ACCA
Study Text
Taxation (Russia)
For the June 2017 and December 2017 examinations
F6
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ACCA
F6 TAXATION
(RUSSIA)
STUDY TEXT
For June and December 2017 Examinations
®
No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in
this publication can be accepted by the author, editor or publisher.
This training material has been published and prepared by Becker Professional Development International
Limited: www.becker.com/acca
ISBN: 9781785664199
Copyright ©2017 DeVry/Becker Educational Development Corp. All rights reserved.
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CONTENTS
Contents
Introduction
(iv)
Syllabus
(v)
Study guide
(viii)
Tax rates and allowances
(xx)
Examination technique
(xxiii)
1
Russian tax system
0101
2
Corporate profits tax – Scope, computation and income recognition
0201
3
Corporate profits tax – Deductible expenses
0301
4
Corporate profits tax – Other income and expenses, branches and payments
0401
5
Personal income tax – Scope, computation and deductions
0501
6
Personal income tax – Special rates and rules
0601
7
Personal income tax – Obligations
0701
8
Value added tax – Common rules
0801
9
Value added tax – Special cases, payment and reporting
0901
10
Insurance contributions
1001
11
Corporate property tax
1101
12
Tax administration and control
1201
13
Glossary
1301
14
Index
1401
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
(iii)
INTRODUCTION
Introduction
This Study System has been specifically written for The Association of Chartered
Certified Accountants Russian variant Paper F6 Taxation (Rus).
It provides comprehensive coverage of the core syllabus areas and is designed to be used both
as a reference text and as an integral part of your studies to provide you with the knowledge,
skill and confidence to succeed in your ACCA examination.
ATC International has more than 15 years’ experience in delivering ACCA exambased training for Russian variant law and taxation.
How to use this Study System
You should first read through the syllabus, study guide and approach to examining the
syllabus provided in this session to familiarise you with the content of this paper. The
sessions which follow include:


An overview diagram at the beginning of each session.
This provides a visual summary of the topics covered in each
Session and how they are related
The body of knowledge which underpins the syllabus. Features
of the text include:
Definitions
Terms are defined as they are introduced.
Illustrations
These are to be read as part of the text. Any
solutions to numerical illustrations follow on
immediately.
Examples
These should be attempted using the proforma
solution provided (where applicable).
Key points
Attention is drawn to fundamental rules and
underlying concepts and principles.
Commentaries
These provide additional information.

Focus
These are the learning outcomes relevant to the
session, as published in ACCA’s Study Guide.

Example solutions are presented at the end of each session.
A bank of practice questions is contained in the Study Question Bank provided. These
are linked to the topics of each session and should be attempted after studying each
session.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
(iv)
SYLLABUS
SYLLABUS
(F6) Rus
Aim
To develop knowledge and skills relating to the tax system as applicable to Russian
legal entities and individuals.
Main capabilities
After completing this examination paper students should be able to:
A
Explain the operation and scope of the Russian tax system and its administration
B
Explain and compute the income tax liabilities of individuals in their capacity as
individual entrepreneurs and employees
C
Explain and compute the corporate profits tax liabilities of Russian legal entities
D
Explain and compute the effects of value added tax on incorporated businesses
E
Explain and compute the effect of insurance contributions on employees, employers and
individual entrepreneurs
F
Explain and compute the corporate property tax liability of Russian legal entities.
Relational diagram of main capabilities
The Russian Tax System and its Administration (A)
Income Tax Liabilities
(B)
VAT
(D)
Corporate Tax Liabilities
(C)
Insurance
Contributions (E)
Corporate Property Tax
(F)
Rationale
This syllabus introduces candidates to the subject of taxation and provides the core
knowledge of the underlying principles and major technical areas of taxation, as they
affect the activities of individuals and businesses.
In this syllabus, candidates are introduced to the rationale behind and the functions of
the tax system.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
(v)
SYLLABUS
The syllabus then considers the separate taxes that an accountant would need to have a
detailed knowledge of, such as:




personal income tax of both employees and individual entrepreneurs;
the corporate profits tax and corporate property tax liabilities of Russian legal entities;
the insurance contributions of employees, employers and individual
entrepreneurs; and
the value added tax liability of incorporated businesses.
Having covered the core areas of the basic taxes, candidates should be able to:




compute tax liabilities;
explain the basis of their calculations;
apply tax planning techniques for individuals and companies; and
identify the compliance issues for each major tax through a variety of
business and personal scenarios and situations.
