Global Tax Alert | 4 March 2014

Russia identifies steps to improve competitiveness of the Russian tax system within six years

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Executive summary

After several years of discussions between the state authorities and the business community, this February the Russian Government finally approved the Roadmap for developing tax administration in Russia (the “Roadmap”).1 The list of initiatives has been significantly reduced during the consultation process. At the end of 2012, 80 potential measures were under discussion. Most importantly, the document contains a fixed deadline for each initiative and the responsible bodies for each item.

Overall the Roadmap is aimed at improving the competitiveness of the Russian tax system and the country’s investment climate as a whole. This could improve Russia’s position in the World Bank’s Doing Business ratings (Russia was ranked 64th in relation to paying taxes in 2013 and the Government wants to reach 40th by 2018).

The Roadmap is divided into several sections. This Alert elaborates on the most important points.

Detailed discussion

Tax rulings

One of the most important initiatives involves considering the possibility of introducing advance tax clarifications, i.e., tax rulings, which would allow taxpayers to avoid disputes and tax litigation if they have followed the clarification obtained prior to a transaction. The tax authorities will not be allowed to revise their position following the provision of such a clarification unless any significant aspects of a particular transaction were concealed from them. The deadline for the completion of the analysis of international experience of tax rulings and deciding the optimal model suitable for Russia is September 2014.

The introduction of binding tax rulings would represent a major development in Russian tax practice. The only form of ruling which exists at present is the advance pricing agreement and very few of those have been concluded since being permitted for the first time in 2012. Currently letters of clarification are not binding and cannot limit a taxpayer’s tax liabilities, only exposure to fines. Furthermore, the tax authorities typically refuse to comment on hypothetical questions or questions concerning transactions which have yet to occur.

Information exchange between the tax authorities and taxpayers

There is also an initiative to publish on a semi-annual basis a summary of the tax clarifications issued by the Finance Ministry which are binding on the tax authorities and to also implement a regime of more in-depth information exchange between the tax authorities and large taxpayers based on international experience.

Saving time on the preparation and filing of tax returns

Proposed measures include a switch to electronic filing even for small businesses and extending the existing filing deadlines by another 10 days. The Roadmap also envisages prohibiting the requesting by other executive powers of tax returns which have already been submitted to the tax authorities.

Harmonization of tax and statutory accounts

This mainly boils down to a simplification of the maintenance of tax accounts by eliminating the differences between tax principles and Russian accounting principles which prevent the use of the statutory accounts as a basis for tax calculations. However it is unclear how this could be achieved in practice. The profits tax base has not been derived from the profit per the statutory accounts since the Profits Tax Chapter of the Tax Code came into effect in 2002.

Other

Other measures mostly relate to the simplification of document flows (e.g., electronic exchange of VAT invoices) and the extension of on-line services available via the web-site of the tax authorities.

Future Alerts will provide updates on the progress towards the implementation of the Roadmap.

Endnote

1. Approved by Government Order No. 162-r of 10 February 2014.

For additional information with respect to this Alert, please contact the following:

Ernst & Young (CIS) B.V., Moscow
  • Maureen O’Donoghue
    +7 495 228 3670
    maureen.odonoghue@ru.ey.com
  • Anastasia Stepanova
    +7 495 755 9700 ext 4713
    anastasia.y.stepanova@ru.ey.com
Ernst & Young LLP, Russian Tax Desk, New York
  • Julia Samoletova
    +1 212 773 8088
    julia.samoletova@ey.com

EYG no. CM4222