna is Russian tax resident.
The net amount received by Anna from IBF Records for 2011 work was 120,000
RR.
Required:
Calculate the professional deduction allowed to Anna and the tax withheld by
IBF Records.
Solution
RR
Gross income
Taxable income
Tax at 13%
Annas net income

120,000

Solving for:
Gross income
Professional deduction
Tax withheld

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FOCUS
You should now be able to:

describe the scope of individual income tax;

define residents and non-residents for individual income tax purposes;

recognise the income that is exempt from individual income tax;

compute the taxable income from employment;

explain how income in kind and material benefits are valued and calculate relevant amounts;

explain the timing of income recognition on salaries accrued, but not paid in a calendar year;

compute the exempt and taxable amounts of medical expenses paid by an employer;

compute the business income of an individual entrepreneur;

recognise the expenditure that is deductible (including depreciation allowances);

compute the amount of professional deductions available (norms will be provided);

explain the treatment of losses incurred by an individual entrepreneur;

prepare a basic individual income tax computation;

apply the correct rates of tax to the different types of income;

compute the standard and child deductions;

explain and apply the principal social deductions, charity, education and medical
(norms will be provided);

explain and apply the principal rules of deduction on the sale of residential property;

explain and apply the principal rules of deduction on the purchase of residential
property, land, including for mortgage interest and other acquisition related
confirmed expenses (housing incentive).

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EXAMPLE SOLUTIONS
Solution 1
13%

35%

Salary
Birthday gift (this is not an advertising gift)
Casino winning
Gain on property sale
Taxable property insurance income
(this is not a life insurance)

Taxable interest on bank deposit


Advertising prize
Imputed interest on loans (with the exception of
mortgage loan used to buy residential property
qualified for property incentive)
Imputed interest on loan to buy a car

9% Dividends
Solution 2
Medical insurance contributions made on behalf of Kiril are not subject to PIT.
Pension contributions on Kirils behalf to the non-state pension fund on this type of
agreement are non-taxable. However pension payments received later will be taxable.
The value of meal tickets for free meals at the companys cafeteria is fully taxable.
Paid vacation in Turkey is fully taxable.
Companys mobile phone is not taxable if used for business purposes.
Companys car is not taxable if used for business purposes.
Solution 3
Taxable income includes:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.

RR
Salary
180,000
Annual performance bonus
(which is recognised when accrued, i.e. in 2011)
30,000
Financial assistance (taxed in excess of 4,000) (10,000 4,000)
6,000
Birthday gift (taxed in excess of 4,000) (7,000 4,000)
3,000
Payment for business training (exempt)
0
Payment for secondary education at Moscow State University (exempt)
0
Reimbursement of business travel expense:
within the norms (all exempt)
0
above the norms
3,500
Free lunches (fully taxed as it is not listed among exempt items)
60,000
Payment for vacation in Egypt
(fully taxed as it is not listed among exempt items)
45,000
Payment for convalescence in a sanatorium in Moscow area resort
(all exempt)
0
Payment for medical operation on employees son
(all exempt)
0
Payment under non- state pension security
0
Compensation payment required under Russian Law (all exempt)
0
Cost of working uniform (uniform is not required by law)
20,000
______

Total taxable income

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Solution 4
In February Andreis income exceeds 40,000 RR and he loses the right to use standard
personal deduction.
In October Andreis income exceeds 280,000 RR and he loses the right to use children
deduction.
RR
RR
Gross income (30,000 12)
360,000
Standard personal deduction for January (400 1)
400
Children deduction for January September
(1,000 9)
9,000
_____
(9,400)
______
Net taxable income

350,600
______

Tax at 13%

45,578
______

Solution 5
RR
55,000

(1)

The cost of medical treatment outside Russia (in Kiev) is not


deductible. But the payment of expensive surgery for his mother in
Moscow is wholly deductible.

(2)

Plastic surgery is not included in the list of qualifying treatment.

(3)

Sergei may claim 40,000 RR on his sons education. However,


because his wife has claimed 20,000, his share in his sons
educational deduction is limited to 30,000 (50,000 20,000).

30,000

(4)

In addition to (3) Sergei may claim his own educational deduction


and deduction on payments to non-state pension security funding up
to 120,000 RR in aggregate. As his educational and pension
deductions exceed this amount (68,000+55,000 > 120,000) Sergei
should choose what deduction and in what amount he would claim.

120,000

Charitable deduction is limited to 25% of gross income taxed at 13%


(62,500 RR), so Sergei can claim his charitable deduction in full.

30,000

&
(5)
(6)

All social deductions will apply to Sergeis income taxed at 13% rate.
Social deductions will be allowed to Sergei at his written request upon submission of the annual
tax declaration. Any unused social deductions cannot be carried forward to future years.

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Solution 6
(a)(i)

Sale of summerhouse

Artem should not use a standard amount of property deduction (i.e. 500,000 RR or 50%
of 1,000,000 RR). He should use actual acquisition costs instead, i.e. 600,000 RR
(50% of 1,200,000 RR).
The taxable gain on the sale is 650,000 RR (2,500,000/2 600,000)
(a)(ii)

Sale of other property

No tax arises from the sale of the garage, which was owned by Artem for more than 3
years. There is also no tax on car sale if Artem proves the purchase price of 300,000 RR.
(b)

Tax payment procedure

The tax on the sale of the summerhouse will be calculated by Artem himself and
reported in his annual tax declaration for 2011 submitted by 30 April next year. The
tax due should be paid by 15 July 2012.
Solution 7
(a)

The maximum incentive amount is 2,000,000 RR. However the actual purchase cost
is only 900,000 RR and this amount is taken as available incentive. It is split evenly
between Pavel and Elena (i.e. 450,000 RR is available to each person).
Pavels housing incentive for 2011 is restricted to 240,000 RR. 210,000 RR of the
unused incentive is carried forward to be utilised in future years.
Maximum available housing incentive for Elena in 2011 is 486,000 RR (450,000 +
36,000). The Tax Code does not specify that for applying the incentive, the loan
principle must be repaid. Because Elenas income taxable at 13% is only 120,000
RR she will have an unused portion of incentive (486,000 120,000 = 366,000 RR)
to be carried forward to future years.

(b)

The tax incentive will be allowed to Pavel and Elena at their written request supported
by appropriate documents confirming property acquisition and related payments. This
request and documents are to be submitted along with the annual tax declaration for
2011. Alternatively they can ask their employers to provide this incentive to them.
However a written permission for this should be obtained from tax authorities first.

Solution 8
(a)

Income tax based on actual expenses


Gross business income
Business expenses (supported by documents)

RR
480,000
(33,400)
______

SIC

446,000
(95,865)
______

Taxable income

350,135
______

Tax at 13%

45,518
______

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(b)

Tax based on standard professional deduction


Gross business income
Standard deduction (480,000 20%)

RR
480,000
(96,000)
______

Taxable income

384,000
______

Tax at 13%

49,920
______

Solution 9
RR
x

Gross income
Taxable income (x 0.2x)

0.8x

Tax at 13%

(0.8x 0.13)

Annas net income (x (0.8x 0.13))

120,000

Solving for: 120,000 = x 0.104x = 0.896x


Gross income, x = 120,000/0.896

133,929

Professional deduction (0.2 133,929)

26,786

Tax (0.8 133,929 0.13)

13,929

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PERSONAL INCOME TAX SCOPE, COMPUTATION AND DEDUCTIONS

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PERSONAL INCOME TAX SPECIAL RATES AND RULES

OVERVIEW
Objectives
To calculate the exempt and taxable amounts of dividends and other income
and re-imbursements.

INTEREST

SPECIAL
RATES AND
RULES

GIFTS, PRIZES
AND AWARDS

BUSINESS
EXPENSES REIMBURSEMENT

Gifts from individuals to


individuals
Sports prizes and awards
Lottery, totalizator and other
games based on risk
Other gifts

INSURANCE
INCOME

Interest on bank
deposits
Imputed interest
Comparison

INCOME FROM
INVESTMENTS

General
Life insurance
Property insurance
Pension insurance

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Business trips outside
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Sale of securities

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PERSONAL INCOME TAX SPECIAL RATES AND RULES

INTEREST

1.1

Interest on bank deposits (art. 214.2, 217 item 27)

Interest on bank deposits is not taxable unless it exceeds Central Bank refinancing
(CBR) rate plus 5% effective during the deposit term (for rouble deposits), or 9%
for deposits in foreign currency.

The interest on rouble bank deposits exceeding the CBR rate plus 5% could
be exempt under the following three conditions:

(1)

the interest rate on rouble deposits did not exceed CBR rate plus 5% on
the date of conclusion (or prolongation) of the agreement; and

(2)

the initial interest rate was not increased during the period of
deposit agreement; and

(3)

not more than three years have passed since the rate on deposit
exceeded the CBR rate plus 5%.

All interest calculations must be based on precise (not rounded) numbers of


days in the deposit period, which then should be divided by the number of
days in the calendar year. The first day is not counted the last one is.

Illustration 1
A deposit is opened on 1 January 2011 and paid back on 1 March 2011. The deposit
period is January 2 March 1 inclusive. Interest calculation must be based on 59 days
(30 + 28 + 1) divided by 365.

Changes in the CBR rate, which may happen during the deposit term, are
taken into account when calculating the taxable portion of interest.

The excess amount is taxable at the 35% rate (for Russian Federation residents).

Interest is recognised when paid, i.e. if no interest is paid in the calendar


year no taxable income is recognised.

The bank making the payment should withhold the tax at the moment of
interest payment and remit it to the budget not later than on the next day.

Interest on so called pension deposits with a term of less than 6 months are not examinable.

Example 1
Olga made a 100,000 RR bank deposit on 1 February 2011 at 36% p.a. Both the
deposit and interest on it were paid in cash on September 30, 2011. CBR rates
(assumed):
1 January 30 June, 2011
1 July 30 September, 2011

25%
20%

Required:
Calculate the amount of tax withheld by the bank on the interest income.

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PERSONAL INCOME TAX SPECIAL RATES AND RULES

Solution
RR

RR

Gross interest accrued


Exempt interest amounts:
______
Total exempt

______

Taxable amount

______

Tax at 35%

______

1.2

Imputed interest (art. 212)

If an individual receives a corporate (i.e. non-bank) loan at a zero rate (or at a


very low interest rate) there is a benefit. The benefit is assessed on imputed
interest and is subject to PIT.

Taxable imputed interest income is calculated as follows:


Step 1:

Interest is calculated using 2/3 of the CBR on the interest payment date for loans
in roubles and 9% for loans in foreign currency. The calculation is based on the
number of days of the loan (any rounding is incorrect).

Step 2:

The difference between interest calculated in Step 1 and the actual interest paid
under the loan agreement is calculated. If this amount is positive, it is subject to
tax at 35% for imputed interest on loans taken for any purposes (for Russian
residents). The source of a loan (bank or a company) is irrelevant for tax
purposes. However no imputed interest arises if the loan is taken to finance
residential property acquisition (or construction) which qualifies for property
incentive (art. 220) and the right for the tax relief is confirmed by tax authority.

Imputed interest on loans is calculated on the date when the actual interest
payment is made. If no interest is actually paid in a calendar year, there is no
calculation of imputed interest. If an individual receives a loan at zero rate
imputed interest is calculated on the date of loan repayment.

All interest calculations must be based on precise (not on rounded) number of


days in the loan period, which then should be divided by 365. As before, the
first day is not counted while the last one is.

If a loan is given in several instalments, each instalment is treated as a separate loan.

No imputed interest arises in the following two cases:


(1)

During the grace period for payment on credit cards (art. 212 item
1.1). For example, if a card agreement provides for 30-day interest
free period after the end of each month, then no imputed interest
arises on the debt during these grace days.

(2)

If the loan is taken to finance or refinance residential property acquisition (or


construction) which qualifies for property incentive (art. 220) and the right for
the tax relief is confirmed by tax authority.

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The loan provider is responsible for calculating and withholding tax on imputed interest
from any cash income paid to the taxpayer (art. 212, art. 226). The tax must be paid on
the next day after withholding. If no cash income is paid to the taxpayer (i.e. loan is
provided not by employer but by a bank) then the taxpayer is responsible for paying tax
on the imputed interest through submission of a tax declaration.

Imputed income could arise due to securities and derivatives holdings but this
topic is not examinable.

Example 2
An employee who is a Russian tax resident received a one-year rouble loan of 30,000
RR from his employer on January 5, 2011. The loan was taken to purchase a car. The
interest rate is 1% p.a. Interest is paid on 23 May 2011 and 5 January 2012.
CBR rates (assumed):
1 January 30 June, 2011
1 July 30 September, 2011

25%
20%

Required:
(a)
(b)

Calculate imputed interest on the loan for 2011 and the tax amount.
Explain how and when the tax will be paid.

Solution
(a)
RR
Imputed interest
Actual interest paid

______

Imputed interest income

______

Tax at 35%
(b)

______

Payment mechanism:

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PERSONAL INCOME TAX SPECIAL RATES AND RULES

1.3

Comparison

The following table compares taxation rules for interest on deposits with
imputed interest on loans:
Imputed interest on loans

Interest on bank deposits

Statutory limits

/3 CBR rate
9% currency loans

CBR rate +5%


9% currency deposits

Changes in CBR
rates

Such changes are taken into


consideration. (Rates are taken on
the dates of each interest payment or
on the date of loan return in case of
0% interest rate.)

Such changes are taken into


consideration. (Rates effective
during are the period of interest
accrual are used for calculations.)

Calculation

First day is NOT counted

First day is NOT counted

Tax rate

35% for all loans except mortgage


loans to buy residential property
qualified for housing incentive

35%

Timing of
recognition

When interest is paid by individual

When interest is paid to individual

Withholding

Loan provider acts as a tax agent if


there is cash income payable to
individual from which PIT can be
withheld (e.g. loan is received at
work).

Bank must withhold on the interest


payment date and pay tax to the
budget on the next day.

GIFTS, PRIZES AND AWARDS

Taxation of prizes and gifts depends on their types.

2.1

Gifts from individuals to individuals (art. 217 item 18.1)

Gifts (as well as inheritance) from close relatives are not subject to PIT.

2.2

Sports prizes and awards (art. 217 item 20)

Sports prizes and awards in cash or in-kind are exempt from taxation if they
are received at the following events only:

Olympic games;
official World and European championships;
official Russian Federation championships.

Otherwise, prizes and awards are taxable taking into account the exemption
limit that applies to certain categories of prizes as explained below.

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2.3

Lottery, totalizator and other games based on risk

There is no exemption limit for winnings on lotteries, totalizator and other


games based on risk.

It is important to distinguish the aim of a lottery between games based on the


risk and advertising purposes because of different PIT rates.
(A totalizator is an automated system which runs betting, calculates pay-out
odds, displays them, and produces tickets based on incoming bets.)

2.4

Other gifts (art. 217 item 28)

Items such as the following are exempt in the amount not exceeding 4,000
RR in a tax period (calendar year) for each group (type) of gifts listed:

gifts (prizes, awards) from corporations and individual entrepreneurs;

assistance payments (materialnaja pomosch) to employees;

cost of prescribed medication (prescribed by doctor) purchased for


employees (or their spouses, children and parents);

any prizes and awards, received from competitions, lotteries, games


and other events conducted for advertising purposes.

All types of gifts, prizes and awards listed above (except the last type) are taxed at the
standard rate of 13%. Prizes and awards, received on competitions, games and other
events conducted for advertising purposes are taxed at 35%.

Tax agents generally should withhold tax on the taxable portion of gifts and awards. If
the tax withholding is not possible (no payments in cash) the tax agent must report this to
its local tax authority within one month. This tax authority sends this information to the
tax inspectorate of the taxpayer, which issues a tax notification directly to the taxpayer.

If a taxpayer received several gifts (prizes, awards) of similar type from different
entities, the 4,000 RR exemption is applied for all gifts in each group.

Example 3
Irina Gromova received the following prizes and gifts in 2011:

a TV set valued at 14,000 RR from her employer as a birthday gift (income


tax was withheld from her cash salaries);

a kitchen processor valued at 5,000 RR from a company-client on the


occasion of 8 March holiday;

a 1,000 RR winning from a local radio station for answering correctly three
questions during a quiz on the air;

a car valued at 152,000 RR from a TV company for participation in an


advertising TV show.

Required:
(a)
(b)

Calculate Irinas total income tax amount.


Calculate the portion of tax to be paid by Irina herself.

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Solution
(a)
Gifts subject to

13% rate
RR

35% rate
RR

Total
RR

TV set
Kitchen processor
Winning from radio station
Car

Less: Exempt amount


Taxable
Tax

______

_______

______

_______

______

_______

______

_______

_______

(b)

BUSINESS EXPENSES RE-IMBURSEMENT (ART. 217 ITEM 3)

3.1

General rules

The following business travel expenses reimbursed to employee are not


subject to personal income tax:

per diem allowance (within statutory norms 700 RR in Russia,


2,500 RR for outside Russia business trips);
travel costs (including taxi to and from airport/railway station);
airport fees and commission charges;
accommodation expenses (hotel);
business communication expenses.

All costs (except per diem allowances) must be supported by appropriate


documents. In the absence of such documents the amounts will be fully
taxable with the exception of accommodation expenses, which will be taxable
in the part exceeding statutory limits.

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3.2

Business trips outside Russia

For business trips outside of Russia, the following special rules should be considered:

the statutory norm for travel in a foreign country applies from the date of
crossing the border to this country from Russia;

Russian statutory norms apply from the date when the border of a foreign
country to Russia is crossed;

if an employee travels from one country to another within one day, the
statutory norms of the last country visited on that day apply.

Example 4
Mikhail went on a business trip to Germany and France in June 2011. He flew to
Berlin on June 5th. Two days later on June 7th he flew to Paris where he stayed until
June 11th. He arrived in Moscow on June 11th in the evening.
Statutory per diem rates are:
Outside Russia: 2,500 per day; Russia: 700 RR per day.
Required:
Calculate Mikhails total statutory per diem allowance.
Solution
RR
Allowance for outside Russia
Allowance for Russia

______

Total statutory allowance

______

INSURANCE INCOME (ART. 213)

4.1

General

Insurance pay-outs are not taxable if they are received by individuals in relation to:

obligatory insurance effected in accordance with the law;


insurance against harm to life and health (e.g. reimbursement of medical costs).

In particular, receipts under long-term (more than five years) life insurance policies
are not taxable.

4.2

Life insurance (art. 213 item 1.2)

For receipts under short-term life insurance agreements the taxable amount is
the difference between:

total insurance pay-out received; and


total contributions made by an individual increased by the average CBR
rate as at the date of the conclusion of the agreement.

The tax is withheld at source at 13% rate.

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4.3

Property insurance (art. 213 item 4)

The tax rules depend on whether property was fully destroyed or damaged.

4.3.1

Destruction of property

The taxable amount is the difference between the insurance compensation


received and the destroyed property market value increased by the amount of
insurance contributions.

4.3.2

Property damage

The taxable amount is the difference between insurance compensation


received and expenses required for the property repair (actual repair
expenses) increased by the insurance contributions.

The actual or estimated amount of repair expenses must be confirmed by


appropriate documentation. The estimated expense amount is confirmed
either by the insurance company or by an independent appraiser.

Example 5
Andreis car was damaged in a street accident. Andrei had an insurance protection up
to 50,000 RR (fair market value of the car at the date of signing the insurance contract).
Andreis insurance contributions were 7,000 RR. Actual repair expenses were 35,000
RR. Insurance company paid 45,000 RR to Andrei.
Required:
(a)

Calculate tax (if any) on this transaction.

(b)

Explain how the taxable base would be calculated if the car were completely
destroyed.

Solution
(a)

RR
Received from insurance company
Insurance contributions paid

______

Repair cost

______

Taxable amount

______

(b)

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4.4

Non-state pension security and obligatory pension insurance (art. 213.1)

The amounts of pension insurance contributions paid to RF licensed nonstate pension funds generally are not taxable, and are subject to:

social deduction (if made by an individual); or


CPT reduction (if made by employer).

Amounts of pension benefits are included in the PIT base at the time of their
receipt according to the agreements concluded with the RF licensed non-state
pension fund and the individual or employer.

Pension income can be PIT exempt only if an individual paid contributions to


the non-state pension fund himself (for himself).