Detailed syllabus
A
The Russian tax system and its administration
1
2
3
4
5
6
7
The overall function and purpose of taxation in a modern economy
The tax regulatory framework
Special tax systems
The obligations of the taxpayer and/or their agents
The procedures relating to tax audit, appeals and disputes
The sanctions for tax violations, tax penalties and interest on late tax payments
Tax control in the form of tax monitoring
B
Income tax liabilities
1
2
3
4
5
6
The scope of individual income tax
Income from employment
Income earned by individual entrepreneurs
Dividend and other income
The comprehensive computation of taxable income and individual income tax liability
The use of exemptions and deductions in minimising individual income tax liabilities
C
Corporate profits tax liabilities
1
The scope of corporate profits tax
2
Taxable income for corporate profits tax
3
Deductible expenses and tax allowances in deferring and minimising corporate
profits tax liabilities
4
The comprehensive computation of corporate profits tax liability
5
Tax accounting for corporate profits tax
6
The use of exemptions and reliefs in deferring and minimising corporate
profits tax liabilities
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(vi)
SYLLABUS
D
Value added tax (VAT)
1
2
3
The scope of value added tax (VAT)
The computation of VAT liabilities
VAT payment and reporting
E
Insurance contributions (IC)
1
2
3
The scope of insurance contributions (IC)
Contributions made by employers for employed persons
Contributions made by individual entrepreneurs with the disbursements to
physical persons
F
Corporate property tax
1
2
3
The scope of corporate property tax
The computation of corporate property tax liabilities
Payments and reporting requirements
Approach to examining the syllabus
The syllabus is assessed by a three-hour paper based examination.
The paper will be predominantly computational and all questions are compulsory.
Section A of the exam comprises 15 multiple choice questions of 2 marks each.
Section B of the exam comprises four 10 mark questions and two 15 mark questions.
The two 15 mark questions will focus on income tax (syllabus area B) and corporate
profits tax (syllabus area C).
The Section A questions and the other questions in Section B can cover any areas of the syllabus.
Guide to examination assessment
ACCA reserves the right to examine anything contained within the study guide at any exam
session. This includes knowledge, techniques, principles, theories, and concepts as specified.
ACCA publishes tax rates and allowances table once a year to indicate exactly what legislation could
potentially be assessed within identified examination sessions. Tax rates and allowances as published
by ACCA at http://www.accaglobal.com/en/student/acca-qual-student-journey/qual-resource/accaqualification/f6/examinable-documents.html are reproduced at the end of this session.
The June and December examinations will be based on legislation passed before the previous 30
September (i.e. June and December 2017 exams will be based on legislation passed by 30 September
2016).
Note however that the Rates and Allowances Sheets published by ACCA to be used for 2017 exams
actually use insurance contribution thresholds set by decree on 29 November 2016, outside of this strict
period of examinable legislation.
ACCA Support
For examiner’s reports, guidance and technical articles relevant to this paper see
http://www.accaglobal.com/en/student/acca-qual-student-journey/qual-resource/accaqualification/f6.html
The ACCA’s Study Guide which follows is referenced to the Sessions in this Study System.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
(vii)
STUDY GUIDE
A
THE RUSSIAN TAX SYSTEM AND ITS ADMINISTRATION
Ref:
1
Overall function and purpose of taxation in a modern economy
§1
(a)
Describe the purpose (economic, social, etc) of taxation in a modern economy.
(b)
Explain the difference between direct and indirect taxes.
(c)
Recognise the types of taxes levied on legal entities and physical persons in the
Russian Federation.
(d)
List the legal forms of business activities in Russia and identify the relevant taxes
for each type of business activity.
2
Tax regulatory framework
(a)
Explain the tax regulatory framework in the Russian Federation including the
process for making changes and amendments to the Tax Code (Article 5 of Part I).
(b)
Explain how the tax terms/periods set by the Tax Code (Article 6(1) of Part I) are
determined.
(c)
Outline the application of regional and local tax laws, defining the relevant tax
regulatory bodies.
(d)
Explain the difference between tax avoidance and tax evasion..
(e)
Explain the need for an ethical and professional approach.
(f)
List the data available for the taxpayer in the form of public data on the internet web
site from the Federal Tax Service and not subject to tax secrecy.
§1
Excluded topics
–
–
Chapter 4, 5, 6 of Part I of the Tax Code
Taxation of branches of foreign legal entities.
