In order to answer the question whether any changes in the Russian tax laws are planned or not, investors should carefully study the basic trends of budgetary, tax and customs policy for the year of 2018 and for the planning period of 2019 and 2020 (hereinafter referred to as the Document). In this article, we will outline the main provisions of the Document and give practical recommendations for investors.
Focus on the Risk-Oriented Approach
In order to get an answer to the question whether the changes are planned in the tax law of the Russian Federation, investors should thoroughly study the principal areas of the budget, tax and customs policy for 2018 and for the target period of 2019 and 2020 (hereinafter referred to as the Document).
The Draft Document on the said changes is posted on the official site of the State Duma Committee for Budget and Taxes. We will highlight its underlying provisions in this article and give practical hints for investors.
The goal pursued by the state within the framework of the economic policy is development of the country. To achieve this goal, it is planned to address the issues of securing stability and predictability of economic and financial conditions and removing structural misbalances and obstacles for development, including those relating to demographic challenges, competitive ability and efficiency of resource allocation in the economy.
As regards taxation, the state focuses on the so-called risk-oriented approach to the tax control measures.
Thus, the state has set the «rules of the game» for the business in the mid-run, whereunder a company or a holding will come in sight of supervision agencies in case the Federal Tax Service detects the certain risk criteria of doing business.
According to the official statistics, the number of field tax audits is reduced annually, but the amounts of additional charges as a result of such audits increase.
Reduction occurs due to relaxation of control over fair taxpayers. Tax agencies select taxpayers for the control measures more thoroughly. They are aided by the automated system of the value added tax control (VAT ASC -2). The system has been successfully operating since 2015 and pays off considerably by maintaining the annual growth of VAT returns to the budget. The main point of the system is reduced to detection of the «fly-by-night companies» in the territory of Russia from the importer or producer to the exporter or end consumer. Actually, the tax agencies introduce the system of the goods traffic traceability from the stage of customs registration to the sales to the end consumer. In our opinion, this system will make it possible to considerably reduce the number of VAT optimization schemes using «fly-by-night companies» by taxpayers. As a matter of practice, judicial authorities accept the proofs received by the Federal Tax Service using this system, and make decisions on the tax disputes in favor of the fiscal agency rather often.
Helping Tax Authorities
Additionally, starting from February 01, 2018, the Federal Tax Service plans to launch a pilot project to implement a scheme of control of the imported goods using the «transparent» (from the border to the retail sector) identification by means of assigning the unique classification criteria to the goods, in the territory of the EEU.
Individual attention will be paid to the taking of the retail turnover out of the shadow by means of proper administration of the retail trade and use of the online cash desks. A «complete coverage» of all retail networks and data transfer to the FTS severs is expected starting from July 01, 2018.
Incomes and property of individuals will not be left unattended by the FTS as well, as the tax agencies plan to create a uniform state register of vital records and a federal register of information on citizens.
Overall, the vector of the budget, tax, customs and tariff policy is aimed at the digitization and integration of all information sources and data flows into a common information space with its subsequent automation and analysis by means of modern data processing technologies.
Additionally, in aid of the tax agencies the law makers passed Federal Law No. 163-FZ dated July 18, 2017, whereby it made amendments to the first part of the Tax Code (Article 54.1 of the Tax Code of the Russian Federation).
In fact, the Article contains regulations of the Plenum of the Superior Arbitration Court of Russia No. 53, On Assessment by Arbitration Courts of Justification of the Tax Profit Received by Taxpayers, dated October 12, 2006.
In accordance with the amendments, it will be possible to reduce the tax base or payable tax amount, if:
–there are no misstatements about items of business operations and taxable items which are recognized in the tax and accounting records or in tax returns;
–non-payment of tax, incomplete payment of tax, credit for tax or return of tax is not a purpose, which the whole transaction or operation was consummated for;
–the transaction obligation was fulfilled by the contract party and/or by any other person who was entrusted with fulfillment of the same by law or under the contract. It may be a commission contract, agent’s contract, etc.
In the meantime, the unjustified tax benefit does not arise simply because:
–primary documents were signed by a nonidentified or unauthorized person;
–a counterparty infringed taxes and dues law;
– a taxpayer could achieve the same economic result having consummated other transactions or operations.
The said rules are applied for defining the amount of dues and insurance payments.
Presently, the clear criteria for the tax benefit justification are fixed in the Tax Code.
Thus, the state control over tax payment in the Russian Federation is on the increase and brings positive results for the state.
Trend for Business «Whitewashing» Will be Preserved
Acting through the tax authorities, the state realizes that a considerable part of the tax base of the Russian business and individuals is outside the country.
That is why the FTS has announced its focus on the return of capitals to Russia for the next few years. Thus, according to the provisions of the Document, the control over the controlled foreign companies will continue in the form of liquidation of legislation gaps in terms of a clearer definition of taxation elements.
Additionally, in order to prevent tax evasion, the FTS plans to launch a system of automatic exchange of the tax information with the low tax jurisdictions with a purpose to avoid tax payment using such jurisdictions.
Thus, the tax control will be intensified, and introduction of new technologies will make it possible to expand the tax administration ammunition many-fold. The trend for the business «whitewashing» will be preserved.
As the VAT collection rate is relatively high and the labor taxes collection rate is low in Russia, the lawmakers think it advisable to reduce direct labor taxes rates and to increase the VAT rates at the same time.
That is, on the one hand, the tax agencies get a common information space for transactions in Russia, where the FTS, aided by modern data processing technologies, will be able to promptly identify dishonest companies raising claims against beneficiaries under such transactions, and on the other hand, the increase of the VAT rate may provoke growth of prices for products, works and services.
From our point of view, lawmakers will not increase the VAT rate after all but will look for internal reserves to intensify collection of other taxes (according to the pattern of a change of the format of administering real estate and collecting taxes on the cadastral cost of land).
In the meantime, it is worth noting that the Document should not be perceived solely from a negative point of view; the state lifts the veil on the planned areas for effectuation of receipts of compulsory payments to the budget. Alongside this, every taxpayer will be able to diagnose and audit its current activities and get ready for planned changes in advance.
Investors should take the planned innovations into account, build a business model and develop a legal structure attracting professional tax advisors and lawyers in advance.