Redemption amounts (surrender values) received in case of early termination


of agreement are also subject to PIT. Such sums are exempt only to the
extent of contributions by the individual for himself if he did not receive
relevant social deduction. (The tax authority must submit a confirmation to
the non-state pension fund.)

The tax is withheld at source at 13% rate.

INCOME FROM INVESTMENTS

5.1

Dividend income (art. 214)

Dividends are taxed at the rate of 9%.

Taxation of dividends from Russian sources only is examinable.

A Russian legal entity a dividend payer, acts as a tax agent (i.e. withholds
and remits PIT to the budget).

When making calculation of dividend amount subject to withholding tax, tax agent takes all
dividends subject to distribution and deducts the amount of dividends received by the tax agent
itself in the reporting tax period or preceding period (if they were not counted for in the
preceding period). The remaining portion is subject to tax withholding. The same rules apply
to CPT withholding on dividends payable to Russian legal entities (see Session 4 section 4).
Example 6
In December 2011 Pavel received dividends from AO XYZ. He holds 400 shares out
of 2,000 shares placed with shareholders. AO XYZ distributed all after tax profits
for 2011. Its taxable profits amounted to 20 mln. RR and it paid profits tax at 20% rate.
In July 2011 AO XYZ received dividends for 2010 from its daughter company
amounting to 4 mln. RR.
Required:
Calculate personal income tax on Pavels dividend income.

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Solution
RR 000
Taxable profits
Company profits tax @ 20%

_______

Profits for distribution (= total dividends)


Less: Dividends received by XYZ

_______

Dividends subject to withholding tax

_______

Pavels share in total dividends


Personal income tax on Pavels dividends:
5.2

Sale of securities (art. 214.1, 220.1)

5.2.1

Rules for calculation of taxable amount

In general, taxable income on sale of securities arises as a difference between their


selling price (or the market price for exchange, conversion or redemption) and
purchase cost (including purchase price and all purchase-related expenses).

Standard property deduction of 250,000 RR per year is not applicable to securities


sales from 2007, nor does the three-year holding period on property sales apply.

The following items are specifically mentioned by Tax Code (art. 214.1) as deductions
on sales of securities (they should be actually incurred and have documentary support):

purchase price of securities (using FIFO method only);


payments for services provided by depositary management companies;
commissions paid to security brokers and mutual funds;
registration fees and stock exchange fees;
bonuses and rebates paid to the investment funds management company;
taxes paid by taxpayer in relation to securities received as a gift or
inheritance and their costs which were paid by grantor;
other expenses directly related to purchases of securities.

In addition to the above mentioned deductions, the taxpayer has a right to deduct the
interest actually paid on loans taken to finance securities acquisitions. Deductible interest
may not exceed the interest calculated using the CBR rate effective through the loan period
multiplied by 1.1 for rouble loans and 9% rate on currency loans.

The loss from sale of listed securities is determined by considering the limitation of the
market price of the security (for 2011 year limited deviation is 20%) The market price
is defined as a weighted average price of the security traded on the stock exchange.

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Illustration 2
In March 2011 Andrei, a Russian tax resident, purchased 100 shares of a bank VTB
24 for 3,000 RR each. The agents commission on purchase was 20,000 RR.
To finance the purchase Andrei raised a 5-year loan from the bank of 100,000 RR,
which was received on the 28th February 2011. Interest rate is fixed at 25% p.a.
Interest was paid on a monthly basis on the last day of each month.
The CBR rate was 25% during January-June 2011, 20% during July-September 2011
and 10% during October-December 2011.
As at 15 December 2011 these shares were traded on the stock exchange at an average
price of 3,600 RR each.
Option 1: Andrei keeps the securities and does not sell them.
No taxable income and PIT arise in this case.
Option 2: As at 15 December 2011 Andrei sells 100% of the securities:
(1)
(2)

for their market price;


for 2,500 RR.

The agents commission on sale is 8,000 RR in each case.


The taxable gain is calculated as follows (in RR):
(1)

(2)

Selling price
(100 shares 3,600)
Purchase cost (100 shares 3,000)
Agents commission on purchase
Agents commission on sale
Bank interest

360,000
(300,000)
(20,000)
(8,000)
(16,191) (Note 1)
______

Taxable gain

15,809
______

PIT

2,055
______

Selling price
(100 shares 2,880)
Purchase cost (100 shares 3,000)
Agents commission on purchase
Agents commission on sale
Bank interest

288,000 (Note 2)
(300,000)
(20,000)
(8,000)
(16,191) (Note 1)
______

Taxable loss

(56,191)
______

PIT

0
______

Note 1
Bank interest in March-June is within CBR rate so the actual bank loan interest is
used: 100,000 25% 122/365 = 8,356
Interest within period July-December 15 exceeds 1.1 CBR rate therefore 1.1 CBR
rate is used: (100,000 22% 92/365) + (100,000 11% 76/365) = 7,835
Interest is calculated for the period March-December 15. Interest for December is
deductible up to 15th of December.
Note 2
20% limit of deviation from market price (3,600 RR) is 20% 3,600 RR = 720 RR.
The lowest price that can be taken into consideration for PIT calculation is 2,880RR
(2,500 < 2,880)

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Taxable gains for the following groups of securities are examinable:


(1)
(2)
(3)

shares listed on the securities market (listed securities);


shares not listed on the securities market (unlisted securities);
investments (equity participation) in mutual (unit) investment funds (PIFs).

Note that a loss received from one of these groups cannot decrease taxable
profit in another (i.e. no netting of results between the different groups is
allowed). However, offset is permitted within a single group.

Losses arising from the disposal of listed securities only can be carried
forward and utilised over 10 subsequent years. They can decrease taxable
profit within the listed securities group only.

Illustration 3
If listed securities were sold at a loss of 50,000 RR and unlisted with a gain of 30,000,
the overall result for tax will be taxable income of 30,000 RR. Loss on sale of listed
securities cannot be netted off against a gain on unlisted, but it can be carried forward
to the next years.
5.2.1

Rules for tax withholdings and payments

Withholding and payment mechanism depends on the way the operation with
securities is structured:
(1)

If a taxpayer sells securities on his own name (e.g. a taxpayer sold his
own securities to a company with a taxable gain). He should calculate
taxable income himself and declare it in his tax declaration.

(2)

If a taxpayer conducts his operations through an agent (or mutual fund) the agent
acts as a tax agent and calculates and withholds tax on the taxpayers income.
The withheld tax should be paid to the budget during the month following the
date of tax period end or the date of the payment to the taxpayer.

Timing of tax withholding depends on the circumstances as shown in Illustration 4:

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Illustration 4
Situation 1:
In January Gosha contributed 100,000 RR to a mutual fund. The mutual fund invested
this amount into the purchase of listed securities with 1,000 RR commission. These
securities were then sold for 122,000 RR with 1,500 RR commission. The mutual fund
fee for investment management is 3,000 RR.
As at 31 December Gosha still keeps all his money in the mutual fund.
Mutual fund should calculate Goshas income and withheld PIT on it (in RR):
Revenue
Commission on purchase
Cost of securities
Commission on sale
Management fee

122,000
(1,000)
(99,000)
(1,500)
(3,000)
______

Taxable income

17,500
______

PIT at 13%

2,275

Situation 2:
Gosha takes back 50,000 RR (gross) in October and continues to keep the remaining
amount. (Assume that the income of 17,500 was already realized by October.)
Taxable income is determined as:
Gross income received investment taken back/total investment as on withholding date.
In this case (in RR):
Gross income before tax
Gross investment taken back (before PIT withholding)
Total investment as at withholding date
(current market value of investment)
Taxable income is (17,500 50,000/117,500)

17,500
50,000
117,500
7,447

PIT to be withheld at 13%

968

On December 31 mutual fund will also calculate PIT on any other income which may
be received on the remaining amount in November and December.

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FOCUS
You should now be able to compute:

the exempt and taxable amounts of interest on bank deposits;

the imputed income arising from low interest loans;

compute** the imputed income arising from interest savings on (1) mortgage
loans received and (2) new bank loans provided for acquisition or new
construction of residential property, acquisition of plots of land or acquisition
of shares in the above property;

the exempt and taxable amounts of gifts prizes and awards, distinguishing
between different types of gifts and prizes;

compute the tax on income from lotteries and advertising campaigns;

the taxable amounts of business trip expenses (statutory limits will be provided);

the exempt and taxable amounts of life insurance payments;

the taxable amounts of property insurance reimbursements;

compute the exempt and taxable amounts under agreements for non-state pension security or
obligatory pension insurance concluded with non-state pension funds (Article 213.1);

the tax payable on dividend income, considering the provisions of item 2 of


Article 214;

other property deductions, including deductions on transactions in securities;

the tax payable on income from the sale of listed and unlisted securities based
on the provisions of Article 214 (1);

the tax payable on income from investment funds (PIFs).

** The examiners use of the verb compute is a little strange here. Note in section 1.2 that no
imputed interest arises in these cases (but only if there is a tax authority confirmation).

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EXAMPLE SOLUTIONS
Solution 1
Gross interest accrued (100,000 36%
Exempt interest amount:
100,000 (25% + 5%) 149/365
100,000 (20% + 5%) 92/365

241

RR
/365)

RR
23,770

12,247
6,301
_____

Total exempt

18,548
_____

Taxable amount

5,222
_____

Tax at 35%

1,828
_____

On the same date the tax is calculated and withheld by the tax agent (i.e. bank).
This tax should be paid to the budget on the day following the withholding date.
Solution 2
(a)

Imputed interest on loan and tax amount

Calculation of interest using 2/3 of CBR rate is taken on the date of interest payment:
Imputed interest* (30,000 2/3 25% 138/365)
Actual interest paid (30,000 1% 138/365)

RR
1,890
113
_____

Imputed interest income

1,777
_____

Tax at 35%

622
_____

* The CBR rate is taken on the date of interest payment. The total number of days of
the loan is calculated from the second day after the loan receipt and up to (and
including) the payment day.
There is no need to calculate imputed interest for the period 24 May December 31 as
this is done only on the date when interest is paid during the year.
(b)

Payment mechanism

The company acts as a tax agent and calculates and withholds the tax in accordance with the
established procedure from any cash income paid to employee. If no cash income is paid the
company must report to tax inspectorate about its inability to withhold the tax within one
month from the date when imputed interest income is recognized.

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Solution 3
(a)

Total income tax amount


Gifts subject to

13% rate
RR
14,000
5,000
1,000

TV set
Kitchen processor
Winning from radio station
Car

(b)

35% rate
RR

_____

152,000
______

Less: Exempt amount

20,000
(4,000)
_____

152,000
(4,000)
______

Taxable

16,000
_____

148,000
______

Tax

2,080
_____

51,800
______

Total
RR

53,880
______

Portion of tax to be paid by Irina

Income tax was not withheld on gifts in kind (kitchen processor and car). However
both companies must report the gifts made within 1 month after the gift date.
No tax was withheld by the radio station due to the 4,000 RR exemption.
Tax of 1,300 RR was withheld on TV set (14,000 4,000) 13%
Therefore, Irina is liable to tax of 52,580 RR (53,880 1,300)
Solution 4
Allowance for outside Russia (2,500 6 days*)
Allowance for Russia (700 RR 1 day)

RR
15,000
700
_____

Total statutory allowance

15,700
_____

* The day of departure and arrival are considered as 1 day.

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Solution 5
(a)

Andreis car was partially damaged. The tax consequences are as follows:
RR
45,000
(7,000)
_____

Received from insurance company


Insurance contributions paid

38,000
(35,000)
_____

Repair cost
Taxable amount
(b)

3,000
_____

In case of complete destruction no tax obligation arises as the fair market value at
the date of signing of the agreement (50,000 RR) exceeds the amount received.

Solution 6
RR 000
20,000
(4,000)
_____

Taxable profits
Company profits tax @ 20%
Profits for distribution (= total dividends)
Less: Dividends received by XYZ

16,000
(4,000)
_____

Dividends subject to withholding tax

12,000
_____

Pavels share in total dividends (400/2,000)


Personal income tax on Pavels dividends:
(12 mln. 20% 9%)

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OVERVIEW
Objectives

To explain the obligations of taxpayers and their agents for individual


income tax.

To set out the comprehensive computation of taxable income and income tax
liability.

TAX
WITHHOLDING
AND PAYMENT

FILING
REQUIREMENTS

Tax declaration
Reporting by tax agents

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Tax agents obligations


Taxpayers payment obligations
Individual entrepreneurs
special payment rules

INCOME TAX
PROFORMA

0701

Key points
Presentation in the examination
Tax proforma

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PERSONAL INCOME TAX OBLIGATIONS

TAX WITHHOLDING AND PAYMENT

The tax must be calculated and paid either by:

a tax agent (from the amounts withheld); or


a taxpayer.

1.1

Tax agents obligations (art. 226)

Tax agents are companies or individual entrepreneurs paying income to


individuals; or as a result of relations with whom the taxpayer has received income.

No tax is withheld in relation to income paid to individual entrepreneurs and


in cases explained later in this session.

Tax agents are required to calculate the tax on a monthly basis cumulatively
from the beginning of the tax period in relation to income taxed at 13% and
separately for each amount taxed at different rates.

The withholding is made from the amount payable at the moment of payment.

If the payment is made in-kind, then:

either the withholding is performed from any cash payments to the


individual (up to 50% of the amount paid in cash); or
the withholding is not performed (if no cash is paid to individual).

The limit of 50% of the total payment amount is NOT applied for the tax
withholding for imputed interests received by bank clients.

If the tax withholding is not possible within the next 12 months the tax agent
must report on this in writing to the tax authorities within one month from the
day the relevant obligations arose.

The tax withheld by the tax agent should be paid to the budget not later than:

the date of the actual receipt of cash in the bank of the taxpayer; or
the date of a wire transfer of income to the individuals bank
account (or to a third partys account at the individuals request);
the day following the actual receipt of cash by the taxpayer in other cases.

Note that although the timing of the payment is related to the receipt of income
by the taxpayer this is inextricably linked to the actions of the tax agent.

If the tax is withheld on income in-kind and on imputed income, this tax shall
be paid on the date following the date of actual tax withholding.

Payment of the PIT out of a tax agents own funds is not permitted.

Payments of PIT are made to the budget at the tax agents location. Tax
agents with employees working in branches also make payment of PIT at the
locations of these branches.

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PERSONAL INCOME TAX OBLIGATIONS

Example 1
Wages and salaries accrued by XYZ Company to its employee for December 2011
were actually paid to his bank account in February 2012.
Required:
(a)
(b)

Explain the impact of the above on the employees income for 2011.
Explain the obligations of XYZ in its capacity as a tax agent.

1.2

Taxpayers payment obligations (art. 228)

An obligation to calculate and pay tax stays with an individual taxpayer in the
cases of income received from:

individuals who are not tax agents (e.g. from rent of apartments to individuals);
sales of personal property (excluding PIT exempt property, see
Session 5 section 2.3);
sources outside Russia (not examinable);
income in-kind (i.e. no tax withheld);
gambling activities and lottery prizes.

Taxpayer has to pay PIT himself in any case if the tax was not withheld by
tax agent.

The tax due in the above cases is calculated based on the tax declaration and
must be paid by 15 July of the year following the reporting calendar year. In
case of PIT overpayment, tax is refunded by the tax authorities within one
month following the date of submission the request for such a refund.

Taxpayers receiving a gross amount of income (i.e. without tax withholding)


may be required to make tax payments before submitting the tax declaration.

Illustration 1
A company making a taxable gift in-kind to a taxpayer did not withhold the tax on this
gift but reported the gift to its tax inspectorate. The relevant data was then
sent to the taxpayers inspectorate, which issued a payment order directly to
the taxpayer.
This tax is to be paid in two equal instalments:
(1)
(2)

within 30 days after the payment order was handed over to a taxpayer;
within 30 days after the first payment.

1.3

Individual entrepreneurs special payment rules (art. 227)

Individual entrepreneurs as well as private notaries and other persons


engaged in private practice must make advance payments of the tax. These
payments are made based on estimated income per a preliminary tax
declaration. Advance payments are made based on payment orders issued by
the tax inspectorate.

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1.3.1

Amounts and deadlines

(1)
(2)
(3)
(4)

50% of the estimated annual tax liability by 15 July of the current year;
25% of the estimated annual tax liability by 15 October of the current year;
25% of the estimated annual tax liability by 15 January of the next year.
The final PIT liability is paid by 15 July of the year following the reporting one.

FILING REQUIREMENTS (ART. 227 ITEMS 7-10, 229)

2.1

Tax declaration

The tax declaration must be submitted by:


(1)

individual entrepreneurs, conducting business activities;

(2)

private notaries and other persons engaged in private practice;

(3)

individuals receiving income from non-tax agents or income free of


tax withholdings;

(4)

individuals receiving income from abroad.

Taxpayers included in (1) and (2) above must submit a tax declaration on
their estimated business income. This declaration must be submitted within
1 month and 5 days after the day when such income was first received. The
tax inspectorate issues payment orders based on the preliminary declaration
taking into account all available deductions.

Where there is a large increase/decrease of income compared to the amount


estimated in the first preliminary tax declaration (more than 50%) the
taxpayer must submit a new declaration on estimated income, on the basis of
which the tax inspectorate will recalculate the advance tax payments.

If business activities of an individual entrepreneur terminate before the yearend he has to submit the final tax declaration within 5 days after the date of
the termination of the activities.

The tax declaration may be submitted by individuals to obtain:


(1)

social, property and professional deductions;

(2)

standard deductions and exemptions which were not allowed (and cannot
be provided) by a tax agent at source (e.g. for a one-time payment).

The individuals rights to the deductions should be confirmed by tax authority based
on the tax declaration and documents supporting the related expenses.

Generally the tax declaration on actual income received must be submitted


not later than 30 April of the year following the reporting one.

Any overpaid amount should be transferred from the budget to the


individuals bank account within one month from the date of his written
application being received by the tax authority.

Housing/land tax incentive can also be claimed by the employer (see


Session 5 section 3.3).

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2.2

Reporting by tax agents (art. 230)

Tax agents must keep track of all income paid to individuals in a special tax
card (nalogovaja kartochka).

Tax agents must present to their tax inspectorate cumulative data on income
paid to individuals in a reporting year by April 1 of the next year. The data is
generally presented in an electronic form (unless the number of individuals
who received the payments is less than 10).

No cumulative data is prepared on payments to individual entrepreneurs, who


have presented the documents confirming their status and tax registration.

INCOME TAX PROFORMA

3.1

Key points (art. 210)

The tax base is determined separately for income taxed at different rates.

Deductions and allowances listed in articles 218 221 of the Tax Code apply
only to income taxed at the basic 13% rate.

If the cumulative amount of such deductions exceeds income taxed at 13%,


the excess amount cannot be applied to income taxed at higher rates or
carried forward to future years.

The exception to this rule is that housing incentive on purchase of residential


property can be carried forward to future years.

3.2

Presentation in the examination

3.2.1

Rules

(1)

Show income taxed at different rates separately.

(2)

Show all deductions and allowances separately, do not net them with income
items.

(3)

Always show the details and steps of calculations accurately and neatly.

(4)

It is recommended to start with calculation of different types of income and related


expenses (allowances, deductions) and then to complete the final tax proforma.

(5)

Do not forget to show the PIT withheld by each tax agent to arrive at the final
amount of PIT liability or refund.

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3.3

Tax proforma
Income taxed at 13%
Employment income
Less:
Standard personal deduction
Standard children deduction

X
(X)
(X)

Income from business activities


Less:
Business expenses or
Standard business deduction of 20%

X
(X)

Income from sale of property


Less:
Property deductions

X
(X)

Other income taxed at 13%


Less:
Professional deductions

X
(X)

Total income taxed at 13% before social


deductions and housing allowances

Social deductions:
Medical deduction
Educational deduction
Charitable deduction

(X)
(X)
(X)

Housing incentive

(X)
______

Taxable income subject to 13%

X
______

(I) Tax at 13%

Dividend income

(II) Tax on dividends at 9%

Income taxed at 35%

(III) Tax at 35%

X
______

Total tax liability (I) + (II) + (III)


Less: Tax withheld (including tax on dividends)

X
(X)
______

Additional tax payment/(refund) required

X
______

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FOCUS
You should now be able to:

differentiate between taxpayers and tax agents;

explain the rights and obligations of both taxpayers and their agents;

explain the filing requirements and payment deadlines for employees, employers
(as tax agents), individual entrepreneurs and self-employed persons;

explain the procedure for obtaining deductions and exemptions at source and
upon the year-end tax declaration;

explain the refund procedure and deadlines for individual income tax.

