Latest Changes to the RF Tax Code: New Draft Law

The draft law "On Amendments to Parts One and Two of the RF Tax Code and Certain Legislative Acts of the Russian Federation" (hereinafter the Draft Law) has been published)[1].

The proposed changes relate to issues of tax administration, corporate income tax, value added tax, personal income tax, property taxes, excise taxes, and special tax regimes.

Let us discuss the main ones.

Tax administration

1. In cases where the tax payment deadline falls on a non-working day, it is proposed to move the tax payment deadline to the preceding working day. For example, if the advance payment deadline for corporate income tax falls on 28 April (Saturday), the payment must be made no later than 27 April (Friday).

   In cases not related to tax and advance payments, the deadline will continue to be the next business day following the last non-working day of the deadline.

2. It is planned to legally establish the possibility of on-site audits not only for periods up to three calendar years preceding the year in which the tax authority issued its decision to conduct the audit, but also for tax periods of the current year completed before the date of that decision. This option was previously the issue of debate, and the amendments are expected to clarify this issue.
3. It is planned to clarify the procedure for recording in the Unified Tax System (UTS) the tax authorities’ decisions on early termination of deferral or instalment plans, as well as on full or partial revocation of decisions granting tax deductions. In particular, the amounts specified in the decisions imposing liability will be excluded from the UTS balance if the court has taken protective measures in response to a claim by a person challenging that decision. Tax authorities' decisions on early termination of deferrals or instalments, as well as on cancellation of decisions on granting a tax deduction, will also be taken into account.
4. It is proposed to reduce the number of notifications submitted by taxpayers regarding assessed tax amounts, advance tax payments, fees, and insurance contributions, namely:
   1. cancel notifications on property taxes;
   2. allow early notifications on personal income tax and insurance contributions to be submitted simultaneously for all periods until the end of the year (however, if the amounts of personal income tax or insurance contributions exceed the previously announced forecast values, updated notifications shall be submitted).
5. Proposals have been made regarding the provision of deferrals (instalment plans and investment tax credits) to taxpayers, in particular:
1. persons engaged in seasonal activities—both those whose operations are suspended due to natural and climatic conditions, and those whose operations are reduced by more than 50% due to natural and climatic conditions, as well as because of falling demand, will be granted the right to deferrals and instalment plans on tax payments;
2. b. the number of documents submitted for the purpose of obtaining deferrals or instalments shall be optimised - in particular, it is planned to exclude bank statements on monthly turnover and cash balances from this list;
3. c. the maximum possible term of the investment tax credit shall be increased from 5 to 10 years.
6. Proposals have been made to improve the tax monitoring function:
1. tax officials will be granted the right to inspect areas and premises, seize documents and items from individuals subject to tax monitoring, if violations of law are detected;
2. a candidate for tax monitoring will no longer be required to meet all three criteria simultaneously (by revenue, book value of assets, amount of taxes paid) - meeting one of them will be sufficient and
3. the grounds for early termination of tax monitoring will include cases of systematic violations of the procedure and deadlines for the tax authority's access to the company's information systems, as well as non-compliance of the company's information interaction regulations, its information systems, and its internal control system with established requirements;
4. a provision is introduced stating that the period of the company’s tax monitoring is not interrupted during its reorganisation, if its legal successor also joins tax monitoring (currently, reorganisation serves as a basis for early termination of monitoring).
7. The tax authorities will be able to cancel bank guarantees if they are not used. It is also proposed to prohibit the provision of a hard copy bank guarantee when obtaining a deferral/instalment plan.
8. Additions will be made to the provisions concerning the correction of prior period errors in the current period. In particular, it is proposed to legally prohibit the correction of prior period errors in the current period, if the tax rate was raised since then.

Value added tax

1. Russian taxpayers who are lessors are proposed to be required to calculate VAT when leasing out mining infrastructure, as well as when providing real-time computing power for mining.
2. For taxpayers engaged in the extraction of precious metals, it is planned to establish a zero VAT on the sale to refineries of ores, concentrates and other industrial products containing precious metals.

