The new Federal Law № 305-FZ: a large package of tax changes
On July 2, 2021, Federal Law No. 305-FZ was signed, introducing major amendments to the Tax Code of the Russian Federation (hereinafter — the “RTC”). Some of its provisions will already be applicable in 2021.
1. The safe harbors for controlling interest on intra-group loans following transfer pricing rules have been changed
The rates for the calculation of the maximum allowable interest for tax purposes following the IBOR (interbank offer rates) reform have been replaced by €STR, SOFR, SONIA, and SARON rates in Article 269 of the RTC, depending on the currency.
The new rates shall apply from the beginning of 2022. Information on the rates, including historical data, is available on the official websites of financial institutions of the respective countries.
It is recommended to make sure that the system for monitoring the consistency of loan rates with the market level considers the particularities of the new rates, and the new limits will not be violated.
2. Restrictions on losses carried forward have been extended
The limitation on accounting for previous years' losses for income tax purposes has been extended until the end of 2024. It should be noted that for several years the tax base cannot be reduced by more than 50% due to the previously incurred losses.
Earlier, the abolition of the limitation to support the economy during the pandemic was actively discussed, but this idea was not supported by the authorities.
3. The list of foreign companies’ passive incomes subject to taxation in Russia has been expanded
From 2022, certain cost of a permanent establishment of a foreign legal entity will be deemed as income of the foreign legal entity and, therefore, subject of Russian profit withholding tax. In particular, this is true for interest on loans used for financing the activities of the permanent establishment.
It is recommended to prepare for greater openness in your interaction with the tax authorities: make sure or prepare a justification that loans or credits to a foreign company cannot be attributed to the activities of a permanent establishment in Russia.
4. An answer is given to the question of the VAT payment by foreign companies if they are registered in Russia
Russian businesses receiving works or services from foreign legal entities are obliged to withhold and pay the applicable VAT to the Russian legal entities, if the foreign legal entity does not maintain a tax registered location in Russia. If the works or services are provided through a Russian permanent establishment, the permanent establishment itself is obliged to pay the applicable VAT to the Russian tax authorities. From October 2021, it is clarified that the Russian recipient of works and services is obliged to withhold and pay VAT even if the foreign legal entity maintains a tax registered location in Russia, provided that such tax registered location is not involved in providing the relevant works and services to the Russian recipient.
It is recommended to clarify the procedure for dealing with Russian customers.
5. Expenses related to R&D have been expanded
There is now the possibility to consider for profit tax purposes not only material costs, labor remuneration, amounts of depreciation, and other types of expenses, but also expenses for the acquisition of results of intellectual activities.
The law also introduces many other important changes for business, set out in more than 50 pages of the document. In our review, we have considered the most important of them, directly related to the activities of our clients.