3
Special tax systems
(a)
Understand the basic principles of the operation of the simplified tax system in
Russia as it applies to companies and the self-employed.
§1
Excluded topics
–
–
The detailed conditions for a business to be eligible for the simplified tax regime
Special tax systems in Russia (including taxation for product sharing agreements)
other than the simplified tax regime.
4
Obligations of the taxpayer and/or their agents
(a)
Taxpayers and tax agents:
(i)
(ii)
Differentiate between taxpayers and tax agents.
Explain the rights and obligations of both taxpayers and their agents.
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(viii)
§1
§7
STUDY GUIDE
(b)
(c)
Individual income tax:
§7
(i)
Explain the filing requirements and payment deadlines for employees.
(ii)
Explain the filing requirements and payment deadlines for employers (as
tax agents).
(iii)
Explain the filing requirements and payment deadlines for individual
entrepreneurs and self-employed persons.
(iv)
Explain the procedure for obtaining deductions and exemptions at source
and upon the year-end tax declaration.
Corporate profits tax:
(i)
Explain the filing requirements and payment deadlines for corporate
profits tax.
(ii)
Explain taxpayer’s right for the adjustments of tax base and tax in tax
period when the mistakes have been found out related to previous tax
periods (paragraph 3 p.1. of Article 54).
(d)
Explain the refund procedure and deadlines for individual income tax and corporate
profits tax.
(e)
Insurance contributions
(i)
Explain the collection, refund and offset procedure.
§4
§12
§10
Excluded topics
–
Profits tax administration rules for: low income entities (Article 286, it.3), foreign
legal entities (Article 286, it.4), withholding corporate tax (Article 287, it.2)
5
Procedures relating to tax audit, appeals and disputes
(a)
State the limitations related to tax audits conducted by tax authorities.
(b)
State the conditions under which the consequent tax audit can be carried out.
(c)
Explain the procedure for a tax appeal order in respect of first tax decision received
(Article 101.2).
(d)
State the rules for the execution of tax audit results (Article 100).
(e)
State the circumstances when the tax authorities have the right to request documents
during a desk tax audit
(f)
State the rules applicable for sending documents to tax authorities in electronic
layouts in the case of desk tax audits.
Excluded topics
–
All topics other than specified above.
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(ix)
§12
STUDY GUIDE
6
Sanctions for tax violations, penalties and interest on late tax payments
(a)
Explain and calculate the administrative tax sanctions for non-compliance (including
electronic documents exchange).
(b)
Explain the difference between interest on late tax payments and tax penalties.
(c)
State the amounts of penalties for tax underpayments or non-payments.
(d)
Compute interest on late tax payments.
(e)
State the amounts of penalties for non-filing or late filing of tax returns.
(f)
Explain the procedure by which the tax authorities collect penalties from taxpayers.
(g)
Explain the procedure of interest accrued in favour of a taxpayer in the case where
the tax authorities breach the term of cancellation of the decision on blocking the
accounts in the taxpayer’s bank.
(h)
State the amount of penalties for non-compliance with transfer pricing rules.
7
Tax control in the form of tax monitoring
(a)
Explain the conditions for a company applying for participation in tax monitoring,
the procedure for application, the terms of such monitoring, the procedure of making
a decision to apply for tax monitoring or the decision to refuse the application for tax
monitoring and the procedure for early termination of tax monitoring.
(b)
Explain the procedure for conducting tax monitoring, “reasoned opinions” issued by
the tax authority and the mutual agreement procedure.
B
INCOME TAX LIABILITIES
1
Scope of individual income tax
(a)
(b)
(c)
Describe the scope of individual income tax.
Define residents and non-residents for individual income tax purposes.
Recognise the income that is exempt from individual income tax.
Source of income (Article 208 of the Tax Code)
Impact of double tax treaties.
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§12
§5
Excluded topics
–
–
§12
(x)
STUDY GUIDE
2
Income from employment
(a)
Compute the taxable income from employment.
§5
(b)
Explain how income in kind and material benefits are valued and calculate relevant
amounts.
§5
(c)
Compute the imputed income arising from interest savings on mortgage loans
received for acquisition or new construction of residential property, acquisition of
plots of land or acquisition of shares in the above property (or other loans from an
employer).
§6
(d)
Explain the timing of income recognition on salaries accrued, but not paid in a
calendar year.
§5
(e)
Compute the taxable amounts of business trip expenses (statutory limits will be
provided).
§6
(f)
Compute the exempt and taxable amounts of medical expenses paid by an employer.