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EXAMPLE SOLUTION
Solution 1
(a)

Impact on employees income

The income date for wages and salaries is the last day of the month when wages and
salaries are accrued. Therefore, regardless of the fact that the payment was made in
February 2012 the employees income for 2011 will include his December salary.
(b)

Obligations as tax agent

As a tax agent, XYZ Company will calculate tax on the December salary in December
2011. At the moment of the salary payment in February 2012 this amount will be
withheld from the salary payment. The tax withheld must be submitted to the budget
on the day XYZ pays the salary into the employees bank account. (If the employee
had been paid in cash the tax withheld would be submitted to budget the following
day.)

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VALUE ADDED TAX COMMON RULES

OVERVIEW
Objectives
To explain the scope of value added tax (VAT) and the computation of VAT
liabilities.

INTRODUCTION

OUTPUT VAT ON
DOMESTIC SALES

Object of taxation
Exempt activities
Tax point
VAT tax base

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Principle
Payers
Tax object
Tax rates
Tax period

INPUT VAT
RECOVERY RULES

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General deduction criteria


Additional requirements
Restriction of input VAT

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VALUE ADDED TAX COMMON RULES

INTRODUCTION

1.1

Principle

The principles of value added tax (or VAT) can be illustrated as follows:

Illustration 1
Company A grows trees, which it sells to Company B for 1,000 RR plus VAT.
Company B cuts the trees and sells the wood to a furniture factory for 3,000 RR plus
VAT. The furniture is sold by the factory to an individual for 8,000 RR plus VAT.
VAT rate on all the above operations is 18%.
The added values for each activity are:
1,000 RR for Company A
2,000 RR for Company B (3,000 1,000)
5,000 RR for the factory (8,000 3,000)
Value added tax = added value VAT rate (18%):
180 RR (1,000 18%) for Company A
360 RR (2,000 18%) for Company B
900 RR (5,000 18%) for the factory
To calculate VAT in such a direct way in practice is very difficult, as the added value
component is not easy to determine.
To simplify things, there are three steps of VAT calculation:
First step. Output VAT is calculated on gross sales:
Output VAT for Company A = 180 (1,000 18%)
Output VAT for Company B = 540 (3,000 18%)
Output VAT for the factory = 1,440 (8,000 18%)
Second step. Input VAT paid to the suppliers of resources is calculated:
Input VAT for Company A = 0 (assuming that trees were free)
Input VAT for Company B = 180 (VAT shown in the invoice from A)
Input VAT for the factory = 540 (VAT shown in the invoice from B)
Third step. Determine the difference between output and input VAT, which is VAT
payable/recoverable.
VAT payable for Company A = 180 (180 output VAT 0 input VAT)
VAT payable for Company B = 360 (540 - 180)
VAT payable for the factory = 900 (1,440 540)
Note that in the end all VAT will be incurred by the individual, who buys the furniture.

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From the above illustration several points arise:

there is a successive value increase chain and the tax paid to the
budget is paid in different stages of this chain;

a taxpayer will almost always have to pay VAT, since it usually


charges its customers more than it pays to its suppliers;

the last consumer of the chain will generally incur the whole burden of
VAT.

VAT formula is presented below:

VAT
payable/recoverable

Output VAT on
sales

Input VAT on
purchases

Example 1
Company A produces and sells goods to company B for 100,000 RR (including VAT).
Company C buys these goods from B for 160,000 RR (including VAT).
VAT is assessed on these activities at the standard rate of 18%.
Required:
Calculate the net VAT liability of B.

This formula looks quite simple; however VAT is not a simple tax at all. There
are quite a lot of rules regulating both output and input VAT calculations. And,
in many cases, there is no or little correlation between output and input VAT
(i.e. quite often these elements do not depend on each other).

1.2

Payers (art. 143)

VAT is paid to budget by:

legal entities;
individual entrepreneurs;
importers of goods (who pay VAT at customs).

Individual entrepreneurs and legal entities are liable to VAT unless their sales for 3
preceding months do not exceed 2 mln. RR (net of VAT). In this case, a VAT relief is
available (art. 145). However, this waiver is excluded from the syllabus.
Branches and independent subdivisions are not separate VAT payers (i.e. all VAT is paid
by the head office without allocation to branches).
Although VAT registration (art. 144) takes place together with the general tax
registration (see Session 12) the topic is excluded from the syllabus.

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1.3

Tax object (art.146)

Tax object of VAT is sale of goods and services (including free provision of goods or
services).
VAT is also assessed on:

self-supply of goods (works, services)*;


self-supplied capital construction (see Session 9);
goods imported to the Russian Federation (see Session 9).

1.4

Tax rates (art.164)

There are three VAT rates: 0%, 10% and 18%.

18% is considered to be the base rate.

10% applies to a limited list of products (mostly to food and childrens items).
The composition of items included in this list is not examinable.

0% rate applies to export of goods, works, services, etc (see Session 9).

Article 164 (item 4) introduces the notion of raschetniye stavki for VAT purposes.
These rates are 18/118 (for supplies taxable at standard rate) and 10/110 (for supplies taxable
at 10% rate). These rates apply, in particular, to:

sales-related items (section 2.4.3); and

sales of assets which were used in VAT exempt activities (i.e. when input VAT
paid on their acquisitions was capitalised) (see Session 9).

If a taxpayer has VATable sales subject to VAT at different rates, the tax base
is determined separately for each type of sale (i.e. for all sales subject to zero
rate, all sales subject to 10% rate and all sales subject to 18% rate).

Some types of operations are VAT exempt.

1.5

Tax period (art. 163)

VAT is calculated on a quarterly basis; the VAT tax period is a quarter. This
tax is not cumulative. The calculation of VAT for the 2nd quarter is based on
VAT on transactions from April to June (not on the period from January to
June). This is very different to and CPT and PIT, which are both calculated on
a cumulative basis.
Thus, to compute VAT for the tax period (quarter) it is necessary to:
(1)

define the tax objects (i.e. all VATable transactions, including free
supplies) and the dates of their realization;

(2)

determine a tax base for each tax object;

(3)

apply a correct tax rate for each tax base (18%; 10% or 0%)

(4)

establish input VAT;

(5)

find the difference between output and input VAT (VAT to pay to the
budget or to reimburse from the budget)

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OUTPUT VAT ON DOMESTIC SALES

2.1

Object of taxation (art. 146)

As was mentioned earlier the principal object of VAT (taxable supply) is the
sale (realizatsija) of goods (works, services).

A free transfer of goods, free works or services constitutes a supply from a


VAT viewpoint (except for free advertising materials with a cost per item of
not more than 100 RR). VAT is paid by the donor. When a company gives
away assets for free it will generally pay VAT on their net book value.

Example 2
Company A made a free transfer to company B of a fixed asset (other than capital
construction object) with a net book value of 10,000 RR.
Company B sold this asset for 6,000 RR (net of VAT).
Required:
Assuming the standard VAT rate calculate VAT liabilities of both companies.
Solution
VAT liability of A:
VAT liability of B:

The main exception to the free transfer rule is the transfer of fixed assets
(intangible assets and other property) to non-commercial organisations for
their main charter activity. Such a transfer is not regarded as a supply for VAT
purposes and thus is not subject to this tax.

VAT is also assessed on:

self-supply of goods (works, services)*;


self-supplied capital construction (see Session 9);
goods imported to the Russian Federation (see Session 9).

Self-supplied goods (work, services) are the goods (work, services) that were
produced and consumed by the company. VAT applies to such self-supplies if
they are not included in deductible expenses (for CPT purposes). For example,
VAT would be assessed on a car manufacturer using its own cars for nonproduction purposes.

The Tax Code contains a list of activities, which are not regarded as supplies.
Many of them relate to the funding activities of the company. For example:

contributions to the charter capital;


withdrawals from the charter capital in the amount not exceeding the
amount of the original contribution;
transfer of assets to the successor of a reorganised company, etc.

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2.2

Exempt activities (art. 149)

Certain types of income are VAT exempt this is not the same as zero-rated (see
Session 9). You are not required to memorise these income types. Whether an
activity is exempt or not will be stated in the examination.

Generally input VAT on resources used for exempt activities is added to the
cost of resources and is not recovered.

If a taxpayer has both VATable and VAT exempt supplies, it must maintain
separate accounting of these activities.

A taxpayer may decline its right to use the exemption in relation to certain VAT
exempt supplies by submitting a special request to its tax inspectorate. In this
case output and input VAT are calculated according to general rules.

If a licence is required for an activity, which is listed as exempt, then the


exemption is granted only if such a licence has been obtained.

If a taxpayer sells exempt goods or provides works (services) through an agent


or a commissioner, usually the agent pays VAT on its commission unless
otherwise provided in the Tax Code.

2.3

Tax point (art. 167) (recognition date)

Since 1 January 2006 only an accruals method is available for VAT calculations.

The meaning of the accruals method for VAT purposes is almost the same as
for CPT. The principal difference is that all advances received are immediately
VATable. (CPT applies to advances received only under the cash method.)

Output VAT is recognized on the earlier of:

shipment date;
payment date.

Special rules apply to timing of VAT recognition on certain transactions (see Session
9) such as:

export;
debt-factoring;
self-supplied construction;
import of goods (excluded from the syllabus).

2.4

VAT tax base (art. 153, 154, 162)

2.4.1

General

All taxpayers income in cash or in-kind, connected with the sale, is subject to
VAT (i.e. included into the VAT base).

The tax base for VAT purposes is determined using the market prices in
accordance with the Tax Code (art. 40).

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2.4.2

Sales performed in foreign currency

For VAT base determination purposes, the revenue received or expenses


incurred in foreign currency are translated into RR, using the Central Bank
exchange rate on:

the VAT recognition date (the earlier of shipment date or payment


date); or
the date when the expense was incurred.

When a purchaser is invoiced in a foreign currency payable in RR at the Central


Bank rate on the day of payment, a sum difference may arise due to exchange
rate differences (between the day of receiving the invoice and the payment date).

Income is increased or decreased to take account of the sum difference. The


sum difference is regarded as income for the seller on the date of settlement of
the receivable for sold goods (works, services), property rights, etc.

An equivalent adjustment arises for the buyer on the date of settlement of the
liability for goods, etc acquired.

Illustration 2:
Company A dispatched goods to Company B on the 7th of March for 11,800 USD
(including VAT 1,800 USD). Payment was received on the 20th of March.
USD rates: 07/03 24.28 RR; 20/03 24.88 RR
07/03 VAT liability of Company A is 43,704 RR (1800 24.28)
20/03 Sum difference definition at the moment of payment receipt:
11,800 (24.88 24.28) = 7,080 RR
20/03 Output VAT additional liability for Company A is 1,080 RR (7,080 18/118).

In the case of advance payment there are two dates of recognition:

the date of payment receipt and


the date of sale/acquisition.

2.4.3

Sales-related items

VAT applies not only to sales revenue but also to the related amounts such as:

advance payments;
interest (discounts) on bonds and promissory notes, received in
payment for goods sold;
interest on commercial credits.

Other types of sales-related payments are not examinable.

VAT applies to the above payments at the rates of 18/118 or 10/110%.

If the main sale is VAT exempt, no VAT is charged on the sales-related amounts.

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2.4.4

Advance payments on domestic sales

Advance payments received for goods (works, services) are subject to VAT
immediately. An exception applies to advances for goods with a production
cycle exceeding 6 months. (Note that for CPT purposes advances received
under accruals method are not taxable.)

When the delivery is made to customer (i.e. a sale takes place) the VAT which
was previously charged on advance is available for recovery.

Illustration 3
In January Company A received an advance of 118,000 RR (including 18,000 RR of
VAT) from Company B. The goods were shipped to B in April. A will show the
following:
1st quarter
Output VAT on advance
VAT payable
2nd quarter
Output VAT on sale
Recovery of VAT on advance
VAT payable

18,000
18,000

18,000
(18,000)
0

2.4.5

Advances for export sales

Advances received for goods, etc to be exported are not subject to VAT.

2.4.6

Interest on commercial loans, promissory notes, bonds

Interest received on commercial loans (i.e. extension of payment terms provided in


the sales agreement) as well as interest on promissory notes and bonds received in
payment for VATable supplies are subject to VAT in the amount exceeding the
interest calculated, using the CBR rate.

The CBR rate for the purposes of calculation of VAT on trade interest is taken
for relevant periods of the commercial credit (promissory note, bond).

Example 3
On April 5, 2011 AO R-trade has received a promissory note (veksel) from ZAO Max
with a nominal value of 1,000,000 bearing interest of 48% p.a. The notes principal and
related interest were paid on September 19, 2011. The note was received as a
consideration for goods sold. The goods were subject to VAT at a standard rate.
Required:
Calculate VAT on interest, assuming that the CBR rates for the first and second halves of
2011 were 25% and 20% respectively.

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Solution
RR
April 6 June 30:
July 1 September 19:
______
Taxable base

______

VAT

______

Calculation of the VAT tax base on certain transactions is explained in Session 9:

sale of assets on which VAT was not reclaimed when purchased;


debt-factoring; and
self-supplied construction;

VAT related to imported goods is excluded from the syllabus.

INPUT VAT RECOVERY RULES

3.1

General deduction criteria (art. 171, 172)

Input VAT is available for recovery on goods, etc if they are used for activities
subject to VAT. No recovery is possible if the companys sales are VAT exempt.

Input VAT incurred on partially deductible expenses (for CPT purposes) is


recovered within statutory norms. Non-recoverable input VAT on such
expenses is charged out of after-tax profits.

Illustration 4
Total expense equals 112,100 RR (including 17,100 of VAT).
Deductible portion of the expense for CPT is 30,000 RR (net of VAT).
VAT is calculated as follows:
30,000/(112,100 17,100) = 31.6%
(i.e. 31.6% of the total expense net of VAT is deductible for CPT).
17,100 31.6% = 5,404 RR VAT available for recovery
Alternatively: (30,000/(112,100 17,100)) 17,100 = 5,400 RR. The difference of 4 RR
is not material.

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The following conditions have to be met to ensure VAT recovery:

goods, etc must be received and booked (reflected) in accounting records


or prepayments made for them;
VAT invoice (original) must be in place;
for prepayment agreements, the terms of prepayment must be
included and the payment order and VAT invoice put in place.

Apart from prepayments and payments at customs (import) there is no


requirement for input VAT to have been paid for the recovery of input VAT.

3.2

Additional requirements

Recovering input VAT paid to the suppliers on fixed or intangible asset


acquisitions is possible only when the assets are booked in the accounts.

3.3

Restriction of input VAT (art. 170)

3.3.1

Major cases for the inclusion of input VAT in expenses

Input VAT is not recoverable but instead should be included in the cost of
purchased goods (materials, services) when such goods (materials, services) are
used for the following operations:

production and sales of exempt goods (work, services);

sales not recognized as on the territory of the Russian Federation;

sales which are not recognised in accordance with art. 146;

acquisition of goods, etc (in particular, fixed assets and intangible


assets) by persons who are not VAT taxpayers or VAT exempt.

In summary, input VAT incurred on the sale of exempt items (art.149) or on


transactions which are not recognized as sales (art.146) must be added to
related expenses/cost of materials.

3.3.2

VAT clawback on materials and fixed assets

Input VAT which was recovered by a tax payer is clawed back in following
cases:

contribution of the property to charter capital (input VAT can be used


by the receiving company);

further use of the property in operations which are not subject to VAT
or are VAT exempt (amount of VAT should be added to the other
expenses).

VAT should be clawed back in full amount or in proportion to the net book value (for
fixed and intangible assets) but disregarding any revaluation.

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Illustration 5
(1)

In 2008 Company A acquired equipment for use in production for 1,180,000


RR (including VAT 180,000 RR). In January 2011 the company decided to
pass the equipment free of charge to the State authority. The accounting net
book value of the equipment at the moment of the delivery is 400,000 RR
Company A should clawback VAT and pay it to the budget in amount of
72,000 RR:
(180,000/1,000,000 400,000)
72,000 RR will be included in other expenses by Company A and decrease the
CPT tax base.

(2)

In January 2011 ZAO RIF purchased some materials for 118,000 RR which it
intended to use in production. VAT was recovered in the full amount in 1st
quarter of 2011. However in April 2011 RIF contributed 50% of the materials
to the charter capital of its subsidiary. VAT of 9,000 RR is subject to claw
back in the 2nd quarter of 2011. This VAT is included in the amount of the
charter contribution.

(3)

Last year (2010) ZAO Star was a regular VAT payer. From January 2011 Star
began to produce VAT exempt products. Last year Star bought a fixed asset for
118,000 RR and recovered 18,000 RR of VAT. The net book value of this
asset as at January 1 this year is 80,000. There will be a claw back of 80,000
18% = 14,400 RR in the 1st quarter of this year. This VAT is deductible for
CPT.

3.3.3

Clawback on immovable property (art. 171)

Claw back on immovable property is based on a 10 year period starting from


the commencement of depreciation.

Illustration 6
In December 2008 ZAO Mulan purchased a building for 23.6 mln. RR (including VAT of 3.6
mln. RR). In January 2011 Mulan started to use simplified system of taxation under which no
VAT is paid. Before this Mulan was a regular VAT payer on all its operations.
Total VAT is first split as 3.6 mln./10 years = 360,000 per year.
No clawback arises in the 2008-2010 as all operations were VATable.
Starting 2011 Mulan will perform 360,000 VAT clawback annually in the 4th quarter (in the last
tax period of each year). This VAT is deductible for CPT (indirect expenses).
If in 2012 Mulan were to become a regular VAT payer again, then there would be no need for
further clawback for 2012 and thereafter.
3.3.4

Partially exempt activities

If purchased goods (services, assets) are used both for production and/or sale of
VATable and VAT exempt goods, the input VAT on such goods is partially
recoverable and partially deductible for CPT purposes.

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The split between recoverable and irrecoverable VAT is defined based on the percentage
of the sales of exempt goods, etc (net of VAT) in the total sales of goods, etc shipped (or
rendered) in the reporting period (net of VAT).

If the share of goods, etc used for production of exempt goods does not exceed 5% of the total
production costs for the given tax periods 100% of input VAT incurred on goods, etc used for both
VATable and exempt operations is available for recovery in these periods. However, VAT directly
related to exempt goods, etc is still not recoverable.
3.3.5

Allocation principles

In order to calculate recoverable input VAT on a mix of VATable and exempt


sales the following allocation principles should be applied:
Step 1:

Determine the proportion of exempt sales to total sales in the


reporting period. Sales are taken net of VAT.

Step 2:

Based on proportion found in Step 1 allocate the cost of goods


(works, services) used for both VATable and exempt operations.

Step 3:

Determine the proportion between cost of goods, etc used for exempt
supplies and total production expenses for the period.
If the ratio is:

Step 4:

equal or less than 5%, all input VAT on is recoverable;


greater than 5%, go to Step 4.

Using the percentage in Step 1 determine input VAT available for recovery.

A taxpayer must maintain separate accounting for input VAT on goods, etc used for both
VATable and VAT exempt operations. In the absence of such accounting all input VAT
mentioned above will be non-recoverable and non-deductible for CPT purposes.

Example 4
AO Eltron produces VATable and VAT exempt goods. Eltron started its operations in
January 2011.
In January it purchased 1,180,000 RR worth of materials (including 180,000 VAT). All
materials were paid and consumed for production by 31 March. 10% of these materials
were used for exempt operations. 5% were used for both VATable and exempt
operations. 85% were used only for VATable operations.
Wages and salaries for the 1st quarter totalled 755,000 RR; related SIC was 195,000 RR.
2% of wages and salaries accrued related to exempt operations; 8% to both VATable
and exempt operations; 90% only to VATable operations.
Sales for the 1st quarter totalled 3 mln. RR (net of VAT) of which 200,000 RR were sales
of VAT exempt goods.
Required:
Calculate the amount of VAT available for recovery and the VAT to be added to the cost
of materials for the 1st quarter of 2011.

