Problems relating to Trade and Investment on Russia
14. Taxation Systems |
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Issue |
Issue details |
Requests |
Reference |
| (1) Inadequate VAT Taxation System | - While the VAT refund scheme is provided in the regulation, actual refund procedures are complex and difficult to materialise. While set-off in the VAT refund application in next fiscal term should be workable, in effect, it requires GOR's assessment. In some cases, VAT refund is carried over to next fiscal year, not next fiscal term. - VAT paid upon import into Russia is effectively unrefundable. (VAT refund procedures are extremely complex on VAT prepaid on the products first imported into Russia and re-exported to countries outside TCU. In effect, it is not refundable.) |
- It is requested that GOR: -- administers VAT refund scheme strictly in accordance with the registration. -- introduces the notion of untaxed transactions and refrains from inclusion into the total amount, which forms the basis for input VAT calculation. - It is requested that GOR simplifies the methods for filing VAT refund application (by minimizing the amount of the requisite documents). |
- Tax Code Part II, Chapter 2 - Tax Code of the Russian Federation "Part Two No. 117-FZ of 5 August 2000, Chapter 21. Value-Added Tax" |
| (Info) - VAT is levied on goods imported into Russia, domestic sales, purchase or transfer of goods, and provision of service. The basic VAT rate is 18%, while reduced rate of 10% is levied upon foods, children's goods, certain products including medical equipment, provision of service, while 0% VAT normally applies to export goods. VAT is exempted on indispensable medical equipment, medical service, educational service, banking service, etc. |
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| (2) Complex Tax Accounting Procedures and Non-Introduction of IFRS | - To handle the voluminous documents for tax accounting procedures, it is necessary to employ numerous accounting and taxation staff. It is a heavy burden when starting a new company in Russia. | - It is requested that GOR introduces International Financial Reporting Standards (IFRS) as soon as possible and streamlines the tax accounting system in Russia. | |
| (3) Unfair Levy of Wheeled Vehicle Scrapping Tax | - While GOR reduced import duty on passenger car from 30% to 25% upon accession to WTO, it has introduced new recycle (scrap) tax on passenger cars as if to complement the import duty so reduced. As tax rates vary by engine displacement, in some cases the tax rate is higher than the 5% reduction in import duty, so that a firm is unable to secure the budgeted profit. - Within the Russia, Kazakhstan and Belarus Customs Union, RDT (Rigid Dump Truck) manufacturers of Belarus alone enjoy recycle tax exemption almost unconditionally. |
- The process till the introduction of the new taxation system has been nebulous, as the terms have gone through a number of changes from the original draft, undisclosed up to the very moment before final decision. Hereafter, it is requested that GOJ induces GOR to secure transparency in introduction of changes in the taxation system, such as reduction of tax rates in stages, or change in the calculation method for scrap tax, etc., by securing an ample moratorium period and a justifiable explanation, etc. - It is requested that GOR introduces uniform fair recycle tax within the tripartite customs union, and levies recycle tax on imported finished RDT to benefit the local production within the tripartite customs union. |
- Resolution of the RF Government No.870 dated 30.08.2012 "On Wheeled Vehicle Scrapping Fees" |
| (Improvement) - In September 2012, GOR introduced auto recycling fee (recycling tax scheme), which grants the room for tax exemption for recycling auto only upon domestically manufactured auto, with a possibility of violation on national treatment, etc. as recycling tax scheme grants tax exemption also on imports from Belarus, and Kazakhstan, the TCU member states. - In June and September 2012, Japan Minister of Economy, Trade and Industry expressed his concern to Russian Minister of Economy and development and first vice-ninister, respectively. - In November 2012, at the WTO council for trade in goods, Japan expressed its concern on recycling tax scheme with the U.S./EU. - In March 2013, GOR expressed improvement of the recycling tax scheme at the WTO council for trade in goods. - In October 2013, amended recycling tax scheme was approved at the Russian federal assembly, and enforced from January 2014. |
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| (4) High Rate of Withholding Tax | - Russian withholding tax under the bilateral tax treaty is 10% or 15%, while 5% applies to Favoured States. - Under the Japan-Russia tax treaty, withholding tax of 15% is payable for remittance from Russia to Japan. This withholding tax rate is substantially higher than the model tax treaty under OECD. It serves as a major factor that hinders Japanese investment into Russia. |
- It is requested that GOR / GOJ reduce withholding tax (of 10% or 15%) on interests, dividends and utility fees equal to favoured state (5%). - It is requested that GOR and GOJ take steps to amend the current tax treaty as soon as possible. |
- Japan-Russia Tax Treaty |
| (5) Non-Existence of Consolidated Income Tax Payment Scheme | - A member firm developing business in Russia finds uneven performances among its subsidiaries (MFS'). If consolidation is allowable on profit and loss of all Russian MFS' as a single consolidated business entity, then member firm can both leave tax payment, and support further business development in Russia. | - It is requested that GOR takes steps to introduce the scheme that allows consolidated tax payment. | |
| (6) Change in Taxation Scheme | - Oil export tax (enforced on 26 December 2014) and oil extraction tax (enforced on 1 January 2015) has been modified. The mine site the member firm now implements mineral exploration/evaluation in collaboration with the joint venture partner prior to the legislative amendment, used to be tax exempted mine site for 15-years (in irkutsk state). However, the legislative amendment has repealed the provisions in concern at this time. After the amendment, tax exemption no longer applies in full, impacting heavily upon P&L of the operation. | - It is requested that before effecting change in taxation scheme or tax rates, GOR assures transparency by making available opportunities for exchange of dialogues with foreign funded Enterprises, providing sufficient and justifiable explanation to ensure transparency. | - Law No. 366-FZ, promulgated on 24 November 2014, Amending Russian Federal Tax Law |
| (7) Insufficient Capital Control | - GOR implements its own control on insufficient capitalisation, and in such an event, demands increase in capital stock. | - It is requested that GOJ takes step to have GOR repeal insufficient capital control. | |
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