§5
Excluded topics
–
Income of non-residents.
3
Income earned by individual entrepreneurs
(a)
(b)
(c)
(d)
Compute the business income of an individual entrepreneur.
Recognise the expenditure that is deductible (including depreciation allowances).
Compute the amount of professional deductions available (norms will be provided).
Explain the treatment of losses incurred by an individual entrepreneur.
4
Dividend and other income
(a)
Compute the exempt and taxable amounts of interest on bank deposits.
(b)
Compute the imputed income arising from low-interest loans.
(c)
Compute the imputed income arising from the interest savings on new bank loans
provided for refinancing the loans received for acquisition or new construction of
residential property, acquisition of plots of land or acquisition of shares in the above
property.
(d)
Compute the exempt and taxable amounts of gifts, prizes and awards, distinguishing
between different types of gifts and prizes.
(e)
Compute the taxable amounts of property insurance reimbursements.
(f)
Compute the exempt and taxable amounts of life insurance payments.
(g)
Compute the exempt and taxable amounts under agreements for non-state pension
security or obligatory pension insurance concluded with non-state pension funds
(Article 213.1).
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§5
§6
(xi)
STUDY GUIDE
Excluded topics
–
Transactions involving futures and derivatives
5
Comprehensive computation of taxable income and income tax liability
(a)
Prepare a basic individual income tax computation.
(b)
Apply the correct rates of tax to the different types of income.
(c)
Compute the child deduction.
(d)
Explain and apply the principal social deductions, charity, education and medical
(norms will be provided).
(e)
Explain and apply the principal rules of deduction on the sale of residential property.
(f)
Explain and apply the principal rules of deduction on the purchase of residential
property, land, including mortgage interest and other acquisition related confirmed
expenses (housing incentive).
(g)
Compute other property deductions, including deductions on transactions in
securities.
§6
(h)
Compute the tax payable on dividend income, considering the provisions of item 2
of Article 214.
§6
(i)
Compute the tax payable on income from the sale of listed and unlisted securities
based on the provisions of Article 214 (1).
§6
(j)
Compute the tax payable on income from investment funds (PIFs).
§6
(k)
Compute the tax on income from lotteries and advertising campaigns.
§6
(l)
Explain and apply the principal rules of investment deduction (Article 219.1).
§6
§5
Excluded topics
–
All exemptions stated in items 4-8, 11-17, 20, 22-26, 27.1, 29-33, 35-38, 41-57 in
Article 217of the Tax Code
–
Ordinary standard deduction
–
Increased standard deductions except for double deductions for single parents
6
Use of exemptions and deductions in minimising individual income tax liabilities
(a)
Explain how the maximisation of available tax reductions and concessions can defer
or minimise individual income tax liabilities.
(b)
Identify, compute and apply the right concession/reduction in given circumstances.
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(xii)
§5
STUDY GUIDE
C
CORPORATE PROFITS TAX LIABILITIES
1
Scope of corporate profits tax
(a)
Describe the scope of corporate profits tax and the types of taxpayer to which it
applies.
§2
(b)
Explain the concept of separate sub-division as it applies to corporate profits.
§1
(c)
Explain the procedure for the allocation of profits between head office and branches.
§4
Excluded topics
–
–
–
–
Taxpayers: foreign legal entities, banks, insurers, brokerage firms (Article 290-312).
The split of tax between the federal, regional and municipal budgets
Special economic zones and regime other than the simplified tax regime and
production sharing agreements
Taxation of branches of foreign legal entities
2
Taxable income for corporate profits tax
(a)
Income recognition:
(b)
§2
(i)
Define the two income recognition methods (cash and accruals).
(ii)
Explain and apply the effect of both methods on the timing of income
recognition.
(iii)
Explain the concept and basic principles of transfer pricing rules
application based on the transfer pricing chapter of the Tax Code
(controlled transactions, related parties, the principles of the 5 transfer
pricing methods).
Taxation of special types of income:
(i)
Explain and apply the rules for the taxation of dividends and calculate
profits tax on dividends paid and received by Russian legal entities.
§4
(ii)
Explain the timing of income recognition for the principal on sales made
via commissioners and calculate taxable income of both principal and
commissioner.
§2
(iii)
Calculate the taxable income on foreign currency transactions and on
transactions denominated in “notional” units.
§4
(iv)
Explain the timing of income recognition for factoring operations and
calculate the taxable income from trade debt factoring for both parties.