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Solution
Step 1:

Step 2:

Step 3:

Step 4:

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FOCUS
You should be able to:

describe the scope of VAT;

identify the VAT rates applicable to different types of activities (detailed


knowledge of the application of the 10% rate is not required);

explain the difference between zero rated and exempt items;

explain how the tax point is determined under the accruals method;

apply VAT exemptions to transactions which are not the object of taxation (art. 146);

explain the consequences of a non-confirmed export and compute the related VAT;

compute the VAT on sales performed in a foreign currency;

explain the timing of sum difference recognition for VAT purposes under the
accruals method;

explain the general deduction criteria for input VAT;

explain and apply specific rules in respect to taxpayers right for early VAT
recovery related to advances paid to suppliers;

state the major cases for the inclusion of input VAT in expenses;

explain the allocation principles for taxable and non-taxable activities;

compute the allocation of input VAT between taxable and non-taxable activities;

compute the claw-back of recovered VAT on property where it is subsequently


used for non-VATable transactions.

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EXAMPLE SOLUTIONS
Solution 1
(160,000 100,000) 18/118 = 9,153 RR
or using the standard method of VAT liability calculation:
Output VAT (160,000 18/118)
Input VAT (100,000 18/118)

24,407
(15,254)
______

VAT to be paid to the budget

9,153
______

Solution 2
VAT liability of A: 10,000 18% = 1,800 RR
VAT liability of B: 6,000 18% = 1,080 RR
Solution 3
Due to the fluctuations of the CBR rate over the note term, the VATable amount is
determined for two periods:
RR
April 6 June 30 (86 days):
(1,000,000 86/365 (48% 25%))
July 1 September 19 (81 days)
(1,000,000 81/365 (48% 20%))

54,192
62,137
______

Taxable base

116,329
______

VAT ( 18/118%)

17,745
______

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Solution 4
Step 1: Determine the proportion between sales of exempt goods (works, services) in the
total sales of goods (works, services) shipped (rendered) in the reporting period.
200,000/3 mln. = 6.7% (rounded up)
Step 2: Allocate resources used for both VATable and exempt operations based on
proportion calculated in Step 1.
Materials used for both VATable and exempt operations:
(1,000,000 5%)
Allocated to exempt activities: (50,000 6.7%)

RR
50,000
(3,350)
______

Allocated to VATable activities: (50,000 93.3%)

46,650
______

Wages and salaries & SIC used for both VATable and exempt operations:
(950,000 RR 8%)
Allocated to exempt activities: (76,000 6.7%)
Allocated to VATable activities: (76,000 93.3%)

76,000
(5,092)
______
70,908
______

Step 3: Determine the proportion between cost of goods (works, services) used for
exempt supplies and total production expenses for the period.
RR
Total costs: (1,000,000 + 755,000 + 195,000)
1,950,000
Materials used for exempt operations:
(1,000,000 10%) + 3,350
103,350
Wages and SIC related to exempt operations:
((755,000 + 195,000) 2%) + 5,092
24,092
______
Total exempt operations

127,442
______

Proportion (127,442/1,950,00)

6.5%
______

The ratio is more than 5%. Prorating of input VAT is therefore necessary.
Step 4: Using the percentage found in Step 1 determine input VAT available for recovery.
VAT on materials to be expensed (i.e. added to the cost of materials):
VAT incurred on materials used for both VATable and exempt goods
(180,000 5%)
VAT to be added to the cost of materials (9,000 6.7%)
First quarter total ((180,000 10%) + 603)

603 RR
18,603 RR

VAT recoverable (180,000 18,603)

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OVERVIEW
Objectives

To explain the computation of VAT liabilities in special cases.

To explain the procedures for VAT payment and reporting.

SPECIAL
CASES

OTHER
ACTIVITIES

EXPORT SALES

VAT zero rate


Output VAT
Export confirmation
package
Confirmation deadline
Timing of input VAT
recovery
Advances for future export

Sales of assets with


capitalized VAT
Factoring operations
Commission income
Self-supplied construction

VAT PAYMENT
AND REPORTING

VAT invoice (schet-factura)


Commission operations
VAT declaration forms
Due dates
Recovery procedure

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EXPORT SALES

1.1

VAT zero rate (art. 164, 165, 167, 176)

Goods (works, services), that are subject to 0% VAT rate, include:

goods exported outside of the Russian Federation territory. (These


goods must leave Russian Federation territory and a set of documents
(prescribed by art. 165) presented to a tax inspectorate);

works (services) related to production and sales of exported goods,


such as transportation and loading of exported goods. (A list of the
works is given in art.164.)

Other items subject to zero-rated VAT are not examinable.

IMPORTANT! 0% rate VAT sets its own rules for output and input VAT
recognition which are quite different from general VAT rules:

no output VAT can be recognised on exported goods until export is


confirmed or unconfirmed;
no input VAT related to exported goods can be recovered until
export is confirmed or unconfirmed.

1.2

Output VAT

Recognition of output VAT on export occurs neither on the shipment date nor
on the payment date. In fact, there is a special set of VAT rules applicable to
export only.

The sales of exported goods (works, services) subject to zero rate are
recognised as having occurred on:

the last day of the quarter in which the full package of the documents
proving export was collected (confirmed export);
the shipment date if the full package of documents was not collected
within 181 days from the date of shipment (unconfirmed export).

This means that:

an export is confirmed and subject to zero-rate VAT (i.e. output VAT


equals zero) on the last day of the quarter, in which the full package
of the documents proving export was collected. However this must
happen within 180 days starting from the export day;

an export is not confirmed if no documents are submitted by the 181st


day starting the export date. Export is unconfirmed on the 181st day.
VAT must be assessed on unconfirmed export at 18% rate. Note, that
taxable base is determined not on the 181st day but retrospectively using
the exchange rate on the export date. The standard declaration for the
quarter of delivery is amended and re-submitted.

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Illustration 1
A Russian company exports wood abroad. Shipment of wood took place on 3 March
2011 (export date). Shipment value is 220,000 USD.
Exchange rates (notional)
March 3 30.3; June 30 31, August 30 31.3
Option 1: Export confirmation package was submitted on 6 June 2011.
Export is regarded as confirmed on June 30 the last day of the quarter, in which the
full package of the documents proving export was collected.
VAT base: 220,000 31 RR = 6,820,000
Output VAT at zero rate: 6,820,000 0% = 0
Option 2: Export confirmation package was not submitted in 2011
On the 181st day starting from the export day (i.e. on August 30) export is regarded
as unconfirmed. Standard VAT declaration for 1st quarter is amended and re-submitted.
VAT base: 220,000 30.3 (the exchange rate on the export date) = 6,666,000
VAT at 18%: 1,199,880 RR
Example 1
Company Intrade exported some goods on 1st March.
Required:
State when the VAT liability is recognized assuming that the package of export
confirmation documents was collected on:
(a)
(b)

20 November 2011;
10 June 2011.

1.3

Export confirmation package (art. 165)

In order to enjoy the VAT zero rate, a number of documents confirming exports
must be presented to the tax authorities, along with the relevant zero rate declaration.

For goods exported outside of the Russian Federation territory directly by the
taxpayer, the following documents are required for export confirmation:

the contract (or its copy) with a foreign entity for export of goods
from the Russian Federation territory;

a bank statement (or its copy) proving the actual receipt of sales
proceeds to the bank account of the exporter with a Russian bank;

the customs declaration (or its copy) with the stamps of customs authorities;

copies of transport and/or other documents proving that goods


crossed the border of the Russian Federation territory.

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For goods exported outside of the Russian Federation territory through a


commissioner (agent) the export confirmation package will also contain the
commission (agency) agreement (or its copy).

1.4

Confirmation deadline (art. 165)

1.4.1

Summary so far

Export confirmation documents are to be presented to the tax inspectorate


within 180 days starting the day of customs clearance of the exported goods. If
this condition is met than export will be considered as confirmed and subject to
0% VAT rate.

The VAT base of a confirmed export is determined using the exchange rate on
the last day of the quarter in which the complete package of documents
proving the export has been collected is presented to tax authorities (art. 167.9).

If no confirming documents are presented during this time, on 181st day after
export date export will be recognised as unconfirmed, which will trigger a
VAT liability either at 18% or 10% rate, depending on the type of goods.

The VAT base of an unconfirmed export is calculated using the exchange rate
on the export date (art. 167.9). The Tax Code also provides for revaluation of
the unconfirmed export on the payment date (art. 153.3). However this adds to
the complexity of the calculations and is not examinable.

1.4.2

Additional points

Late interest is calculated at 1/300 of CB refinancing rate on VAT payable as a


result of the unconfirmed export. Late interest penalty begins on the day
following the statutory deadline for VAT payment (see Illustration 2). Any
changes in the CB refinancing rate are taken into consideration.

Even if no confirmation package is presented within 180 days starting the export day
(and export was classified as unconfirmed) it is still possible to confirm it later (i.e.
to present the confirmation package later). In this case, export will be treated as
unconfirmed first and then as confirmed (see Illustration 2).

If both 181st day and package submission day occurs in the same tax period
(quarter) for exam purposes export is regarded as confirmed in this quarter. For
example, export took place on 5 January 2011. The confirmation package is
presented on 20 July 2011(i.e. after the 181st day (July 4) but in the same month).
Overall result: export is regarded as confirmed in the 3rd quarter 2011.

Input VAT related to exported goods cannot be recovered until export is confirmed
or unconfirmed. Input VAT becomes available for recovery at the same tax period
when output VAT on confirmed/unconfirmed export is recognised.

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Illustration 2
A Russian company exports wood to Spain under a direct contract with a Spanish
company. Shipment of wood took place on 3 March 2011 (export date).
Input VAT incurred in relation to this shipment was 703,033 RR.
The price of the shipment was 220,000 USD; revenue was received on 5 May 2011.
Foreign exchange rates (notional)
March 3 30.3; May 5 30.8; June 30 31; August 29 31.2; August 30 31.3; August
31 31.4; October 10 32.1; December 31 32.3
Option 1: Export confirmation package was submitted on 6 June 2011.
Because the package was submitted within 180 days starting from the export date, the
export will be considered as confirmed.
0% rate applies to VAT base of 220,000 31 (rate as at the last day of June, when the
export confirmation package was submitted).
Input VAT of 703,033 RR becomes recoverable in 2nd quarter. (Actual VAT refund will
be postponed until the tax authorities complete the verification of export documents.)
Option 2: Export confirmation package was submitted on 10 October 2011.
3rd quarter (export is recognised as unconfirmed)
On August 30 (181st day starting from the export date) export will be recognised as
unconfirmed. VAT taxable base will be calculated using the exchange rate on export
date, i.e. on 3 March 2011. Standard VAT declaration for 1st quarter is amended and resubmitted.
Output VAT on unconfirmed export: (220,000 30.3) 18% = 1,199,880 RR
Input VAT of 703,033 RR relating to unconfirmed export is available for refund.
Late interest penalty of 1/300 CB rate applies to 496,847 RR (1,199,880 703,033)
starting April 21st (the day after payment day for 1st quarter VAT) and up to the day of
VAT payment or subsequent export confirmation in following order:
April 21 May 20: 165,616 RR (496,847 1/3)
May 21 June 20: 331,231 RR (496,847 2/3)
June 21 the day of actual VAT payment: on the full amount 496,847 RR.
4th quarter 2011 (export is recognised as confirmed)
On December 31 (the last day of the quarter in which the full package of documents
confirming export is submitted to a tax inspectorate) export will be confirmed for VAT
purposes.
0% rate applies to VAT base of 220,000 32.3 (rate on December 31)
VAT recognised on unconfirmed export in August (1,199,880 RR) becomes available for
recovery. (Actual recovery will be postponed until the tax authorities complete the
verification of export documents.) There is no refund of late interest penalty paid or
cancellation of late interest penalty accrued.
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1.5

Timing of input VAT recovery (art. 176)

The decision on the refund of input VAT (including VAT relating to zero-rated sales
as well as VAT paid in relation to exports) must be made by the tax authorities no
later than three months after the date the standard VAT declaration and documents,
confirming export, were filed and submitted to the tax authority. All VAT declarations
showing a refund from budget must therefore be checked by the tax authority.

Taxpayer can obtain a refund of input VAT before the tax authority check in the
following cases (declarative procedure of VAT recovery):

Taxpayer submits bank guarantee together with VAT tax declaration.


The bank guarantee should be issued by a bank included in the list of
banks meeting official standards;

Where the total amount of taxes paid to the budget by the company
for the previous three years is 10 bln. RR or more. The company
must have been operating for at least three years.

Illustration 3
A Russian company exports wood abroad. Shipment of wood took place on 3 March
2011 (export date). Shipment value is 220,000 USD. Input VAT related to export is
703,033 RR (all paid in February 2011).
Exchange rates (notional): 3 March 30.3; 30 June 31, 30 August 31.3
Option 1: Export confirmation package was submitted on 6 June 2011.
Export is confirmed on 30 June (the last day of the quarter in which the full package of
the documents proving export was collected).
VAT base: 220,000 31 RR = 6,820,000
Output VAT at zero rate (6,820,000 0%)
0
Input VAT available for recovery:
(703,033)
Net result: VAT for recovery
(703,033)
This is shown in the standard VAT declaration. Input VAT is not immediately available
for recovery (there are 3 months for verification of this amount by the tax authorities).
Option 2: Export confirmation package was not submitted in 2011
On 181st day from the export day (i.e. 30 August) export is regarded as unconfirmed.
VAT base: 220,000 30.3 (the exchange rate on the export date) = 6,666,000
Output VAT at 18%:
Input VAT available for recovery:

1,199,880
(703,033)
______

Net result: VAT payable

496,847
______

Amounts of 1,199,880 and (703,033) are shown in amended standard declaration for 1st
quarter of 2011. The net amount of 496,847 is shown as an additional VAT liability in
the amended standard VAT declaration for 1st quarter 2011.
Late interest penalty is calculated starting 21 April.

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1.6

Advances for future export

Advances received for goods to be exported are not subject to VAT as other
advances.

Example 2
A Russian company exports wood to Spain under a direct contract with a Spanish
company. On 26 December 2010 the Spanish company has made a 100,000 USD
prepayment for a shipment of wood, which actually took place on 3 February 2011.
The price of the shipment was 160,000 USD and the remaining amount of 60,000 USD
was received on 5 May 2011. The Russian company has submitted a package of
documents, confirming export, on 10 October 2011.
Input VAT incurred in relation to this shipment is 520,000 RR (paid in January 2011).
Required:
(a)

Calculate the VAT liability (recoverable VAT), assuming the following


notional USD/RR exchange rates:
26 December 2010
3 February
1 August
3 August
31 December

30.1
30.3
31.2
31.4
32.3

31 January
5 May
2 August
10 September

30.2
30.8
31.3
32.1

Do not recalculate VAT on the unconfirmed export using the exchange rate
on payment day.
(b)

Explain what amounts will be shown in VAT declarations and when.

Solution

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OTHER ACTIVITIES

2.1

Sales of assets with capitalized VAT (art. 154)

Special rules apply to VAT calculation on disposal of property with


capitalised VAT (i.e. VAT incurred on this property purchase was added to
its cost).

The VAT base is the sales margin, or the difference between the selling price
(net of sales tax) and the net book value (NBV) of the property, which is
calculated in accordance with financial accounting rules (item 3, art. 154).

VAT is calculated based on raschetniye stavki of 18/118 (or 10/110).

Illustration 4
In 2009 Company ABC purchased a fixed asset for 120,000 RR (including VAT). The
asset was used for production of VAT exempt goods and all VAT on purchase was added
to fixed asset cost.
In 2011 ABC decided to sell this asset for 80,000 RR gross (i.e. including VAT).
Accumulated tax depreciation was 45,000 RR; accumulated accounting depreciation was
55,000 RR.
VAT on sale is calculated on the margin between sales price and accounting NBV:
Sales price
Accounting NBV (120,000 55,000)

80,000
(65,000)
______

Margin

15,000
______

VAT at 18/118

2,288

Note that ABC has to pay VAT on the fixed asset sale even if the main sales of the
company are VAT exempt, because these are two different VAT objects.
Note also the CPT gain calculation:
Sales price
VAT
Tax NBV (120,000 45,000)

80,000
(2,288)
(75,000)
______

Gain for CPT purposes

2,712
______

The treatment of gains and losses on assets disposals for CPT purposes is explained in
Session 4.

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2.2

Factoring operations (art. 155)

As all companies use accruals method for VAT purposes, there is no VAT liability
upon debt factoring as the tax was already calculated and paid at the time of sale.

For the new creditor (factor) the VATable base is determined as the difference
between the amount received from the debtor and the amount paid to the seller
(initial creditor).

Example 3
In May 2011 AO Lidia made a 23,600 RR shipment to a customer (including VAT of
3,600 RR). No payment was received for this shipment and in August 2011 Lidia sold
this receivable to AO Elf for 12,000 RR. Elf paid Lidia in October 2011. In November
2011 Elf managed to collect 15,000 RR from the customer.
Required:
(a)

Calculate the amount of VAT liability of AO Lidia and state the realisation date
for VAT purposes.

(b)

Calculate the amount of VAT liability of AO Elf and state the realisation date
for VAT purposes.

Solution
(a)

AO Lidia

(b)

AO Elf

2.3

Commission income (art. 156)

Companies often use agents to sell their goods (works, services) or to buy
goods. The agent may act under a disclosed commission agreement or under an
undisclosed commission agreement. In both cases, VAT is payable by the
agent on the commission income only.

If an agent sells goods, that are VAT exempt, it is still liable to VAT on its
commission with certain exceptions, which are not examinable.

The owner of the goods is liable to VAT on the full amount of sale. Input VAT
on agents commission is generally available for recovery.

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Illustration 5
Company A (principal) sells its goods under a commission agreement with Company B (agent).
On 21 March A delivered 540,000 RR worth of goods (including VAT) to the agent.
B shipped the goods to a final customer and sent the proper report to A on 15 April. The
customer paid 540,000 RR to the B on 17 May. B withheld 60,000 RR of its commission and
paid the remaining part to A on 20 May. B issued a respective VAT invoice to A on 25 May.
Output VAT of 82,373 is recognised in April (when the sale took place). In May A will
recognise input VAT on As commission (9,153 RR).
Company B will recognise VAT liability on its commission income only (9,153 RR) in May.
2.4

Self-supplied construction works (art. 159)

VAT is assessed on self-supplied construction services (art. 146). The VAT tax base
is the amount of all costs related to the construction as per financial accounting data.

Self-supplied output VAT is assessed on costs incurred each quarter.


It is available for recovery at the moment of the VAT charge (i.e. on the last
date of each tax period) under the following conditions:
(a)
(b)

constructed property is planned to be used for VATable activities;


cost of construction is deductable for CPT purposes (via depreciation).

Input VAT on materials and construction services from third parties is recovered
under general rules (i.e. services must be received and documents in place).

Example 4
In December 2010 Mosstroi started to build a new warehouse for its own production use.
The total cost of construction was comprised of the following (in mln. RR):
Costs of December 2010:
Materials
Wages and salaries
Construction services from subcontractors

23.6 (including VAT)


12
14.16 (including VAT)

Costs of 2011 (incurred evenly during January June):


Materials
Wages and salaries
Construction services from subcontractors

118 (including VAT)


40
236 (including VAT)

The construction of the building was completed in June. The documents were submitted
for registration of the title of ownership in September 2011. The registration of the
building (certificate of ownership) was received in October 2011. The building was
intended for usage for operations subject to 18% VAT.
Required:
Calculate VAT arising on self-supplied construction. State the amounts and timing of
their recognition separately for output and input VAT on 2010 and 2011 costs.

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Solution
VAT in the 4th quarter 2010

mln. RR

Self-supplied output VAT


Input VAT on materials
Input VAT on construction services
Recovery of self-supplied VAT

____

VAT payable/(recoverable)

____

VAT in 1st quarter of 2011

mln. RR

Self-supplied output VAT


Input VAT on materials
Input VAT on construction services
Recovery of self-supplied VAT

____

VAT payable/(recoverable)

____

VAT in 2nd quarter of 2011

mln. RR

VAT payable/(recoverable)

____

VAT PAYMENT AND REPORTING

3.1

VAT invoice (schet-factura) (art. 169)

VAT invoice is a document for VAT accounting which is required to offset input VAT

VAT invoices are issued within five days after the date of goods shipment
(provision of works, services) in electronic or hard copies.

VAT invoices can be issued in electronic form by mutual consent of the parties
having all required compatible technical assets and resources for admitting and
processing such VAT invoices. Electronic VAT invoices need to include:

all the details required an a paper invoice: and


an electronic digital signature of an authorized representation of the company.

