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Tax & Legal
18 - 24 January 2021
Legislative Tracking
Be in the know
Legislative initiatives Media Review
Ministry of Finance contemplates new benefits for SAD residents EAEU members discuss future of digital fiscal monitoring
Proposal against banning entry to Russia to certain categories of foreigners EAEU member states approve concept of common financial market
Proposal to speed up transition of national critical information infrastructure to Russian software
Court Practice
Russia resumes air service with Finland, Vietnam, India, Qatar
Tax free pilot extended until end of 2021
Supreme Court: leasing revenues are not limited to leasing payments
Draft resolution of EEC Council on labelling of goods
Commercial court of Kirov Region: excessive interest on controlled debt to be treated as regular
Recycling fee indexation mulled for wheeled vehicles and special-purpose equipment interest
Proposal to extend labelling deadlines for inventories of consumer goods
Sakhalin Region to run carbon units trading pilot International tax news
Regulatory Clarification OECD updates guidance on enforcement of international tax treaties during COVID-2019 related
restrictions
Jersey implements new beneficial ownership reporting requirements
Ministry of Finance: MLI comes into effect for some jurisdictions
Federal Tax Service: can CFC profit at the level of controlling owner in 2019 be reduced by dividends
distributed in 2018 out of previous years’ retained earnings
© 2020 Deloitte Consulting LLC. All rights reserved. 1
Legislative initiatives Proposal against banning entry to Russia to certain categories of foreigners
Ministry of Finance contemplates new benefits for SAD residents A bill to that effect was submitted to the Russian State Duma.
Special administrative districts (SAD) were created back in 2018; however, they have not gained According to the bill, foreign citizens whose close relatives are Russian citizens permanently
much popularity among investors as they were notably inferior to such business-friendly residing in Russia may not be banned from entering the country, even if they have been
jurisdictions as Cyprus, Luxembourg or the Netherlands. repeatedly charged with administrative offences.
The interest to SADs was boosted by the reconsideration of Russian tax treaties. Official Website of the Russian State Duma
The new benefits envisaged by a bill developed by the Russian Ministry of Finance are expected to
give additional impetus to redomiciliation into SADs.
Proposal to speed up transition of national critical information infrastructure to Russian software
Such benefits include: The Ministry of Digital Development of Russia plans to accelerate by one year the transition to
1) a reduced CIT rate of five percent for multinational holdings (MH) subject to a number of Russian software for the critical information infrastructure (CII) facilities.
prerequisites: The CII facilities will be required to use predominantly Russian software by 1 January 2023,
• a total infrastructure investment of at least RUB 300 million Russian hardware – by 1 January 2024 (vs. 1 January 2024 and 1 January 2025, respectively).
• a headcount of at least 15 FTEs The decision was driven by the proposals put forward during the public discussions of the project
and is based on the Russian developers’ capacities to meet the demand.
• passive income accounting for at least 90 percent of the total
The text of the document has not yet been officially published.
2) a 10-percent tax on dividends, interest, and royalties received from MH (provided such
holdings apply the five-percent CIT rate and meet the above-mentioned prerequisites) Kommersant
3) the review of MH criteria
Russia resumes air service with Finland, Vietnam, India, Qatar
4) a CIT exemption for foreign branches of MH engaged in mining projects subject to certain
prerequisites Flights will resume starting from 27 January 2021.
5) the exclusion of exchange differences from the tax base. Official website of the Russian Government
Reportedly, the document is pending the Government’s approval and will be presented for public
discussion shortly. Tax free pilot extended until end of 2021
VTimes The pilot project for refunding of VAT to foreign nationals moving goods purchased in Russia
outside the EAEU will be extended until 31 December 2021.
Official Internet site of the Russian Government
© 2020 Deloitte Consulting LLC. All rights reserved. 2
Draft resolution of EEC Council on labelling of goods Proposal to extend labelling deadlines for inventories of consumer goods
In particular, the deadlines will be extended for labelling of clothes and underwear. Generally,
Council of the Eurasian Economic Commission (EEC) developed a basic technological and labelling of consumer goods is mandated as of 1 January 2021. After the date, all operations
organisational model for labelling of goods in the EAEU, aimed at implementing “The agreement involving such products must be entered into the labelling information system.
on labelling of goods in the EAEU” of 2 February 2018.