Corporate income tax

1. It is proposed to exclude from the list of property that is not subject to depreciation the assets acquired (constructed) using budgetary funds from targeted financing, given the expenses incurred using such budgetary funds are not included in the initial cost of such fixed assets.
2. It is proposed to introduce an additional criteria for applying an increasing coefficient to the costs of acquiring rights to use computer programs, databases, and hardware and software systems under license and sublicense agreements: license (sublicense) agreements should not provide for a possibility of transferring the relevant right to third parties. In other words, if the rights are purchased for subsequent resale, the coefficient cannot be applied.
3. A 50% limitation on reducing the tax base of the current period by the amount of losses in previous years (the 50% limitation on the carry-forward of losses ) is planned to be extended until 2030. According to the current version of the RF Tax Code, this limitation is valid until 31 December 2026.
4. Subject to the grounds specified in Article 266 of the RF Tax Code, it is proposed to recognise as bad debts the rights of claim to the previous guaranteeing supplier, which are acquired at par value by the new guaranteeing supplier and which are a condition for performance of its operations, as well as the rights of claims on loans acquired by banks and collection agencies. This will allow to include claims on outstanding accounts payable, purchased at par value by the new guaranteeing supplier, in current expenses when calculating the income tax base. Currently, debts to which a taxpayer (except banks) acquired the right to claim cannot be recognised as bad debts.
5. Any person who is in the same group as the taxpayer who has made capital investments will be able to apply the federal investment tax deduction, regardless of the industry. Currently, the list of companies eligible for the deduction is very limited. The amendments will resolve the issue of whether the deduction can be transferred within a group, if the company receiving it operates in an industry for which the deduction is not applied.

Personal income tax and insurance contributions

1. The list of income exempt from personal income tax is proposed to include:
   1. compensation by the guilty person for the value of lost property in cases provided for by the legislation of the Russian Federation, subjects of the Russian Federation, and local governments;
   2. provision to the employee of a compulsory medical insurance policy required for entry and stay in foreign countries during a business trip, or compensation for its cost.
2. It is planned to cancel the exemption from personal income tax on income received from the sale of foreign shares, as well as income received on withdrawal from a company and redemption of shares, even if their ownership period exceeds 5 years.
3. A procedure is proposed for determining expenses for acquisition of a share in the authorised capital of a company in cases, where the share is acquired by an individual taxpayer as a result of reorganisation of another company (in accordance with the provisions of Paragraphs 4-6, Article 277 of the RF Tax Code).
4. The requirement to independently declare and pay personal income tax is planned to be extended to cases of partial failure to withhold personal income tax by the tax agent.
5. 5. Bookmakers and sweepstakes are proposed to be assigned the duties of a tax agent. They will be obliged to calculate personal income tax on every winning, regardless of its size.
6. It is proposed to establish the start date for IT companies and organisations in the electronics industry to apply uniform reduced rates for insurance contributions—from the month of receiving the IT company's state accreditation document/inclusion in the register of organisations operating in the electronics industry. Currently, the Russian Tax Code does not clarify this issue, and taxpayers are guided solely by the clarifications of the Russian Ministry of Finance.

Special Tax Regimes

1. It is proposed to clarify the transitional provisions for transition from the simplified tax system (STS) and the single agricultural tax (SAT) to the general tax regime (GTR) with respect to accounting treatment of expenses in the form of the cost of goods (property rights) purchased and paid for no earlier than 3 years preceding the year of transition, but realised after the transition.
2. It is proposed to allow individual entrepreneurs to submit updated patent applications in connection with a change in the number of physical indicators (in order to recalculate the patent tax amount).

Excise taxes, tax on excess income from hydrocarbons extraction (EPT), and mineral extraction tax (MET)

1. Legal and technical adjustments to the definition of the Poil and P indicators are planned for the purposes of calculating excise taxes and excess-profits tax (EPT).
2. It is planned to clarify the formula for calculating the price of Russian oil. The definition of the price of Russian oil is proposed to be brought into line with the amendments to the RF Tax Code effective 1 January 2025 (for calculating the MET).
3. To stimulate the investment activity and development of new projects, an initiative has been introduced to provide a MET deduction for iron ore (excluding oxidised ferruginous quartzites) mined in the Olenegorsk District of the Murmansk Region.

Property taxes (transport tax, corporate property tax, and land tax)

It is proposed to postpone the payment of taxes and their advances by one month:

1. the deadline for tax payment is no later than 28 March of the year following the expired tax period;
2. the deadline for making advance payments is no later than the 28th day of the second month following the expired reporting period.

In addition, the Draft Law contains proposals to clarify the provisions of the RF Tax Code regarding water and tourist taxes, as well as state duties.

[1] Official website for posting information on preparation of legal regulations and follow-up discussions

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