A VAT invoice is required, even if the sale of goods (works, services) is VAT
exempt (under art. 149). In such a VAT invoice, it is written without VAT.

VAT invoices are not prepared in relation to transactions with securities (with the
exception of brokerage and intermediary services) and by banks, insurance
companies and non-state pension funds in relation to VAT-free sales.

No VAT invoices are required in retail trade with physical persons and for
businesses providing services directly to physical persons. (The term physical
persons does not include individual entrepreneurs).

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The Tax Code provides for detailed contents of a VAT invoice (art. 169) most
of which are quite logical:

date and number of invoice;


TIN (tax id number), name and address of the parties;
names and quantities of goods (services) in question;
currency (not that this is a new requirement);
price of goods (services);
VAT rate and amount;
Country of origin and Custom Declaration number (for imported goods).

VAT invoices issued for advanced payments should additionally contain the
number of the payment document.

VAT invoices are recorded in the following registers:

journal of VAT invoices received and issued;


VAT sales ledger (kniga prodazh);
VAT purchase ledger (kniga pokupok).

VAT invoices are not registered in the purchases book, if received:

in relation to gratuitous transfers; or


by a commissioner (attorney) from its principal in relation to goods
transferred for sale (see next section).

3.2

Commission operations

3.2.1

Commissioner (agent)

An agent issues a VAT invoice showing the price of the goods (work, services)
plus VAT, in its own name. Two copies are issued (based on the chronological
numbering sequence for VAT invoices of the agent rather than the principal):

one copy is issued to the buyer;


the second copy is attached to the ledger of issued VAT invoices,
BUT is not registered in the sales book.

The agent issues a separate VAT invoice addressed to the principal for its sales
commission. This invoice is registered in the sales book. One copy is given to
the principal; the other is retained by the commissioner.

The agent does not register the VAT invoice received from the principal for the
cost of the goods (work, services) in its purchases book.

3.2.2

Principal

The principal issues two copies of a VAT invoice (one for itself and one for the
agent) including all the details included by the agent in the agents VAT invoice
issued to the buyer. This invoice is registered in the sales book. The VAT invoice
is numbered in the chronological numbering sequence of the principal.

The principal registers the VAT invoice received from the agent for its
commission in its purchases book.

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Example 5
ZAO Prodinvest sells its goods under a commission agreement with ZAO Lanstore. In
January Prodinvest delivered 360,000 RR worth of goods to Lanstore who sold them to a
customer in March 2011. The customer paid 360,000 RR to Lanstore in May 2011.
Lanstore withheld 44,000 RR of its commission and paid the remaining amount to
Prodinvest in July 2011. Lanstore submitted the report about the sale in March 2011 and
issued a VAT invoice to Prodinvest dated 31st March on 3rd April 2011.
Required:
(a)

Calculate the VAT liability of ZAO Prodivest and state the timing of VAT
liability recognition.

(b)

Explain VAT invoicing procedures for ZAO Lanstore.

Solution
(a)

(b)

3.3

VAT declaration forms

Since 1 January 2007 there has been just one type of VAT declaration the
standard declaration to be filed by all taxpayers.

VAT adjustments introduced by the taxpayer prior to an audit by the tax


authorities with respect to the VAT amounts charged must be disclosed in a
separate (amended) VAT declaration for the relevant tax period.

Organisations maintaining separate subdivisions are required to file a copy of


the VAT return prepared by the head office

3.4

Due dates for payments and declaration submission (art. 174)

The VAT declaration is submitted quarterly not later than 20th day of the month
following the current tax period.

Tax is due in three equal parts not later than 20th day of each of the three
months following the current tax period.

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3.5

VAT recovery procedure (art. 176)

If input VAT exceeds output VAT, the excess amount can be recovered either:

by offset against current tax obligations; or


by refund to the taxpayer after obligatory cameral tax inspection.

The excess amount is first applied to offset against any outstanding tax liability
(including customs duties), late tax interest and assessed tax penalties payable to the
same budget. The tax inspectorate makes such offset without the taxpayers
involvement. The time period for the offset is three calendar months following the
reporting period. If all or a portion of the excess amount is not utilised within three
calendar months, it must be refunded to the taxpayer upon his written request.

For very large companies which have operated for at least three years and who
submit an appropriate bank guarantee, the declarative procedure of VAT
recovery can be applied (see section 1.5).

In case the deadline for refund is missed, a daily interest at Central Bank
refinancing (CBR) rate is accrued on the amount.

Example 6
ZAO Univers has exported some goods to the UK. Export confirmation package were
submitted to the tax inspectorate on 6 July 2011. The amount of VAT for recovery,
shown in the declaration, was 120,000 RR.
Assume that tax inspectorate has the following records of Univers:
Total due from Univers as at 20 July 2011 48,000 RR:

taxes due 32,000 RR;


late interest due 3,000 RR;
penalties assessed and confirmed by the court 8,000 RR;
penalties assessed (still under court consideration) 56,000 RR.

Required:
(a)

Calculate the amounts available for the offset and refund based on the above
information. Ignore allocation of tax amounts between different budgets.

(b)

Explain the recovery procedure.

Solution
(a)

(b)

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FOCUS
You should now be able to:

compute the VAT on:

trade debt factoring for both parties;


a fixed asset disposal (including assets accounted for at VAT-inclusive amount;
a self-supplied construction;
sales made through commissioners for both the principal and the commissioner;

explain the timing and methods of recovery of input VAT;

explain the main requirements for declarative procedure of VAT recovery;

state the situations where VAT should be included in the cost of asset;

explain and apply the specific rules for VAT recovery relating to capital construction and selfsupplied construction;

prepare a basic VAT computation showing separately all elements of input and output VAT;

explain and apply the specific rules for VAT recovery related to zero rate supplies (export);

explain the usage of VAT invoices and journals;

list the information that must be given on a VAT invoice;

state the deadlines for the filing of returns and making of VAT payments;

explain the procedure for VAT refunds (including the refund of VAT on exports);

state the set of documents for confirmation of export in a basic situation;

state the requirements for electronic VAT invoice for VAT recovery.

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EXAMPLE SOLUTIONS
Solution 1
(a)

Collected 20 November

1 March 2011 is the export date. The export sale will be recognised as unconfirmed on
28 August, which is 181st day later. VAT declaration for the 1st quarter of 2011 should be
amended and re-submitted to tax authorities in August. VAT taxable base will be
calculated using the exchange rate on 1 March.
In the 4th quarter of 2011 the export will be confirmed and export confirmation date will
be 31 December (the last day of the quarter for the tax period when confirmation package
and VAT declaration will be submitted).
(b)

Collected 10 June

30 June, which is the last day of the quarter in which export package was presented to the
tax authorities.
Solution 2
December 2010 Advance payment is not subject to VAT.
February 2011 No VAT consequences arise on February 3 as the goods are shipped for
export and accruals method does not apply.
May 2011 No VAT consequences arise on May 5, because the payment relates to export.
August 2011
On August 2nd (i.e. on 181st day starting from the export date) export will be recognised
as unconfirmed. VAT taxable base will be calculated using the exchange rate on the
export date (i.e. on 3 February 2011).
Output VAT on the unconfirmed export is calculated as:
(160,000 30.3) 18% = 872,640 RR
This amount is shown in amended VAT declaration for 1st quarter 2011. Input VAT of
520,000 RR will decrease the VAT payable to the budget:
Output VAT on unconfirmed export
Less: Input VAT

872,640
(520,000)
_______

VAT payable

352,640
_______

December 2011
On December 31 (the last day of the quarter in which the full package of documents confirming
export is submitted to a tax inspectorate) export will be confirmed for VAT purposes:
VAT base: 160,000 32.3 = 5,168,000 RR
This amount is shown in a standard VAT declaration as:

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VAT amounts previously recognised on unconfirmed export in August will again be


shown in standard VAT declaration for 4th quarter 2011.
VAT on unconfirmed export available for recovery

(872,640 RR).

The decision on the refund of this input VAT should be made no later than 3 months after
the date the VAT declaration and documents, confirming export, were filed.
Overall result for the year:
352,640 VAT payable
(872,640) VAT recoverable

1st quarter
4th quarter

(520,000) total VAT recoverable


Solution 3
(a)

AO Lidia
Lidia will recognise 3,600 RR of VAT in 2nd quarter 2011. The amount of actual
payment received from Elf does not have any impact on VAT recognised.

(b)

AO Elf
Elf will recognise VAT on the difference between the amount received from
customer (15,000 RR) and the amount paid to Lidia (12,000 RR). The tax will
be calculated in 4th quarter 2011 as 18/118 of 3,000 RR (458 RR).

Solution 4
Costs of 2010
Output VAT is assessed on costs incurred in 2010 each quarter. It is available for
recovery in the same period when it is charged. In this case it will be charged in
December 2010 and could be recovered in the 4th quarter 2010.
Input VAT on materials and construction services from third parties is recovered under
general rules.
VAT in the 4th quarter 2010

mln. RR

Self-supplied output VAT (W1)


Input VAT on materials (23.6 18/118)
Input VAT on construction services (14.16 18/118)
Recovery of self-supplied VAT

8.48
(3.6)
(2.16)
(8.48)
____

VAT recoverable

(5.76)
____

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Costs of 2011
The dates of registration of the building do not influence VAT rules. Costs are split
equally for two tax periods.
VAT in 1st quarter of 2011

mln. RR

Self-supplied output VAT (W2)


Input VAT on materials
Input VAT on construction services
Recovery of self-supplied VAT

31.82
(9.0)
(18.0)
(31.82)
_____

VAT recoverable

(27.00)
_____

VAT in the 2nd quarter of 2011

mln. RR

st

VAT recoverable (as for 1 quarter)

(27.0)
_____

WORKINGS
(1)

Output VAT 4th Quarter

Materials net of VAT (23.6 110/118)


Labour
Social insurance contributions (26% 12)
Services net of VAT (14.16 110/118)

20
12
3.12
12
_____

Total cost

47.12
_____

Self-supplied VAT assessed on total cost at 18%


(2)

8.48

Output VAT (1st and 2nd Quarters)

Materials net of VAT (118/2 110/118)


Labour
Social insurance contributions (34% 20)
Services net of VAT (236/2 18/118)

50
20
6.8
100
____

Total cost

176.8
____

Self-supplied VAT assessed on total cost at 18%

31.82

Tutorial note: Social insurance contributions (SICs) are covered in Session 10.

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Solution 5
(a)

Prodinvest will recognise output VAT of 54,915 RR (360,000 18/118) in the 1st
quarter of 2011 according to report submitted by Lanstore, regardless of the
period when the amount is paid to the commissioner.
Input VAT on commission service 6,712 RR (44,000 18/118) will be available
for recovery in the 1st quarter also upon the receipt of the VAT invoice from
Lanstore.

(b)

Lanstore should not register in its purchases book the VAT invoice received
from Prodinvest for commissioned goods.
Lanstore should issue VAT invoice on goods sold to the customer. Two copies
should be issued: one copy should be given to the customer; the second copy
should be attached to the register of issued VAT invoices, but should not be
registered in the sales book of Lanstore;
Lanstore should issue a separate VAT invoice addressed to Prodinvest for the
amount of commission. This invoice should be registered in the sales book of
Lanstore.

Solution 6
(a)

Amount available for offset is 32,000 + 3,000 + 8,000 = 43,000 RR


Penalties assessed and not yet confirmed by the court (56,000 RR) are not
available for offset.
The remaining portion of 77,000 RR (120,000 43,000) is available for recovery.

(b)

The amount of 120,000 RR is first of all applied for payment of any


outstanding tax liability (including customs duties), late tax interest and
assessed tax penalties to the same budget. Penalties assessed but not yet
confirmed by the court are not counted for the above-mentioned purposes (i.e.
the amount for offset is 32,000 + 3,000 + 8,000 = 43,000). The tax inspectorate
makes the above-mentioned offset without the taxpayers involvement. The
time period for offset is three calendar months following the submission of
VAT declaration and documents confirming export. If all or a portion of the
excess amount is not utilised within three calendar months it can be carried
forward and utilised in the future or can be refunded to the taxpayer upon its
written request.
Where the deadlines for the refund are missed interest at the CBR rate is
accrued on the amount.

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SOCIAL INSURANCE CONTRIBUTIONS

OVERVIEW
Objective

To explain the calculation of social insurance contributions payable by


employers and individual entrepreneurs.

SOCIAL
INSURANCE
CONTRIBUTIONS

SIC BASE FOR


EMPLOYERS

ADMINISTRATION
FOR EMPLOYERS

Scope
SIC payers

SIC object
SIC base
SIC calculation period and
reporting period
SIC rates
Exempt items
Calculation
Copyright agreements

INDIVIDUAL
ENTREPRENEURS

Reporting rules
Payment rules
Specific reporting and
payment rules for branches

Calculation of SIC
Payment and reporting
rules

SIC OFFICIAL
AUDIT

Types of audit

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1.1

Scope

Social insurance contributions were introduced by the Federal Law from


24/07/2009 # 212-FZ. All references to the articles given in this Session are
the article of the Federal Law # 212-FZ.

Since 01/01/2010 SICs have replaced unified social tax (UST).

SICs are not taxes; they are compulsory payments for obligatory social
insurance, including:

pension insurance to the RF Pension Fund;

social insurance to the RF Social Insurance Fund;

medical insurance to the Federal and territorial Obligatory Medical


Insurance Funds.

IMPORTANT! Although the law provides for separate contribution to


different funds, only lump-sum amounts will be considered in the
examination (i.e. combined SIC rates only).

SICs are estimated based on wages and salaries and on some other payments
to individuals. Thus, it is an additional financial burden for employers unlike
the personal income tax (PIT), which is taken out of employees salaries.

Illustration 1
Irinas annual salary equals 100,000 RR.
PIT rate is 13%; SIC rate for employers is 34%. SICs equal 100,000 34% = 34,000
RR
This amount is paid by the company-employer to the related funds. The company
withholds 13% of PIT and also pays it to budget. Irina gets in cash 87,000 RR net of
PIT.
The companys total expense is 134,000 RR (100,000 RR of gross salary + 34,000 SIC
assessed on the salary).
1.2

SIC payers (art. 5)

There are two principal groups of SIC payers:

employers, including organisations and individual entrepreneurs


who pay SICs in respect of private persons/employees; and

individual entrepreneurs (who do not pay to private persons/employees).

A SIC payer, who simultaneously belongs to both groups mentioned above


(e.g. an individual entrepreneur who employs workers) is liable to SICs on
both on his own SIC liability and on the payments to persons he employs.

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SIC BASE FOR EMPLOYERS

2.1

SIC object (art.7)

The SIC object for organisations and individual entrepreneurs who pay to
private persons/employees is payments according to:

labour agreements (trudovyie dogovora); and


civil law agreements (grazhdansko pravoviye dogovora) for
rendering works, providing services; and
copyright, licence agreements (see section 2.4).

2.2

SIC base (art.8)

The SIC base is the sum of all payments to the private persons/employees
which are a SIC object reduced by exempt amounts.

SICs are estimated on the gross accrued amounts (i.e. on the amounts before
PIT withholding).

The SIC base is calculated cumulatively for calculation period for each
person separately. It is based on the total amount up to a maximum of
444,050 RR for each person for the calculation period

Illustration 2
Company AZ accrued salary for its employees (labour agreements) for June 2011:
Name of employee
Ivanov
Petrov
Sidorov

June Salary
RR

Salary for January


June RR

PIT withheld
January June RR

50,000
100,000
120,000

350,000
600,000
520,000

45,500
78,000
67,600

Calculation of the SIC base for June 2010 is as follows:


Name of employee

SIC base (RR)

Ivanov

50,000

Petrov

Sidorov

44,050

__________

Total

Comments
Cumulative amount is less than 444,050 RR.
Cumulative amount is more than 444,050
(600,000 100,000).
400,000 (520,000 120,000) salary for the
previous periods is less than limit.
(444,050 400,000) SIC base for June.

94,050

__________

AZ should accrue and pay SICs for June totaling 31,977 RR (94,050 34%).

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2.3

SIC calculation period and reporting period (art.10)

SIC calculation period is a calendar year, such that it is calculated on a


cumulative basis starting at the beginning of the year.

SIC reporting period is each calendar quarter.

2.4

SIC rates (art.12)

The Federal Law establishes rates for each insurance category (though these are not
examinable) and reduced rates for some SIC payers.
The single threshold for SICs for the year 2011 is:
SIC payers

Income amount for


SIC calculation (RR)

Rate

For employers (general) and individual entrepreneurs

Up to 444,050

34 %

For employers (licence, copyright, civil contracts)

Up to 444,050

31.1%

2.5

Exempt items (art. 9)

SICs are not applied to the following payments:

Government support payments (posobija), including sick leave payments


and payments in case of unemployment.

All kinds of compensations made under the Russian laws (Federal and
regional) within the limits established by these laws, including:

Payments relating to the dismissal of employees (excluding


compensation for unused vacation);

Reimbursement of expenses relating to professional training,


education and raising employees skills ;

Compensation by the organisation of expenses incurred by an


employee in connection with the fulfilment of the civil law
agreements (not labour) related to the organisations business.

Actual business travel expenses, confirmed with supporting documents, including


per diem allowances (without limits), transportation costs, taxi to/from the
airport/railway station, accommodation costs, etc. Accommodation costs are also
exempt but only within the statutory limit in the absence of supporting documents.

Extraordinary support payments (materialnaja pomosch) paid by the SIC payers to:

Any employee up to 4,000 RR for the calculation period (a year);

Private persons in the event of acts of God (fire, flood, etc) in full amount;

An employee in the case of the death of a relative in full amount;

An employee in the case of child birth or adoption. The support payment


is SIC exempt in amount up to 50,000 RR and must be made within one
year from the child being born or adopted.

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Medical and life insurance contributions made by an employer for the benefit
of an employee in the following cases:

insurance of employees as required by law; or

voluntary medical insurance according to the insurance agreements


concluded for a period not less than one year;

life insurance (payments in case of death or health hazard).

Contributions which are made by a SIC payer under a non-state pension


agreement (negosudarstvennogo pensionnogo obespechenija).

Additional pension payments made by the company to the cumulative part


of an employees pension up to 12,000 RR per year per employee;

Cost of transportation expenses to the place of vacation and return for the persons
working or living in the Far North regions of Russia (although significant in Russia
the examiner has confirmed that this will not be specifically examined);

Payments for the main and additional professional training, including retraining.

Compensation to employees of interest paid on mortgage loans.

Payments according to the civil law in respect of contributions to the Social


insurance Fund. (This is why the SICs rate is lower for employers who pay
individuals under a civil contract (see 2.4 above).)

Illustration 3
Ruslan concluded a civil law agreement to render services to company LN for 200,000
RR gross. The agreement provides for the reimbursement of expenses connected with
fulfilling the contract. On the day of signing the act of acceptance for the services
Ruslan submitted supporting documents confirming his expenses of 20,000 RR.
Ruslans SIC base is 200,000 RR; the expense reimbursement is exempt from SIC.
Example 1
Irina, who works under an employment contract, received the following income and
benefits in-kind from her employer in 2011:
RR
Salary
560,000
Performance bonus
200,000
Voluntary medical insurance contributions by employer (in the contract)
35,000
Travel allowance within the limit
30,000
Per-diem allowance exceeding statutory norms (for PIT)
68,000
Meal tickets for a free meal (provided in the contract)
8,000
Interest income imputed on a loan from employer
12,000
Voluntary pension insurance contributions by employer (in the contract)
10,000
Payment for study leave in respect of education in St. Petersburg
15,000
Reimbursement of professional education costs in university
7,000
Required:
(a)
(b)

Calculate the amount subject to SIC.


For items which are not subject to SIC briefly explain the reason for exemption.

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(a)

Items subject to SIC


RR

(b)

Items which are not subject to SIC

2.6

Calculation (art. 8)

As mentioned above for employers SIC is assessed on all payments and other
remuneration accrued to employees within the limit, excluding SIC exempt
amounts under the:

labour agreements;
civil law agreements for rendering works, providing services; and
copyright agreements.

All payments, including payments in-kind, are subject to SIC only if they are paid in
accordance with the terms of agreement. For example, SIC is assessed on the cost of
meals for employees only if they are provided according to the contract.

SIC is assessed on the gross amounts of the above-mentioned payments (i.e.


on the amounts before PIT withholding).

For employers, the date of SIC charge is the date when income is accrued to employees.