According to Government Resolution No. 1956 of 31 December 2019, such goods must be
Released on 19 January 2021, the document: labelled until 1 February 2021, if imported and not sold before 1 January 2021.
• provides for the launch and operation of a goods labelling system in the EAEU member states The Ministry of Industry and Trade now proposes extending the deadline to 1 April 2021 and
• provides for the launch of an integrated IT system to support interactions of/with labelling permitting producers, distributors, and importers to carry unlabelled stock until then.
operators Federal draft legislation portal
• regulates cross-border trade between a member state labelling goods and a member state
not labelling goods Sakhalin Region to run carbon units trading pilot
• regulates cross-border trade between member states labelling goods The pilot roadmap was approved by Deputy Prime Minister Victoria Abramchenko. This is going to
• regulates generation and attachment of labels be Russia’s first pilot that will lay foundation to carbon units trading.
• sets forth the requirements to the IT system supporting labelling of goods. The bill regulating the pilot must be submitted to the State Duma in July 2021 and will offer a
selection of mechanisms for taking stock of emissions and removal of greenhouse gases, create a
Public consultations on the document will continue until 8 February 2021. carbon trading system and regulate the use of ‘green’ financing instruments. The roadmap
Legal portal of the EAEU provides for the following steps:
• by August 2021: to take stock of emissions and removal of greenhouse gases and create a
cadastral map of the region’s greenhouse gases
Recycling fee indexation mulled for wheeled vehicles and special-purpose equipment
• by September 2021: to identify economic activities that in aggregate produce over 80
The base rate of recycling fee for LCVs may be raised from RUB 20,000 to RUB 25,000, for other percent of greenhouse gases
vehicle categories – from RUB 150,000 to RUB 187,500.
• by April 2022: to create an information system supporting the pilot
The base rate increase is not expected to trigger growth of prices for Russian-made vehicles as it
would be counterbalanced by sectoral government support programmes. • from September 2021 to February 2023: to implement climate projects and trading in
carbon units
Also, there is a proposal to increase recycling fee rates for special-purpose equipment.
• July 2022: to record the first project results in the register of carbon units and enter the first
For example, the coefficient for new under-100HP bulldozers will be increased from 4 to 7 (for trading operations into the information system.
bulldozers over three years old – from 12 to 42).
The project is geared towards making the region carbon-neutral by 2025 and is expected to result
Federal Portal of Draft Legislation in the establishment of a regional system for trading in carbon units and ensure its integration
with international trading systems with the assistance of the Russian Ministry of Foreign Affairs.
© 2020 Deloitte Consulting LLC. All rights reserved.
Official website of the Russian Government
3
Regulatory clarifications (a) interim financial reporting is prepared, confirming availability of funds for distribution
Ministry of Finance: MLI comes into effect for some jurisdictions (b) the total distributions cannot exceed the total profit received in the previous year for which
financial reporting was prepared, containing any profit carryforwards and reserves available for
The ministry announced completion of domestic procedures required for the MLI (Multilateral
this purpose and adjusted by any losses of previous periods and provisions created according to
Convention to Implement Tax Treaty Related Measures to Prevent BEPS) to come into force in
the legislation or company’s charter.
respect of double tax treaties (DTTs) with some countries, including Cyprus, Malta, Luxembourg,
the UK, the Netherlands, Austria, Singapore, and others (34 countries altogether). Based on the above, the FTS believes that interim dividends should be interpreted as the amount
to be distributed by the company, including all profit carryforwards. However, such amount
For WHT, provisions of the MLI apply starting from 1 January 2021, for other taxes – from 1
cannot be represented solely by the previous years’ earnings and must include the current
January 2022.
financial year’s profit.
Official Internet site of the Ministry of Finance of Russia
If a CFC has no profit in the current financial year, distributions made before the end of such year
cannot be treated as interim dividends, because they do not depend on the expected (estimated)
Federal Tax Service: can CFC profit at the level of controlling owner in 2019 be reduced by earnings of the company.
dividends distributed in 2018 out of previous years’ retained earnings Based on the interim reporting prepared, the CFC was in a loss-making position for the period
from 1 January 2018 to the date the decision on payment of dividends was made, so the
The Tax Code does not contain any provisions that would limit reducing the income of a CFC by
dividends paid in 2018 could not include the 2018 earnings and cannot be treated as interim
the amount of dividends distributed out of previous years’ retained earnings.
dividends.
However, the question remains, in what particular period this can be performed. According to the
According to the FTS, the CFC’s 2018 income to be reported as part of the controlling owner’s
Tax Code, a CFC’s profit can be reduced by:
2019 profit cannot be reduced by the dividends paid by such CFC in 2018 out of previous years’
• dividends distributed by such CFC in the calendar year following the year for which, in retained earnings. Such dividends should have been reported as part of the CFC’s 2017 profit,
accordance with such CFC’s lex societatis (law governing such company’s activities), financial reportable by the controlling owner in 2018.
reporting is prepared
Consultant Plus
• by interim dividends, distributed within the financial year, for which reporting is prepared. Media Review
Based on this, the CFC profit for 2018 can be reduced by dividends paid in 2019 and interim
EAEU members discuss future of digital fiscal monitoring
dividends paid in 2018.
In his speech at the 14th Eurasian Tax Forum, Timur Zhaksylykov, Minister for Economy and
The next question is whether the 2018 dividends paid out of previous years’ retained earnings be
Financial Policy of the Eurasian Economic Commission, spoke on the efforts towards the
treated at par with interim dividends.
improvement of the EAEU’s taxation mechanism and addressing the challenges arising from the
The FTS noted that Russian legislation does not define the term ‘interim dividends’, so the term increasing digitalisation of economy.
should be used based on its economic substance and in line with international rules and
In particular, by mid-2021, the EAEU plans to reach a consensus on digital fiscal monitoring of
standards.
marketed goods, introduce a traceability mechanism and digital labelling, and improve e-
According to para 5 article 56 of the EU Directive No 2017/1132, if the legislation of a EU member commerce taxation.
state allows payment of interim dividends, the following minimum requirements apply:
Official Eurasian Economic Committee website
© 2020 Deloitte Consulting LLC. All rights reserved. 4
EAEU member states approve concept of common financial market The tax authorities, however, did not establish whether such income was generated by business
The President of Russia Vladimir Putin announced that the EAEU countries (Armenia, Belarus, activities other than leasing operations:
Kazakhstan, Kyrgyzstan, and Russia) have approved the concept of the common financial market • no proof was presented that origination fees were not related to leasing operations
and are now working on a common energy market blueprint.
• as far as installment sales, no proof was presented that such sales contracts were not related
The text of the concept sets forth that the common financial market consists of financial markets to income from financing (leasing) services: the argument that it was a case of reverse leasing
of the EAEU member states and offers a simplified and equal-opportunity access to such national (when assets are bought from the owner and then leased back to it, conditioned on
markets. repayment of the purchase price in installments) was not noted
The common market would include the banking, securities, and insurance sectors of each state, as • non-operating income cannot be attributed to a separate type of business activity.
well as the mechanisms regulating inter-sectoral interactions.
The Supreme Court ruled that during the retrial, the court must consider the arguments of the
Kommersant taxpayer.
Court Practice Digital Justice: a commercial court cases database
Supreme Court: leasing revenues are not limited to leasing payments
Commercial court of Kirov Region: excessive interest on controlled debt to be treated as regular
A company believed that its activities could be classified as leasing operations (with non-leasing
interest
revenues accounting for less than 10 percent of the total) and that it had the right to claim an
adjustment coefficient of 12.5 (instead of 3) for thin capitalisation purposes. A company used the thin capitalisation rules for a foreign currency-denominated loan, raised from
a foreign related party. A part of interest was treated as excessive and was not recorded for tax
In the tax authorities’ opinion, the Tax Code (as effective throughout the audited period) allowed
accounting purposes. As the company made no interest payments, it posted a foreign currency-
the use of the coefficient of 12.5 only for purely leasing activities.
denominated liability for accrued but unpaid interest in its financial accounting records.
Courts of three instances supported the tax authorities, but the Supreme Court returned the case
The company believed that inasmuch as excessive interest was not recognised in tax accounting,
for retrial, noting that the coefficient of 12.5 for banks and leasing companies was set with regard
the respective exchange differences (positive or negative) arising from the revaluation of interest
to their activities – they raise capital to invest it at a profit, so a higher leverage is normal for them.
owed do not need to be accounted for, either.