SIC applies to both cash and in-kind payments.

2.6.1

Payments in-kind

The SIC base for payments in-kind is their value as stated by the contracting
parties on the payment date (including VAT and excises, if applicable).
Where there is public regulation of the price for the goods used as payment
the SIC base is the public retail price.

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Illustration 4
In January a company accrued 10,000 RR as a salary for Vasily. In addition the
company gave him as salary some goods valued at 20,000 RR. Also a TV set valued at
7,000 was given to him as a birthday gift (as provided for by his labour agreement).
Vasilys SIC base is 37,000 RR (10,000 in cash + 27,000 in-kind).
2.6.2

Discounts on products produced/sold by employer

Discounts on employers products available to employees are not subject to SIC as


the SIC base is defined as any payments (in cash or in-kind) in favour of an
employee/family members (art. 8) and does not refer to any benefits such as
discounts. This differs from PIT rules under which such discounts are taxable.

2.7

Copyright, licence and civil law agreements (art.8 p.7)

Payments made under copyright or licence agreements are subject to SIC


under the same rules which are used for PIT purposes.

The SIC base is the gross payment amount less allowable deduction, which is either:

actual expenses (with documentary proof); or


a standard professional deduction as a percentage of income (20% 40%
depending on the subject of agreement).

Illustration 5
A painter Popov has concluded an agreement to produce five paintings for a new
restaurant for 100,000 RR gross. Popovs actual (and documentary proven) expenses
on this engagement were 50,000 RR. Standard professional deduction for this type of
activity is 40%.
Amount subject to SIC can be calculated as follows:
Option 1 (based on actual expenses) 100,000 50,000 = 50,000 RR
Option 2 (based on professional deduction) 100,000 (100,000 40%) = 60,000 RR.
Option 2 is less beneficial than Option 1.

These deductions are given to SIC payers at their written requests submitted to the
organisation/individual entrepreneur which makes the payment under the agreement.
In the absence of such requests SIC is assessed on the contract gross amount.

Note that payments made under civil law agreements, copyright and licence
agreements are assessed at lower SIC rate.

Example 2
In 2011 Polina has concluded an agreement with a recording company for a CD
recording. For this recording, she has received 156,600 RR net of personal income tax.
The standard professional deduction on recording income is 20%.
Required:
Calculate the amount of SIC paid by the CD company on Polinas income.

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Solution
RR
Gross income
Less: PIT

__________

Net income received

__________

ADMINISTRATION FOR EMPLOYERS

3.1

Reporting rules (art. 15 p.9)

During the calculation (reporting) period SIC payers accrue SIC cumulatively on a
monthly basis (e.g. at the end of March SICs are charged on the SIC base/payments
to employers accrued in January, February and March with the deduction of SIC
charged for January February).

As SIC are not taxes but obligatory payments reports are called calculations.

SIC payers submit reports for each SIC separately on the quarterly basis:
Social insurance
type

Pension insurance

Deadline

Authority

1st day of the second month


following the reporting period

Pension Fund RF
(territorial authority)

15th day of the month following


the reporting period

RF Social Insurance Fund

Medical insurance
Social insurance

3.2

Payment rules (art. 15)

Employers are required to make monthly obligatory payments of SIC to each


Fund separately based on the SIC base calculated from the beginning of the
year and up to the last calendar month. Monthly payments are made not later
than 15th of the month following the reporting month.

Illustration 6
A company had the following SIC liabilities (on a cumulative basis):
January: 300,000 RR
January February: 650,000 RR
January March: 900,000 RR
First obligatory payment of 300,000 RR must be made not later than on 15 February.
Second advance payment of 350,000 RR (650,000 300,000) must be made not later
than on 15 March.
Third payment of 250,000 RR (900,000 650,000) must be made not later than on 15
April.
The calculations (reports) are to be submitted not later than 15 April (social insurance)
and not later than the 1 May (pension and medical insurance).

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SOCIAL INSURANCE CONTRIBUTIONS

3.3

Specific reporting and payment rules for branches

Sub-divisions located on RF territory, which have individual balances, bank


accounts and accruing payments to the persons/employees pay SIC and
submit corresponding reporting at the place of their location.

The SIC base is determined for each subdivision separately. The SICs payable at the
location of the head office comprises the difference between the SICs due in relation
to the whole company and SICs payable at the location of branches.

RULES FOR INDIVIDUAL ENTREPRENEURS

The following concerns individual entrepreneurs who do not pay employees or other
private persons. (If they are employers the same rules apply as for companies.)
4.1

Calculation of SIC (art. 13 & 14)

SIC amount is defined based on the insurance year value.

Insurance year value is a product of minimal salary established at the


beginning of the financial year and SIC rates multiplied by 12.

Individual entrepreneurs are not liable to pay contributions to the Social


Insurance Fund, so they use the reduced SIC rate (31.1%).

Calculation of SIC of individual entrepreneurs who do not pay to other


private persons is not examinable.

4.2

Payment and reporting rules (art. 16)

SIC liability commences on the date of individual entrepreneur activity outset


(calendar month of entrepreneur statutory registration).

The SIC payments are calculated by individual entrepreneurs themselves.

SIC amounts are calculated and paid separately to each Fund not later than 31
December of the current calendar year.

Pension insurance and medical insurance contributions calculations (reports) are


submitted to Pension Fund by the 1st March in the year following the reporting period.

Note that SIC accrued on salary of workers employed by entrepreneur is a


tax-deductible cost for PIT purposes.

Illustration 7
Business income of Petr (who is registered as an individual entrepreneur) is 160,000
RR. For personal income tax purposes Petr uses professional business deduction of
20%. (160,000 RR 20% = 32,000 RR)
His income subject to PIT is 160,000 32,000 = 128,000 RR.
His SIC base does not depend on the business income or deduction; it is the same for
each individual entrepreneur who does not pay to employees or other private persons.

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Example 3
Renat is an individual entrepreneur. He does not keep track of his business expenses.
His business income before standard professional deduction is 620,000 RR.
Required:
Explain when and where Renat should pay and report SIC.

SIC OFFICIAL AUDIT

5.1

Types of audit (Chapter 5 of 212-FZ)

In order to control the accuracy and completeness of SIC payment the control authority
(territorial Pension and Social Insurance Funds together) can carry out an official audit.
Two types of audits are provided by the Federal Law:

cameral (in-house) SIC audit (also called desk audit); and


field SIC audit.

5.2

Cameral audit (art.34)

This audit is conducted at the authoritys location and based on the SIC
payers reporting (calculations), documents submitted by the SIC payer and
other documents regarding the SIC payers activity.

If any calculation mistakes or discrepancies are found the SIC payer must
submit necessary explanation and/or make essential corrections within five
days of being requested to do so.

5.3

Field audit (art.35)

This audit is conducted at the SIC payers location under a decision made by
the Head of the authority.

It cannot be conducted more often than once in three years (without subdivisions audits) and only for a period not exceeding three calendar year
(prior to the calendar year of the decision being made).

It cannot last longer than two months.

A field audit of a sub-division which has individual balances, bank accounts


and accrued payments to persons/employees cannot last longer than 1 month.

A field audit can be suspended under appointed reasons. The suspension


period cannot exceed six months.

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5.4

Documents requirement (art.37)

The control authority can ask for necessary documents by serving a requirement for
their delivery. Required documents are to be submitted in the form of authorised copy
(not notarized) within 10 days from the requirement receipt.
If necessary the control authority can inspect original documents.
FOCUS
You should now be able to:

describe the scope of SIC;

recognise and apply the major types of income exempt from SIC (art. 9);

prepare a basic SIC computation in respect of employees under labour


agreements, under civil law agreements and copyright agreements;

prepare a basic SIC computation for an individual entrepreneur;

explain how employers and individual entrepreneurs report and pay SIC;

state the limitations and conditions under which social funds audits can be
carried out.

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SOCIAL INSURANCE CONTRIBUTIONS

EXAMPLE SOLUTIONS
Solution 1 SIC on income and payments in-kind
(a)

Items subject to SIC


Salary
Performance bonus
Meal tickets for a free meal
Study leave

RR
560,000
200,000
8,000
15,000

Total:

783,000

__________
__________

SIC = 444,050 (maximum) 34% = 150,977 RR


(b)

Items not subject to SIC


Medical insurance (non-mandatory) contributions by employer
Travel allowance up to the limit
Per-diem allowance in excess of statutory norms
Interest income imputed on a loan from employer
Deductible pension insurance
Professional education

35,000 (1)
30,000 (2)
68,000 (3)
12,000 (4)
10,000 (1)
7,000 (2)

(1)

Payments made under voluntary insurance agreements concluded for not


less than 1 year and contributions under the non-state pension agreements
are specifically exempt from SIC.

(2)

Reimbursements of employees expenses within the norms are SIC exempt.

(3)

Per diem allowance is SIC exempt in full.

(4)

Imputed interest income is not subject to SIC.

Solution 2 Professional deduction


RR
Let Polinas gross income be
Less: PIT

x
(x 0.2x) 0.13
__________

Net income received

156,600

__________

Solving: x (0.8x 0.13) = 156,600


Gives: x = 174,777 RR
Income subject to SIC = 174,777 RR less 20% professional deduction = 139,822 RR
SIC is applied at reduced rates (there are no contributions to social security fund):
SIC = 139,822 31.1% = 43,485 RR
Solution 3 Individual entrepreneurs paying and reporting liability
SIC amount does not depend on business income, it is calculated on the insurance year value.
Renat should accrue and pay SIC by 31st December of the current year and submit
obligatory pension insurance and medical insurance contributions reports (calculations)
to the territorial body of RF Pension Fund by 1st March of the following year.
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CORPORATE PROPERTY TAX

OVERVIEW
Objectives tax

To explain and compute the property tax liability of Russian legal entities.

OTHER
TAXES

CORPORATE
PROPERTY TAX

Taxpayers
Scope
Average property value (art. 376)
Tax and reporting period
Calculation (art. 380, 382)
Reporting and payment deadlines

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CORPORATE PROPERTY TAX

1.1

Taxpayers (art. 373)

Corporate property tax is payable by:

enterprises, organisations with legal entity status;


foreign legal entities having property in Russia. (This is not examinable.)

Individual entrepreneurs and physical persons are not subject to corporate


property tax.

If a legal entity has a branch (separate sub-division) with a separate balance


sheet, it must pay property tax to the tax inspectorate of this branch. Tax is
calculated by applying the rate, established at the branch location, to the
average value of the property subject to property tax at the location of the
branch (art. 384).

If a legal entity has an item of taxable property (immovable only) in a


location other than the place of its tax registration (or branch registration), tax
is paid at the rate established at that place (art. 385).

Illustration 1
Sigma LTD is registered in Moscow. The company has a branch in St. Petersburg
and owns a building in Samara. Sigma does not have any employees in Samara.
Sigma pays property tax to the budgets of Moscow, St. Petersburg and Samara. The
average value of property in all these locations is calculated. Tax is assessed at local
rates.

Knowledge of entities which are relieved from property tax is not examinable.

1.2

Scope

1.2.1

Tax object (art. 374)

Tax object for property tax is movable and immovable property which is accounted
for as a tangible fixed asset (except for land and other natural resources).

1.2.2

Tax base (art. 375)

Tax base is an annual average value of property which is a tax object.


Annual average value is based on accounting net book value (NBV), i.e:

fixed assets (account Fixed assets);


less depreciation (account Accumulated depreciation).

Accounting depreciation is used for property tax purposes. This means that
no adjustment to depreciation recorded in the financial accounting books is
necessary when calculating the taxable property amount.

Knowledge of property excluded from property tax is not examinable.

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Example 1
Identify which of the following items of property will be subject to property tax:

building;
exclusive trademark licence;
cash in bank;
industrial plant and equipment;
promissory note from customer (veksel);
materials;
work-in-progress;
land;
accounts receivable;
prepaid expense;
finished products;
products shipped to customer (title has not passed yet).

1.3

Average property value (art. 376)

In order to calculate the property tax base, the average property value is
determined by dividing the total amount (which is sum of the NBV as at the
1st date of each month of the reporting period and the 1st date of the month
following the reporting period) by the number of months in the reporting
period increased by one.

Average value in 1st quarter

Sum of taxable property NBVs as at 1 January, 1 February, 1 March, 1 April


divided by 4

Average value for the first half year

Sum of taxable property NBVs as at 1 January, 1 February, 1 March, 1 April,


1 May, 1 June, 1 July divided by 7

Average value for the period January September

Sum of taxable property NBVs as at 1 January, 1 February, 1 March, 1 April,


1 May, 1 June, 1 July, 1 August, 1 September, 1 October divided by 10

Average value for the year

Sum of taxable property NBVs as at 1 January, 1 February, 1 March, 1 April,


1 May, 1 June, 1 July, 1 August, 1 September, 1 October, 1 November, 1
December, 31 December divided by 13. For this calculation the last NBV is
specified to be as at the last date of the tax period (art. 376).

1.4

Tax and reporting period

Tax period for corporate property tax is a calendar year.

Reporting period is the calendar quarter (3 months, 6 months, 9 months).

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1.5

Calculation (art. 380, 382)

The maximum property tax rate is 2.2%.

The legislative body of the region establishes a rate for a given region.
Relevant rates will be provided in the examination.

Property tax is calculated each quarter. These amounts of tax are called advance
payments while payment for the year is considered to be a final payment.

Reporting periods

Advance payments for reporting period (3, 6 and 9 months) =


Average property value for the reporting period

tax rate

Final payment

Final payment =
(average property value for the year tax rate) advance payments

The tax is included in other (prochie) deductible expenses for the CPT
purposes of the legal entity.

Illustration 2
The following data, in 000 RR has been extracted from the accounts of a company:
Description / Date
Fixed assets
Intangible assets
Materials
Depreciation as per accounting books
Depreciation as per tax books
Amortisation as per accounting books
Amortisation as per tax books

01.01
1,200
650
250
400
300
100
60

01.02
1,600
700
400
450
320
110
65

01.03
1,950
750
320
500
340
120
70

01.04
2,000
800
400
600
400
150
90

The property tax rate is 2.2%.


In calculating average property value only the accounting book value of the fixed
assets is relevant:
((1,200 + 1,600 + 1,950 + 2,000) (400 + 450 + 500 + 600))/4 = 1,200 RR (000)
Property tax for Quarter 1 = 1,200 2.2% = 6.6 RR (000)

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Example 2
You have been provided with the following data extracted from ABC companys
accounts:
In 000 RR
Date:
Fixed assets (01)
Depreciation (02)

01.01
850,000
(350,000)

01.02
01.03
01.04
900,000 1,200,000 1,500,000
(400,000) (500,000) (750,000)

Required:
(a)

Calculate the average property values for property tax purposes for the first
quarter.

(b)

Calculate the property tax for this period assuming a rate of 2.2%.

Solution

1.6

Reporting (art. 386) and payment deadlines (art. 383)

Property tax returns are submitted according to the following deadlines:

for quarterly reports on advance payments of property tax by the


30th of the month following the reporting period;
annual report by 30th March of the year following the tax period.

The regional authorities establish payment deadlines.

FOCUS
You should now be able to:

describe the scope of corporate property tax;

define the tax base in respect of both head office property and the property of
separate subdivisions of Russian legal entities:

state the maximum tax rate and tax period;

describe the method of property valuation used to determine the corporate


property tax base;

compute the corporate property tax base for both a head office and its
separate sub-divisions;

state the deadlines for:

filing the annual tax return and advance tax calculations (art. 386);
property tax payments and advance tax payments (art. 383).

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EXAMPLE SOLUTIONS
Solution 1
Only the tangible property i.e. buildings (immovable) and plant and equipment
(movable) is taxable. Land is exempt (non-depreciable).
Solution 2
In 000 RR
(a)

Average annual value for the first quarter

((850,000 350,000) + (900,000 400,000) + (1,200,000 500,000) + (1,500,000


750,000))/4 = (500,000 + 500,000 + 700,000 + 750,000)/4 = 2,450,000/4 = 612,500
(b)

Property tax for the first quarter

612,500 2.2% = 3,369 RR (000)

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TAX ADMINISTRATION & CONTROL

OVERVIEW
Objectives

To describe the procedures relating to tax audit, appeals and disputes.

To explain the sanctions for tax violations, tax penalties and interest on late tax
payments.

TAXPAYERS AND
TAX AGENTS
Definition
Registration of taxpayers
Registration deadlines
Penalties for late/nonregistration

TAX AUDITS

TAX
ADMINISTRATION
& CONTROL

TAX PAYMENTS
AND
COLLECTIONS

General
Mandatory collection
Execution of tax payments
Late payment interest
Suspending bank
transactions
Offset and refund of taxes
Penalties for non-payment

Tax control bodies


Tax audits
Confidentiality of information
Presumption of innocence
Penalties for non-compliance

TAX RETURNS

General
Amendments and
additions
Penalties for late/incorrect
submission
Violations in accounting
rules

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TAXPAYERS AND TAX AGENTS

1.1

Definition (art. 19, 24)

Taxpayer and contributions payer are companies and individuals obliged to pay
taxes and contributions according to the RF Tax Code.

Tax agents are bodies obliged to calculate taxes, withhold them from taxpayer
and pay them to the budget.

Tax agents have the same rights as tax payers.

Taxpayer is liable for calculation and is obliged to pay tax in correct amount, and
make correct tax declarations if required.

Tax agents obligations are limited. They should calculate, withhold and pay tax (or
inform the tax authority if this is impossible) and account for the operations and submit
related documents. If an agent has not carried out its withholding duty, it is not obliged to
pay the tax to the budget, but is liable to a fine of 20% of the tax.

1.2

Registration of taxpayers (art. 83, 84)

All Russian corporate taxpayers (companies and individuals) should register with a local
state tax inspectorate. Upon the registration, each taxpayer is assigned a taxpayer
identification number (TIN), which must be shown on every invoice and payment
document of the taxpayer. A TIN is a tracking device, which allows the tax authorities to
review the payment history and activity of the taxpayer.

Rules for foreign companies registration are not examinable.

1.3

Registration deadlines

Data on the registration of newly-established organisations, their official (i.e. as


specified in the organisational charter) branches and representative offices and
individual entrepreneurs is entered in the Unified State Register of Legal Entities.

Corporate taxpayers should register at the places where the organisation and its subdivisions are located. Individual entrepreneurs should register at their place of residence.

Registration at the location of taxable real estate property and transport vehicles is
performed by the tax authority based on the information received from the
authorities responsible for the official registration of the property.

Registration of a corporate taxpayer at the location of a subdivision which is not specified in


the organisational charter is performed by the tax authority on application.

Deadlines for filing tax registration applications are as follows:

Location of tax registration body

Deadline for tax registration application

For a corporate taxpayer at the place where its


branches and subdivisions are located.

Within one month following the


establishment of the branch (subdivision).

A corporate taxpayer should inform the tax authority


at the place where its branches and subdivisions are
located in the event of termination of their activities.

Within 3 days following the date of


termination.

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The tax body must perform the taxpayers registration within five days from the
date of filing the required documents.

Individual entrepreneurs must notify the tax inspectorate of any change in the
place of their residence within 10 days from the date of this change.

Illustration 1
A television company TV10 located in Moscow has a reporter (employee) in Samara
and a piece of equipment (transmittal station in St. Petersburg). The company must
register with the tax authorities in Samara if the reporter has a permanent working
place there for a period exceeding 30 days. No tax registration in St. Petersburg is
required.
1.4

Penalties for late/non-registration (art. 116)

Penalties on taxpayers for failure to comply with registration requirements are as


follows:

Failure of a taxpayer to meet the deadline for filing


an application for registration with a tax authority.
No business activity is conducted (art. 116 point 1).

A 10,000 RR fine.

Conducting business activities without tax


registration (art. 116 point 2)

A fine of 10% of income earned during


this period from the business activities,
but not less than 40,000 RR.

Example 1
An individual entrepreneur has conducted trade activities without tax registration for 80
days. His gross income earned for that period was 50,000 RR.
Required:
Calculate the amount of tax penalty.
2

TAX AUDITS AND RELATED ISSUES

2.1

Tax control bodies and their powers (art. 30, 31)

The state tax service of the Russian Federation is comprised of the Federal Tax Service (FTS)
with the headquarters located in Moscow, its regional departments and local (territorial) state
tax inspectorates. This united centralised control system is the main executive body
responsible for collecting taxes.