Based on this, a leasing company cannot be arbitrarily denied the use of such increasing
The tax authorities disputed this approach and, as the positive differences were greater than the
coefficient – a sufficient proof that the company was engaged in other lines of business must be
negative ones, assessed additional tax.
presented (the fact that a leasing company receives income other than from leasing payments
cannot alone prove it). The court of first instance supported the tax authorities, citing as follows:
In the case under consideration, the taxpayer did receive income other than leasing payments – • the Tax Code does not contain any special rules for revaluation of excessive interest owed
leasing origination fees, proceeds from installment sales of equipment and machinery, and other
• excessive interest is treated as dividends; already in 2012, the Supreme Commercial Court
non-operating income.
supported recognition of exchange differences arising from revaluation of dividends payable
(Presidium of the Supreme Commercial Court Resolution on Case А81-5904/2010 dated 29
May 2012)
© 2020 Deloitte Consulting LLC. All rights reserved. 5
• exchange differences arise for reasons out of the taxpayer’s control, due to the The Law provides for the introduction of new reporting requirements on beneficial owners and
macroeconomic processes. significant persons of certain types of entities (companies, foundations, incorporate limited
partnerships, limited liability companies, etc.), determined as follows:
Basing on these arguments, the court ruled that foreign-currency denominated interest owed
should be revalued under the regular rules. • beneficial owner under the new law means an individual who ultimately owns or controls the
entity, or the individual on whose behalf a transaction is being conducted by the entity,
Digital Justice: a commercial court cases database including an individual who exercises ultimate effective control over the entity. For this
purpose, ultimate effective control over an entity includes ownership or control exercised
International tax news through a chain of ownership or by means of control other than direct control
• significant person means a director/secretary of a company, a managing partner of a
OECD updates guidance on enforcement of international tax treaties during COVID-2019 related partnership, a member of the council of a foundation, etc.
restrictions
In general, the requirement to provide information under the new law applies when an
The updated document clarifies such issues as creation of permanent establishment of a foreign application to the Jersey Financial Services Commission is made to register or establish an entity
entity during the restrictions and the impact of restrictions on establishing tax residency. under relevant entity legislation.
Official Internet site of the OECD If there are any changes in the information or error or inaccuracy is discovered, this must be
notified within 21 days.
Jersey implements new beneficial ownership reporting requirements The new law also requires the submission of an annual confirmation statement, verifying that the
beneficial owner information, significant person information, and any other prescribed
Jersey has published the Financial Services (Disclosure and Provision of Information) (Jersey) Order information provided to the Commission in relation to the entity is accurate. The statement is
and the Financial Services (Disclosure and Provision of Information) (Jersey) Regulations, which generally due between 1 January and the end of February in each year following the year in which
provide certain rules for the implementation of the Financial Services (Disclosure and Provision of an entity is established. However, the deadline for the first statement is 30 April 2021.
Information) (Jersey) Law.
Orbitax
© 2020 Deloitte Consulting LLC. All rights reserved. 6
Deloitte publications
Federal law on changes in the regulation of remote work, including temporary work, enters into Russia is getting ready to ditch the tax treaty with the Netherlands
force in January 2021
The start of denunciation procedures was officially communicated by the Ministry of Finance and
On December 08, 2020, the President of Russia signed the Federal Law No. 407-FZ of 8 December a respective bill was announced on the Federal Draft Legislation Portal.
2020 (‘the Law’), which regulates remote work including temporary remote work.
Read on for more details in our LT in Focus of 7 December 2020
Read on for more details in our LT in Focus of 11 January 2021
New guidelines for man-made and natural emergencies training
BEPS 2.0. International tax overhaul
The Russian Government has approved new rules for training Russian and foreign nationals and
The OECD continues its work towards overhauling the international tax system, its main areas stateless persons in emergency preparedness and response to natural and man-made disasters.
The new rules replace the current Government Resolution No. 547 of 4 September 2003 and will
of focus being:
apply from 1 January 2021 to 31 December 2026.
• a fundamentally new approach to the allocation of taxing rights with respect to business
Adherence to established emergency response practices has become especially important in
profits in the digital age (Pillar 1)
2020 due to the persistent spread of coronavirus and continued state of high alert in Russia. In
• global minimum taxation (Pillar 2) April 2020, the Russian Code for Administrative Offences was supplemented with Article 20.6.1,
The Inclusive Framework released a package consisting of the Report on the Pillar One Blueprint which establishes liability for individuals and corporate officers for failing to comply with the rules
and the Report on the Pillar Two Blueprint for public consultation. in an existing or potential emergency, and in particular, when a state of high alert has been
declared.