Tax officers (state tax inspectors) may:

conduct on-site tax audits (see below);


suspend bank account operations;
seize property;
charge interest for late payment (non-payment) of taxes;
file claims with courts for imposition of tax penalties, annulment of licenses to
perform licensed activities, liquidation of corporate taxpayers, etc.

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The other major tax collector is the customs service headed by the State Customs Committee.
Customs collects VAT paid on import/export duties, customs excises, customs clearance and
other fees. The extra-budget Social Funds (Pension Fund, Social Insurance Fund, Federal and
territorial Obligatory Medical Insurance funds) are in charge of collecting and spending
obligatory contributions payable to them by both corporate and individual taxpayers in the form
of the social insurance and pension contributions.

2.2

Tax audits (art. 87- 89, 100)

2.2.1

Types

There are two types of tax audits:

cameral (in-office) audit (kameralnaja proverka) which can be conducted


within 3 months from the date of tax declaration submission (also called desk
audit); and

field (on-site) audit (viezdnaja proverka) with access to taxpayers books and
premises used for carrying out taxable activities. The audit can be conducted
based on the decision of the tax authoritys director.

The details relating to each type of audit are not examinable. However you should
be aware of the limitations imposed on tax audits by the Tax Code.

2.2.2

Limitations

Documents (or verified copies) which have already been submitted to the tax authority,
cannot be required again (apart from acts of God).

A tax audit cannot cover more than the three calendar years prior to the year of the
decision to undertake the audit.

A tax audit on the same tax for the same period can be conducted only once. This
limitation does not apply if:

the taxpayer submits corrected tax declaration for the audited period showing a
reduction in tax

the taxpayer undergoes a reorganisation or liquidation; or

a superior tax authority carries out a tax audit to control the tax body that
performed the first tax audit.

A maximum of two on-site audits of one taxpayer (i.e. head office) can be conducted during
one calendar year (this limitation does not relate to branches).

The timeframe during which a tax audit can be performed is usually limited to two
months. However, it can be increased up to four months (six months in
exceptional cases).

The tax audit can be suspended for carrying out additional procedures but not
longer than 6 months in total.

If a taxpayer has branches (representative offices), the maximum common audit


timeframe is one month for each branch (representative office). This term cannot
be increased.

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2.2.3

Actions

Actions that may be undertaken by the tax authorities during tax audits:

witnesses may be summoned (the taxpayers auditor and legal adviser


cannot be questioned as witnesses);
tax officials should be given access to the relevant grounds or premises;
inspections of premises, objects, etc may be held;
provision documents may be requested;
documents and other objects may be seized;
conclusions of experts may be sought;
specialists may be recruited to perform part of the tax control actions;
interpreters may be used.

Again the details will not be examined but a summary of possible actions may be called for.
2.2.4

Spravka

After the tax audit is completed, a special document called spravka is prepared.
Within two months after the completion of the audit, the audit act is drawn up and
presented to the taxpayer. The tax inspectorate will consider any objections that
the taxpayer may have and will prepare a decision on the audit. A payment request
(platezhnoie trebovanie) is sent to a taxpayer. The whole process is summarised
in the table below:

Action

Timeframe

Audit act

Not later than two months after


spravka is issued

Written objections to the


act by a taxpayer

15 days after the act is received


by the taxpayer or his authorised
representatives

May apply to the Act as a whole, or


to its separate parts

Consideration of taxpayers written objections

No later than 10 days after the


deadline for filing objections

Is signed by the chief of tax body (or


deputy-chief)

First tax decision on audit

No later than 10 days after the


deadline for filing objections
(can be extended for 1 month)

The decision may provide for:


imposition of penalties;
no penalties or sanctions.

Payment request

Payment request is issued within


10 days after the decision on
audit is effective.

The request is issued in relation to


underpaid tax, penalties and late
payment interest.

Appeal to the superior


tax authority.

(1) Before the first tax decision


is effective (10 days).

Performance of the first tax decision


is suspended until the date of
Superior authoritys decision.

(2) Within 1 year from the first


tax decision (if effective).

Taxes and fines should be paid in this


case

Superior authoritys
decision.

One month from the appeal


receipt.

Decision on tax audit comes into


effect on the date of the Superior
authoritys approval.

Appeal to court

Only after appeal to the superior


authority.

See section 5.

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Non-compliance with the above procedure can serve as basis for the annulment of the
decision of the tax body by the superior tax body or by the court.

2.3

Confidentiality of information (art. 102)

All information about a taxpayer received by a tax authority is considered


confidential with the exception of the following:

information made public, by the taxpayer or with the consent of the taxpayer;
TIN;
information on violations of the tax legislation and corresponding penalties;
information provided to tax or law enforcement agencies of other nations
under international treaties on mutual tax co-operation.

2.4

Presumption of innocence (art. 108 and 109)

The Tax Code introduces presumption of innocence with respect to taxpayers and
tax agents.

The burden of proving tax offences and the taxpayers guilt lies with the tax
authorities. Any irremovable doubt concerning the guilt of taxpayers, in
committing tax offences, is resolved in the taxpayers favour.

Persons cannot be brought to account for tax offences, if more than three years
have elapsed (statute of limitation) since:

the day when the offence was committed; or


the first day following the tax period, when the offence was committed.

2.5

Penalties for non-compliance with tax audit rules (art.126)

The following main penalties apply to taxpayers for a failure to comply with tax
control requirements:

Non-submission of documents and/or other


information envisaged by the Tax Code (and other
legislative acts on taxes and levies) by a taxpayer
or a tax agent to the tax bodies within the
established period of time (art. 126.1).

A fine equal to 200 RR for each nonsubmitted document.

Non-provision of information about a taxpayer to


the tax authority in the form of refusal of an
organisation to turn over the documents envisaged
by the Tax Code containing information on the
taxpayer at the request of a tax authority, or
provision of documents containing false
information (art. 126.2).

A fine of 10,000 RR.

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TAX PAYMENTS AND COLLECTIONS

3.1

General (art. 44, 45)

A tax obligation is considered to be fulfilled from the moment that:

a payment order is submitted to the bank, provided the bank account


balance allows the payment;

the relevant cash amount of tax payment is deposited with the bank (or the cashier
of the local government authority or a branch office of the Ministry of
Communications);

the tax authorities (or court) issues a decision to offset overpaid taxes
against the tax liability;

taxes are withheld by the tax agent.

A tax obligation is terminated in the following cases:

when the taxpayer pays the tax;

when circumstances which are equated with the termination of a tax


obligation under the tax legislation arise;

with the death of an individual taxpayer (with exception of property taxes);

with the liquidation of a corporate taxpayer.

3.2

Mandatory collection of taxes (art. 45 and 46)

In case of failure to pay, tax, late interest and fines are collected:

from organisations and individual entrepreneurs under mandatory procedure without a


court decision; and

from individuals in accordance with a court decision.

A mandatory collection of tax from a taxpayer may not be effected without a court
decision if:

the additional tax liability arose due to the re-classification by the tax authorities
of the legal status of transactions or nature of business in which the taxpayer is
engaged; or

the decision for the mandatory collection is made later than 60 days after the
deadline established in the demand to pay tax (art. 46.3).

3.3

Methods for ensuring execution of tax payments (art. 72)

Methods for ensuring execution of tax payments are:

pledges of assets;
guarantees;
late payment interest;
suspending bank transactions;
seizure of property and assets.

These methods will not be examined in detail except for the late payment interest.
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3.4

Late payment interest (art. 75)

Late payment interest is an additional amount of money which a taxpayer or a tax agent
should pay where taxes/levies are paid after the established deadline.

Late payment interest is not a tax penalty (which is a further additional payment
(fine) for tax violations) but interest for the use of budget money. Late payment
interest can be collected from:

legal entities and individual entrepreneurs along with the taxes overdue
without a court decision;

individuals (excluding individual entrepreneurs) only through court.

Late payment interest is accrued for each calendar day of arrears, beginning on the
day following the statutory deadline for the payment of taxes/levies.

The late payment interest rate equals 1/300 of the effective CBR rate. Late payment
interest should be paid simultaneously with the payment of tax liability or following such
a payment (i.e. before the tax penalties and fines are paid).

Example 2
Tax payment deadline was March 31, 2011. Tax amount was 60,000 RR. Actual payment
was made on July 5, 2011.
Required:
Calculate the late interest amount using Central Bank refinancing rate given in Rates and
Allowances (Session 00).
3.5

Suspending bank transactions (art. 76)

Suspending operations through bank accounts is used to ensure:

the execution of a decision to recover a tax or fee; or


the receipt of a tax return (where submission is delayed more than 10 days).

Suspension of operations means that the bank suspends all debit transactions, or
operations within the limits specified in the tax authoritys decision.

Suspension of a taxpaying organisation's transactions is effective when the bank


receives a decision of a tax authority until the reversal of this decision.

Suspension is reversed by the decision of a tax authority not later than one day
after the tax authority receives the documents (copies thereof) proving that tax has
been collected or tax return received.

A copy of a decision (to suspend or reverse) is sent to the bank the day after it is made.

If a tax authority breaches the term of cancelling a block on a taxpayers bank


account, interest accrues in favour of the taxpayer.

Such interest accrues on the suspended amount for each calendar day of arrears,
beginning on the day following the statutory deadline for the decision having been
taken or its submission to the bank.

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Illustration 2
On 5 February 2011 two bank accounts of the Company GF totalling 500,000 RR were
blocked because it did not submit a tax return (the deadline was on 20 January 2011).
The tax return was submitted to the tax authority on 8 February 2011. The tax authority
made a decision to unfreeze GFs bank accounts and sent it to the bank on 11 February 2011
(instead of 9th).
Interest accrues to GF for the two days delay:
500,000 25% 2/365 = 685 RR
Note that this very practical issue is important in defending the rights of taxpayers.
3.6

Offset and refund of taxes (art. 78, 79)

Overpaid taxes can be:

offset against future payments of the same tax;


offset against future payments of other taxes payable to the same budget;
refunded from the budget;
offset against tax arrears, late interest and penalties, provided that these amounts
are payable to the same budget to which the overpaid tax was remitted.

The taxpayer should make an application for a refund of the overpaid tax. The tax
should be refunded to the taxpayer within one month of the date the refund
application was received by the tax authority.

If the timeframe for a tax refund is violated, interest accrues at the Central Bank
refinancing rate.

Example 3
The tax inspectorate has collected on March 10, 2011 130,000 RR from a taxpayer through a
mandatory collection order (inkasso). The taxpayer complained to the court and won the
case. The tax inspectorate made a refund on June 5, 2011.
Required:
Calculate the refund amount.
Solution
RR
________
________

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3.7

Tax penalties for non-payment (art. 122, 123)

Failure to pay or failure to pay in full taxes


due as a result of understating the tax base or
incorrect calculation of taxes due based on
the results of a tax period, if discovered by
the tax authority during a field (on-site) audit.

A fine equal to 20% of the unpaid tax


liability.

The same actions committed intentionally.

A fine equal to 40% of the unpaid tax


liability.

Failure of a tax agent to fulfil the duty of


withholding and/or remitting taxes.

A fine equal to 20% of the amount that was


subject to withholding and remittance.

In addition to these tax penalties the taxpayer should also pay late payment interest.

Example 4
The tax inspectorate has discovered intentional understatement of taxable revenue for
December 2010 year in the amount of 200,000 RR. The deadline for payment was 28 March
2011. Payment was made by the taxpayer on 30 June 2011. The applicable tax rate was
35%.
Required:
Calculate the amounts which have to be paid to the budget, including the sanctions (tax
penalties and interest on late tax payment).
Solution
RR

_______
_______
4

TAX RETURNS

4.1

General (art. 80)

A tax return is a taxpayers written statement showing income generated and


expenditures incurred, sources of income, tax allowances and tax amounts
calculated and other data relating to the calculation and payment of a tax.

A tax return should be filed by each taxpayer for every tax due from such a
taxpayer unless the tax legislation provides otherwise.

A tax return should be filed in a prescribed form with the tax authority at the place of the
taxpayers registration. In cases established by the Tax Code, a tax return may be
submitted on a floppy disk or another device that can be computer processed.

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A taxpayer may deliver his tax return to the tax authority in person or send it by mail.

The tax authority may not decline to accept the tax return and must, if the taxpayer so
requests, make a note on a tax return copy to acknowledge the acceptance and date of
submission; if a tax return is mailed the date of its submission is that of mailing the
registered letter with a list of contents attached.

A filed tax return bears the TIN that is used with respect to all taxes.

The tax authorities cannot require that a taxpayer includes in the tax return data
that is not related to the calculation and payment of taxes.

A tax return is filed within the statutory deadlines.

Instructions on how to complete a tax return for the payment of federal, regional and
local taxes are given by the Ministry of Finance of the Russian Federation.

4.2

Amendments and additions to tax returns (art. 81)

On discovering that a tax return which has been filed does not reflect the true data,
or reflects incomplete data, resulting in the understatement of the amount of the tax
due, a taxpayer must make the necessary additions and amendments to the tax
return.

Where mistakes are discovered in the tax return which do not result in the
underpayment of tax, the taxpayer still has a right to amend the tax return.

Where it is impossible to establish the tax point in which a mistake arose, the
correction is made in the tax period in which the mistake is discovered (art.54).

Where the above statement on additions and amendments is made prior to the
expiration of the deadline for filing a tax return such a tax return is recognised as
having been filed on the date of the statement.

Where the statement on additions and changes is made following the expiration of
the deadline for filing a tax return but before the expiration of the deadline for
payment of the tax, the taxpayer is not held responsible if the statement has been
made prior to the date when the taxpayer learned about the discovery of these
circumstances by a tax body or about the appointment of a field tax audit.

Where a statement on additions and changes is made following the expiration of the
deadline for filing a tax return and also after the deadline for payment of the tax, the
taxpayer is still not held responsible if the above statement has been made by the
taxpayer prior to the date when the taxpayer learned about the discovery of these
circumstances by a tax body or about the appointment of a field tax audit. The taxpayer
is released from penalties (but not late payment interest) provided that before filing
such an application the taxpayer has paid the deficient amount of the tax and the
corresponding late payment interest.

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4.3

Penalties for late/incorrect submission (art. 119)

The following main penalties apply to taxpayers for a failure to comply with tax
returns submission deadlines and forms:

Failure by a taxpayer or his legal


representative to meet the tax declaration
filing deadline.

A fine in the amount of 5% of the tax as per this


declaration for each complete or incomplete month
from the submission day, but not more than 30% of
the tax amount and not less than 1,000 RR

Violation of established method of tax return


submission (i.e. not electronically).

A fine equal to 200 RR.

Example 5
The deadline for tax declaration submission was January 20, 2011. The actual submission
date was May 4, 2011. The tax amount declared was 10,000 RR.
Required:
Calculate the tax penalty.
Solution

4.4

Violations in accounting rules (art. 120)

Serious violation of accounting rules is understood as:

the absence of source documents and/or VAT invoices and/or accounting


registers/journals;

systematic (more than twice per year) non-recording of transactions in


accounting.

The following main penalties apply to taxpayers for a failure to comply with
accounting rules for income/expenses and objects of taxation:

Serious violation of accounting rules which


did not result in any decrease of a tax base

A fine in the amount of 10,000 RR if


violation took place in one tax period, or
a fine of 30,000 RR if the violation took
place in several tax periods.

Serious violation of accounting rules which


resulted in the decrease of a tax base.

A fine in the amount of 20% of the tax


underpaid but not less than 40,000 RR.

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TAX APPEALS

5.1

Right to appeal (art. 137)

Taxpayers and tax agents have the right to lodge an appeal against the acts,
actions, or inaction of the tax authorities.

Taxpayers (tax agents) have the right to appeal against the decisions of the tax
authorities:

with superior tax authorities;


in court of law (arbitration court). (Since 01.01.2009 a taxpayer is obliged to
appeal to superior tax authorities before filing an appeal in court.)

The procedure for a tax appeal order in respect of the first tax decision is set out in the
Tax Code (art. 101.2).

Appeals against the decisions of the tax authorities in court are made by bringing suit with
an arbitration court in conformity with the laws on arbitration procedure.

5.2

Lodging an appeal (art. 139)

Lodging an appeal with a superior tax authority does not suspend execution of the
act or action being appealed (except for cases where such acts are suspended by
the tax authority considering the appeal).

Action

Deadline

Filing

3 months from the time when the


taxpayer discovered or should have
discovered that its rights were
violated.

Consideration

Up to one month from the date when


the appeal has been received.

Decision

Decision is taken within one month


and is made known to the taxpayer
within 3 days after the decision has
been adopted.

Consequences

Served in writing to the


person that lodged the
appeal.

After considering the appeal the tax authority is entitled to:

dismiss the appeal;


invalidate the tax authoritys act and order another audit;
overturn the decision and quash the case;
amend the decision or issue another ruling.

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FOCUS
You should now be able to:

state the limitations related to tax audits conducted by tax authorities;

state the conditions under which the consequent tax audit can be carried out;

outline the procedure for a tax appeal order in respect of first tax decision received (art. 101.2);

explain and calculate the administrative tax sanctions for non-compliance;

explain the procedure by which the tax authorities collect penalties from taxpayers;

explain the difference between interest on late tax payments and tax penalties;

compute interest on late tax payments;

explain the procedure of interest accrued in favour of taxpayer in case of tax authorities breach
the term of cancellation the decision on blocking the accounts in taxpayers bank;

explain the refund procedure and deadlines for corporate profits tax;

state the amounts of penalties for tax underpayments or non-payments;

state the amounts of penalties for non-filing or late filing of tax returns;

explain taxpayers right for the adjustments of tax base and tax in tax period when the
mistakes have been found out related to previous tax periods.

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EXAMPLE SOLUTIONS
Solution 1
The fine is the greater of:
10% of gross income earned (i.e. 5,000 RR); or
40,000 RR.
Therefore, the fine is 40,000 RR.
Solution 2
Central Bank refinancing rates (notional):
01/01/11-30/06/11 - 25%
01/07/11-30/09/11 20%
The late interest is calculated as follows:
60,000 RR 91 days 1/300 25% = 4,550 RR
60,000 RR 5 days 1/300 20% = 200 RR
Total amount of late interest is 4,750 RR
Solution 3
The refund will be made along with interest, calculated using Central Bank rate, which is
25% (notional):
130,000
130,000 25% (21+30+31+5)/365 days

RR
130,000
7,747
_______
137,747
_______

Solution 4
RR
Amount of underpaid tax (200,000 35%)
70,000
Intentional violation at 40% penalty
28,000
Interest on late tax payment (70,000 RR 94 days 1/300 25%) 5,483
_______
Total amount

103,483
_______

Solution 5
The time delay is equal to 5 months (January-May. Penalty for late submission will be 5%
of tax liability per declaration multiplied by 5 months, or 2,500 RR. (Each complete and
incomplete month counts.)

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GLOSSARY

Words highlighted by italics within an entry indicate other entries under which further explanation or
information can be found.
A
Accounting depreciation depreciation used for accounting purposes only. May be different from
depreciation calculated for tax purposes.
Accounting profit difference between accounting income and accounting expenses.
Accrual a liability to pay for goods received/services supplied that has not been paid, invoiced or
formally agreed with the supplier, including amounts due to employees (e.g. holiday pay).
Accruals method of income recognition under this method income/expenses are recognised for tax
purposes when they were accrued rather than paid. Generally income is accrued when the title to
goods (works, services) is transferred from seller to buyer.
Accumulated depreciation total of depreciation charges for a certain period of time.
Allocation see Expense allocation.
Allowances decrease in taxable income of the individual or a legal entity (e.g. standard personal and
dependants allowances for individuals).
Allowed expenses see Tax deductible expenses.
Amortisation the systematic allocation of depreciable amount of an intangible asset over its useful
life.
Asset a resource controlled as a result of past events and from which future economic benefits are
expected to flow.
Asset cost amount that includes: acquisition cost; own cost if produced/installed with own labour
(include appropriate direct cost and overhead).
Audit the objective of an audit of financial statements is to enable the auditor to express an opinion
whether the financial statements are prepared, in all material respects, in accordance with an
identified financial reporting framework.
Avoidance reduction of tax burden using legitimate techniques.
B
Bad debt a debt that is considered non-collectible.
Bad debt write-off removing debt from accounting records. Tax consequences depend on the
specific circumstances of the write-off.
Basic VAT rate 18%, it applies to most goods and services.
Benefits in kind benefits provided to employees in a non-cash form.
Branch organisational component of a company. It is not a separate legal entity. See also Separate
subdivision.
Business see Enterprise.
Business income type of income for personal income tax purposes, includes income of individual
entrepreneurs.