The reports reflect the convergent views on many of the key policy features, principles, and
parameters of both Pillars. Read on for more details in our LT in Focus of 28 October 2020
The members of the G20/OECD Inclusive Framework recognisedthe reports as a solid foundation
for building a new approach to taxing profits in the digital economy and a solid basis for a MET Increase in tax rate on ores and chemical Minerals
systemic solution that would address the remaining base erosion and profit shifting. According to
On 15 October 2020, Federal Law No. 342 FZ , which provides for an increase of the tax burden
the conservative estimates of experts, the total global effect from the implementation of these
on mining companies, entered into force.
initiatives will amount to USD 60–100 billion of additional corporate income tax revenues per
year. One of the Law’s objectives is to increase effectiveness of MET collection, compensating and
preventing the shortfall in the federal budget’s revenues.
Many questions still remain open, but it is already clear that the changes may affect both
international companies operating in Russia and foreign operations of Russian companies. Read on to learn more in our LT in Focus of 23 October 2020
Read on for more details in our LT in Focus of 23 December 2020
© 2020 Deloitte Consulting LLC. All rights reserved. 7
Contacts Tax & Legal Svetlana Meyer Anna Kostyra Irina Androncheva Tamara Arkhangelskaya Emil Baburov Pavel Balashov Managing Partner Managing Partner Director Director Director Partner Tax & Legal Deloitte Legal iandroncheva@deloitte.ru tarkhangelskaya@deloitte.ru ebaburov@deloitte.ru pbalashov@deloitte.ru smeyer@deloitte.ru akostyra@deloitte.ru Dmitriy Bespalov Oleg Berezin Svetlana Borisova Veronika Varshavskaya Artem Vasyutin Vladimir Elizarov Digital Director Partner Partner Director Partner Partner dbespalov@deloitte.ru oberezin@deloitte.ru sborisova@deloitte.ru vvarshavskaya@deloitte.ru avasyutin@deloitte.ru velizarov@deloitte.ru Oksana Zhupina Anton Zykov Gennady Kamyshnikov Tatiana Kiseliova Anna Klimova Elena Kovalevich Partner Partner Partner Partner Director Partner ozhupina@deloitte.ru azykov@deloitte.ru gkamyshnikov@deloitte.ru tkiseliova@deloitte.ru aklimova@deloitte.ru ekovalevich@deloitte.ru © 2020 Deloitte Consulting LLC. All rights reserved. 8
Contacts Tax & Legal Oxana Kozhina Tatiana Kofanova Yulia Krylova Natalia Kuznetsova Dmitry Kulakov Yuliya Menshikova Director Partner Director Partner Partner Director okozhina@deloitte.ru tkofanova@deloitte.ru ykrylova@deloitte.ru nkuznetsova@deloitte.ru dkulakov@deloitte.ru ymenshikova@deloitte.ru Yulia Orlova Andrey Panin Leonid Pechernicov Maria Podosenova Dmitry Pozharniy Ekaterina Portman Partner Partner Director Director Director Director yorlova@deloitte.ru apanin@deloitte.ru lpechernikov@deloitte.ru mpodosenova@deloitte.ru dpozharniy@deloitte.ru eportman@deloitte.ru Yulia Sinitsyna Alexey Sobchuk Elena Solovyova Oleg Troshin Yuriy Khalimovskiy Director Director Partner Director Director ysinitsyna@deloitte.ru asobchuk@deloitte.ru esolovyova@deloitte.ru otroshin@deloitte.ru yukhalimovskiy@deloitte.ru © 2020 Deloitte Consulting LLC. All rights reserved. 9
TaxSmart App Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities. DTTL (also referred to as “Deloitte Global”) and each of its member firms are legally separate and independent entities. DTTL does not provide services to clients. Please see www.deloitte.com/about to learn more. Deloitte is a leading global provider of audit and assurance, consulting, financial advisory, risk advisory, tax and related services. Our network of member firms in more than 150 countries and territories serves four out of five Fortune Global 500® companies. Learn how Deloitte’s approximately 312,000 people make an impact that matters at www.deloitte.com. This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms or their related entities (collectively, the “Deloitte network”) is, by means of this communication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte network shall be responsible for any loss whatsoever sustained by any person who relies on this communication. © 2020 Deloitte Consulting LLC. All rights reserved.
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