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C
Cameral audit an audit conducted at the authoritys location based on the SIC payers reporting
(calculations) documents submitted.
Cash method of income recognition one of the two allowable methods of income/expense
recognition, under which income/expense is recognised when actually received/paid. Capital see
Registered capital.
Capitalisation recognising an amount as part of the cost of an asset.
Charter capital contribution a transfer of assets to the charter capital of a legal entity.
Contributions can be monetary, ie for cash or non-monetary, ie for consideration other than cash.
Confirmed export export which is proved by required documents for VAT purposes .
Copyright applies to literary, scientific, and artistic works that are the result of creative activities by
their authors.
CPT corporate profits tax.
Corporate profits tax type of income tax levied on entities.
Customs declaration a statement which must be filled in every time goods are imported or exported
to indicate the customs regime used and customs value of items.
Customs duty duties levied on import of goods.
Customs regime a regime used for importation or exportation of goods. VAT and customs duty are
then payable according to the type of the regime.
Customs value value of the goods imported to the Russia. Usually it is the invoiced amount plus
any directly related expenses such as transportation, licence fee, etc.
D
Declarative procedure of VAT recovery The procedures by which certain taxpayers can obtain a
refund of input VAT before their tax declaration is checked by the tax authority.
Deductions from tax (a) qualified expenses of individuals, decreasing their PIT liabilities (e.g.
social and property deductions); (b) expenses of a legal entity, deductible for CPT purposes.
Depreciable property property, capital improvements, objects of intellectual rights, etc used for
income-generating activities with a useful life of more than one year and an original value more than
40,000 RR.
Depreciation the systematic allocation of depreciable amount of an asset over its useful life.
Desk audit see Cameral audit.
Direct taxes taxes where the taxpayer is known (e.g. income taxes, property taxes).
Direct expenses expenses that directly relate to the cost of goods (works, services) manufactured or
bought for resale (i.e. direct materials, wages and salaries of main production workers). Direct
expenses must be prorated between cost of goods sold and ending stocks.
Disallowed expenses non tax deductible expenses.
Disposal of an asset sale, liquidation or donation of an asset.
Dividends distributions of profits to equity investors in proportion to shareholdings.
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Donations free transfer of assets to legal entities or physical persons.


Double taxation occurs when the same income is subject to the same type of tax more than once.
DTT double tax treaty.
Double tax treaty convention for the avoidance of double taxation designed to ensure that a
taxpayer, whether corporate or individual, will not suffer double taxation on the same income, if that
income is taxable in more than one country or contracting state at the same time.
E
Educational deduction one of several social deductions granted to an individual taxpayer. Income
taxed at 13% rate can be decrease by the amount of documentary confirmed expenses of a taxpayer
on his own education and education of his children. .
Employment income type of income for personal income tax purposes, includes salary and wages.
Enterprise aggregate of the tangible, personal and intangible components of business activities.
Equity accounting term, which comprises registered capital, capital funds, profit and loss for the
period, reserves, etc.
Excise duty duty levied on hydrocarbon fuels and lubricants, spirits, wine, beer, tobacco and some
other goods.
Exclusions income, which is not subject to CPT (i.e. excluded from taxation).
Exempt supplies supplies which are not subject to VAT. Input VAT on such supplies is either
capitalised or deducted for CPT purposes.
Expenses decreases in economic benefits in the form of outflows (or depletions) of assets or
incidences of liabilities that result in decreases in equity (other than distributions to equity
participants).
Expense allocation see proration of expenses under accruals method.
Export of goods customs regime under which goods are leaving the RF territory with no return
obligation.
Export of services in a VAT sense means that services were related to exported goods.
F
FMV fair market value.
Fair market value selling/purchase price in an active market defined according with article 40 of the
Tax Code.
Field audit an audit conducted at the SIC payers location under a decision made by the Head of the
authority.
Financial lease under such an agreement the lessor provides an asset to the lessee which is
accounted for on the lessees balance sheet.

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Financial statements the balance sheets, income statements (or profit and loss accounts), the cash
flow statement, notes and other statements and explanatory material which are identified as being part
of the financial statements.
First-in, first-out (FIFO) assumes that items, which were bought first is sold first therefore periodend inventory is that most recently purchased/produced.
Fixed assets for CPT purposes assets with an estimated useful life exceeding one year and the
original cost exceeding 40,000 RR.
G
Gift tax tax levied on donations.
Gifts see Donations.
H
Housing incentive a tax incentive granted to individual taxpayers, acquiring residential property or
plots of land for individual residential house construction in the form of reduction of taxable income
subject to 13% by the acquisition amount. The incentive is limited to 2,000,000 RR and is granted
once in a lifetime. Any unused incentive amount can be carried forward until it is completely utilised
in subsequent years.
I
Individual entrepreneur an individual, carrying out business activities, registered with tax
inspectorate.
In-office audit tax audit conducted in a tax office based on the returns submitted by a taxpayer and
additional documents, requested by a tax body. Also called in-house or cameral audit.
Immovable assets real estates, i.e. buildings, constructions, land, etc.
Improvement see Technical appreciation.
Imputed interest income on loans taxable income, which is assessed on zero-rate/low interest loans.
This interest is calculated for tax purposes only.
Income increases in economic benefits in the form of inflows (or enhancements) of assets or
decreases of liabilities that result in increases in equity (other than those relating to contributions from
equity participant).
Income tax tax levied on individuals income (personal income tax).
Indirect taxes taxes where the taxpayer is not known and the tax is withheld by the tax collector
(e.g. value added tax, excise duty).
Indirect expenses expenses, which decrease taxable base for CPT in the period when they arise.
These expenses are not allocated (prorated) between cost of goods sold and ending stocks.
Inheritance tax tax levied on inherited assets.
Input VAT VAT imposed on purchases.

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Intangible asset an identifiable non-monetary asset without physical substance (held for use in
producing/supplying goods/services, for rental to other, or for administrative purposes.
J
Joint-activities agreement an agreement between two or more parties to join their efforts in a
specific area. See also Simple partnership.
Joint stock company company whose registered capital is divided into shares of a specific nominal
value. The company is liable for a breach of its obligations with its entire property.
L
Last-in, first-out (LIFO) assumes that inventory items bought last are sold first therefore period-end
inventory is that most lately purchased/produced.
Late payment interest compensation to the budget for late payment of tax (levy). This is not a tax
penalty and may be collected from a taxpayer through a mandatory collection procedure.
Liability a present obligation arising from past events, the settlement of which is expected to result
in an outflow of resources embodying economic benefits.
Limited liability company legal entity whose registered capital is made up of contributions agreed
in advance by its members.
Linear depreciation method depreciation is calculated monthly for each fixed asset as
the original tax cost (after deduction of any initial write-off) multiplied by the
depreciation rate determined for the specific fixed asset.
Losses see Net operating losses.
M
Medical deduction one of several social deductions granted to an individual taxpayer. Under this
deduction income taxed at 13% rate can be decrease by the amount of documentary confirmed own
medical expenses of a taxpayer and medical treatment of his/her closed relatives (parents and children
under 18 years of age). .
Movable assets assets other than real estate.
N
NBV Net book value.
Net book value the difference between the original cost of assets (adjusted for any allowable
revaluations) less related accumulated depreciation. .
Net business assets business property reduced by liabilities incurred in connection with business
activity.
Net operating losses losses from operational activities. Can be carried forward and utilised over 10
years following the year of loss.
Non-linear depreciation method depreciation is calculated for each depreciation group (subgroup)
based on its total net balance value.

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Non operational income/expenses income not included in sales/cost of sales, i.e. interest
received/paid, rental income/expense, commercial penalties received/paid.
Non recoverable VAT input VAT which cannot be recovered and is either capitalised/deducted or
charged out of after-tax-profits.
Non profit organisations entities which are established without a purpose of a profit making
business activity.
Non resident see Tax non-resident.
Non tax deductible expenses expense, which is not allowed for tax purposes and is ignored for tax
accounting.
O
On-site audit tax audit conducted in the office of taxpayer.
Operating lease under such an agreement the lessor provides an asset to the lessee but it is still
accounted for on the lessors books.
Operational income/expenses income/expenses arising from sales of goods (works, services), sales
of fixed and other assets.
Output VAT VAT imposed on sales.
Offset see tax offset.
Original asset cost purchase price of an asset plus all related expenses, which were capitalised at
the moment of purchase according to CPT rules.
P
Pension deduction one of several social deductions granted to an individual taxpayer. Under this
deduction income taxed at 13% rate can be decrease by the amount of documentary confirmed
personal taxpayers expenses on non-state pension security and/or voluntary pension insurance for the
benefit of taxpayer or his spouse, parents and/or children-invalids.
Permanent working place a working place created for the period exceeding one month.
Person liable to tax tax subject, can be either a taxpayer or a tax agent.
Personal income tax type of income tax levied on individuals.
PIT Personal income tax.
Proration of expenses under accruals method procedure used if a company uses accruals method
for CPT purposes. The direct operational expenses are prorated. Non-operation expenses are not
prorated.
Proration of input VAT input VAT incurred on resources used for both VATable and exempt
supplies is partially recovered and partially capitalised (included in the cost of related resources). The
proration is performed based on exempt/total sales ratio.
Property deductions deductions available to individuals on sales of personal property. The amount
of deduction depends on the type of property and the period of property ownership by a taxpayer.

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Provision a liability of uncertain timing or amount. For tax purposes only certain provisions can be
lead to tax deductible expenses.
Property tax tax on property of legal or physical persons.
Q
Qualified propertyproperty that is taken into account for tax purposes in various given
circumstances.
R
Recovery see VAT recovery.
Recurring supply a taxable supply within agreed time limits, so that under the contract the supply is
rendered in the form of the same kind of goods or services, or transfer and use of rights (e.g.
electricity supply).
Reduced VAT rate 10%, it applies mostly to food stuff and some childrens goods.
Registered capital is a total of participants monetary and non-monetary contributions to the company.
Repair as opposed to technical appreciation, repair is a current year expenses, which does not have
to be capitalised.
Research original and planned investigation undertaken to gain new scientific/ technical
knowledge/understanding.
Reserve fund mandatory formed from net profit by a limited liability company and joint stock
company. The companies are bound to create the fund in the year when a profit is first attained
according to the annual financial statements.
Reserves see Provision.
Resident see Tax resident.
Residual value see Net book value.
Revaluation change (increase or decrease) of fixed assets original cost. Can be mandatory or optional.
Revenue see Income.
Russian source income includes income from activities carried in Russia (including income from
employment in the Russia), income from services provided in Russia, income from the sale of real
estate situated in Russia, copyright, dividends, interest payments received from Russian persons, etc.
Non residents are taxed on Russian source income only.
S
Securities shares, bonds, bills of exchange, cheques, participation certificates, etc. .
Self-employed see Individual entrepreneur.
Separate subdivision any subdivision with permanent working places in a location other than the
location of the head office.

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Share a security to which are attached shareholders rights to participate in the management of the
company, its profit and also liquidation share, if the companys is dissolved.
SIC see Social insurance contributions.
Simple partnership not a legal entity created under joint activity agreement. The income of a
simple partnership is allocated to its participants and taxed either by CPT or by PIT.
Social deductions see Educational, Medical and Pension deductions.
Social insurance contributions compulsory payments for obligatory social insurance (Social
Security Fund, Pension Fund, Medical Fund).
Standard VAT declaration VAT declaration, which is filed by all VAT payers.
Straight line depreciation method of depreciation under which an asset is depreciated evenly over
its useful working life. See Linear method.
Standard personal and children deductions reduction of individuals taxable income subject to 13%
rate. Apply up to (not including) the month when gross income exceeds 40,000 RR/280,000 RR.
T
Tangible asset asset with physical substance.
Tax accounting accounting system maintained according to the rules of the Tax Code Chapter 25.
Tax accounting policy a document in which an organisation selects and ratifies the methods and
variants of tax accounting.
Tax audit an examination conducted by tax officers in order to verify the tax data submitted by a
taxpayer. See also In-office audit and On-site audit.
Tax assessment see Tax decision.
TC Tax Code of Russian Federation.
Tax agent a person with a duty to calculate and withhold tax from payments to taxpayers and to
remit these amounts to budget.
Tax cost of depreciable property for a fixed asset purchased from third parties this includes
purchase price and all costs required for transportation, installation and testing of the asset.
Tax decision document issued as a result of a tax audit. Any additional tax liabilities and penalties
can be imposed only on the basis of an official tax decision.
Tax deductible expenses expenses, which are allowed for tax purposes.
Tax depreciation the method (Linear/Straight-line or Non-linear) is chosen by the taxpayer and
defined in tax accounting policy.
Tax non-resident an individual staying in Russian for less than 183 days.
Tax offset application of tax receivable to future tax liabilities on this tax or to current liabilities on
other taxes. No money is given back to taxpayer as in case of a tax refund.

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GLOSSARY

Tax point date when a taxable supply was made. Important to determine, as it is a day when output
VAT is due.
Tax rate rate of tax applicable to a tax base.
Tax recapture arising of a tax liability, which was previously not recognised.
Tax receivable amount due to a taxpayer from budget generally as a result of a tax overpayment.
Tax recovery cancellation of a tax receivable either through a tax offset or a tax refund.
Tax refund payment of a tax receivable back to a taxpayer.
Tax resident an individual who spends 183 or more days in Russia in a calendar year and is liable to
tax on his/her world-wide income.
Tax return a document disclosing the taxpayers tax liability.
Tax year year for which a tax liability is calculated, in Russia it is always a calendar year.
Taxable income for CPT purposes means taxable revenue less deductible expenses; for PIT
purposes means gross taxable income less all available deductions and housing incentive.
Taxpayer a person who is liable to tax.
Technical appreciation expenditure on improvement of asset.
Technical improvement see Technical appreciation.
TIN tax identification number, all taxpayer are given this number when they register with a tax
inspectorate.
Thin capitalisation rules special set of interest deductibility rules relating to loans received from
foreign legal entities, which directly or indirectly control the Russian company loan recipient. .
Total net balance value for each depreciation group (subgroup) this is the sum of all values of fixed
assets included in this group (subgroup) less accumulated depreciation of the group (subgroup).
U
Unconfirmed export export that is not proved by required documents for VAT purposes within 180
days starting from the export date.
Useful life of an asset expected term of the assets service life.
V
VAT see Value added tax.
Value added tax tax levied on taxable supplies in Russia, import of goods.
VATable supply delivery of goods, provision of services and transfer of rights which are subject to
VAT.
VAT declarations see Zero-rate VAT declaration and Standard VAT declaration.

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GLOSSARY

VAT tax base amount subject to VAT, which is calculated in accordance with the Tax Code art.
153.
Z
Zero-rated supplies are zero rated when there is no output VAT but at the same time full recovery of
input VAT is allowed. Generally relates to export of goods.
Zero-rate VAT declaration VAT declaration filed by taxpayers carrying out operations that are
VATable at zero-rate. Such declaration is filed within the same time limits as a standard VAT
declaration.

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INDEX

Accounting policy
Accruals method of income recognition
Advance payments
Advertising expenses
Allocation of direct expenses
Allocation principles
Allowances for receivables
Amendments to tax returns
Amortisation of intangible assets
Assets for no consideration
Average property value

421
208
809
307
211
813
408
1211
323
402
1103

Declarative procedure
Depreciable property
Depreciation expense
Depreciation groups
Destruction of property
Direct expenses
Direct tax
Discounted goods
Disposal of materials
Dividend income
Dividends

B
Blocking bank accounts
Branches
Branches of Russian legal entities
Business activities
Business entertainment
Business training expenses
Business travel expenses
Business trips

906
314, 420
323
316
609
208
107
1007
329
610
203, 412

E
1208
1009
114
113
308
309
305, 607
608

Education expenses
Execution of tax payments
Exempt activities
Exempt income
Expense classification
Export confirmation
Export sales

Factoring operations
Federal Tax Service
Federal taxes
Filing requirements
Financial lease
Fines and penalties
Fixed assets
Foreign currency
Foreign exchange gains/losses
Future export

Capital improvements
325
Capitalized VAT
908
Cash method of income recognition
219
Charity contributions
510
Classification of depreciation expense
323
Clawback of input VAT
811
Collection of taxes
1207
Commercial contracts
407
Commercial debt factoring
405
Commission income
218, 909
Commission operations
912
Confidentiality of information
1206
Copyright agreements
1007
Corporate profits tax
201
Corporate property tax
1102
Court system
106
CPT allocation to separate subdivisions
417
CPT exclusions
205
CPT quarterly payment system
424
CPT reporting and payment procedures
422
CPT tax and reporting periods
202
CPT tax liability computation
204
CPT tax rates
203
CPT taxpayers
202

Accountancy Tuition Centre (International Holdings) Ltd 2011

510
1207
806
505
205
903
809, 902

909
1203
107
704
324
407
314
807
403
907

G
General profits tax
Gifts
Government spending
Gross income

203
505, 605
102
504

H
Housing incentive

1401

515, 705

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INDEX

I
Immovable property
Imputed interest
Income classification
Income receipt
Income recognition
Indirect expenses
Indirect tax
Individual entrepreneurs
In-kind payments
Input VAT recovery
Insurance contributions
Insurance expenses
Insurance income
Intellectual property
Interest
Interest expense
Interest on bank deposits
Interest reimbursement
International tax legislation
Investment income

P
812
603
204
504
505
208
107
703, 1009
1006
810
506
309
608
520
809
302
602
311
105
610

Partial exemption
812
Partially deductible expenses
302
Payment deadlines
704
Payments based on actual profits
424
Payments based on estimated profits
422
Payments in-kind
1006
Penalties
1203, 1206, 1210, 1212
Pension deduction
511
Pension insurance
610
Personal and children allowances
509
Personal income tax calculation
705
Personal income tax reporting
704
Presumption of innocence
1206
Production company
414
Production expenses
210
Production operations
213
Professional deductions
518
Profits and losses of previous years
403
Property damage
609
Property deductions
514
Property disposals
326
Property insurance
609
Property sales income
506
Property tax
1101

L
Late payment interest
Leased assets
Life insurance
Local taxes
Lodging an appeal
Loss carry forward

1208
324
608
107
1213
411

R
Recovering VAT
Refund of taxes
Regional taxes
Registration deadlines
Registration of taxpayers
Right to appeal

M
Medical expenses

511

N
Net balance value
No consideration
Non-current assets
Non-deductible expenses
Non-linear method
Non-operational expenses
Non-operational income
Non-state pension security
Notional units

S
320
402
314
206
319
217
215, 402
610
403

Sale of property
Sale of securities
Sales income
Securities
Self-supplied construction
Shipment date
SIC base
SIC object
SIC objects
SIC payers
Simple partnerships
Social deductions
Social insurance contributions
Special depreciation coefficients
Sports prizes
Spravka
Standard deductions
State Customs Committee

O
Object of taxation
Offset of taxes
Operating lease
Optimisation instrument
Output VAT

914
1209
107
1202
1202
1213

805
1209
324
421
805

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514
611
208
611
910
208
1003
1003
1006
1002
218
510
1002
322
605
1205
509
1204

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INDEX

Straight-line method
Sum difference

318
216, 807

U
Unconfirmed export

Tax accounting
419
Tax accounting register
420
Tax agents
112, 702, 1202
Tax appeals
1213
Tax audits
1203, 1204
Tax base
202
Tax Code
102
Tax cost of depreciable property
315
Tax declaration
704
Tax depreciation
317
Tax exemptions
505
Tax laws
103
Tax legislation
105
Tax object
202, 804
Tax officers
1203
Tax payments
1207
Tax period
804
Tax point
806
Tax returns
1210
Tax withholding
502
Taxable supply
805
Taxpayer identification number
1202
Taxpayer obligations
703
Taxpayers
112, 1202
Thin capitalisation rules
312
Time-limits
104
Trading company
416
Trading operations
211

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VAT declaration forms


VAT due dates
VAT exempt supplies
VAT invoice
VAT payers
VAT rates
VAT tax base
Violations in accounting rules

913
913
806
911
803
804
806
1212

W
Withholding tax

613

Z
Zero rate VAT

1403

902

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INDEX

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