§4
(v)
Compute the taxable gain or loss on fixed asset disposal, including the
valuation of depreciable property.
§3
(vi)
Compute the taxable income arising from leasing transactions.
§3
(vii)
State the rules for the taxation of simple partnership income.
§2
(viii)
Calculate the taxable income on p.3 (penalty income), p.4 (rent income),
p.6 (interest income), p.7, p.13, p.18, p.20 of Article 250 of the Tax Code.
§4
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(xiii)
STUDY GUIDE
Excluded topics
–
–
Certain excluded income items (Article 251, it.1.6-1.8, 1.13-1.31, 1.33, 1.34-1.40,
it.2, 1.41-1.46, 1.49)
Recognition date for certain income (Article 271, 4.1-4.4, it.4.9, 4.11)
3
Deductible expenses and tax allowances in deferring and minimising tax
liabilities
(a)
Expense recognition for tax purposes:
§2
(b)
(i)
Define the method of expense recognition for tax purposes.
(ii)
Explain the matching principle of expense recognition if the cash method
is used for profits tax purposes.
(iii)
Explain the rules for recognition of direct and indirect expenses in profits
tax accounting for manufacturing and trading companies.
Deductible expenses for corporate profits tax:
(i)
Explain and apply the rule for the initial 30% write-off available for new
fixed assets.
§3
(ii)
Explain and apply the rules for capital improvements to leased assets
(Article 258.1, 259.1, 259.2).
§3
(iii)
Explain the treatment of expenses incurred on fixed asset acquisitions
(including bank interest).
§3
(iv)
Explain the differences in the rules for the recognition of repair and capital
improvement expenses.
§3
(v)
Define depreciable tangible and intangible assets.
§3
(vi)
Explain and apply the allowable depreciation methods for tax purposes.
§3
(vii)
Explain and apply the rules for the creation and usage of an allowance for
bad debts (Article 266).
§4
(viii)
Explain and apply the rules for bad debts write-offs.
§4
(ix)
Apply the expense allocation rules between commissioner and principal.
§2
(x)
Apply the relevant tax rules for losses on fixed assets disposals (Article
323).
§2
(xi)
State the main types of partially deductible and non-deductible expenses.
§2
(xii)
Define and apply the deductibility limits on bank loan interest including
the currency differences on liabilities denominated in notional currency
units and thin capitalisation rules (Article 269).
§2
(xiii)
Calculate the adjustments for other types of partially deductible expenses
(statutory limits will be provided).
§3
(xiv)
Calculate the deductible expenses of both the lessor and the lessee under
the different accounting treatments of leased assets.
§3
(xv)
Explain and apply the rules for R&D (research and development)
deductible expenses.
§3
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(xiv)
STUDY GUIDE
(c)
Losses:
§4
(i)
Define allowable net operating losses and calculate the amount of losses
qualifying for the carry forward tax concession.
(ii)
Explain the rules for calculating the maximum amount of losses allowable
in each year and calculate the loss carry forward concession.
Excluded topics
–
–
–
–
–
–
Expenses on natural deposits (Article 261)
Expenses incurred on social infrastructure (Article 264, it.1.32)
Other operational expenses (Article 264, it.1.32, 1.33, 1.38-1.39(2), 1.42-1.44, 1.46,
1.48 (3), 48 (5))
Non-operational expenses (Article 265, 1.3, 1.4, 1.9, 1.10, 1.11, 1.12, 1.17, 1.18,
1.19, 1.19.2, 1.19.3, 2.3, 2.4, 2.6)
Certain non-deductible expenses (Article 270, it.10, 11, 13, 15, 17, 18, 20, 22, 24,
25, 26, 30-32, 34, 37, 39, 40-41, 45-48, 48.1-48.7, 48.9, 48.11-48.18)
Repair allowance (Article 260)
Special tax reserves (Articles 267, 267(1)-267(4))
Expenses incurred for acquisition rights for plots of land (Article 264.1)
4
Comprehensive computation of corporate profits tax liability
(a)
Prepare a computation of total taxable income based on the format of the profits tax
return.
(b)
Compute the corporate profits tax liability, applying the correct rates of tax.
(c)
Prepare calculations of the profits tax payable by branches.
–
–
Excluded topics
–
–
Dividend income received from foreign legal entities (Article 275,it.2)
Trust agreements (Article 276)
–
Charter capital formation (Article 277)
–
Securities income (Articles 280-282, 282.1)
–
Income from consolidated tax group (Article 278.1)
–
Investment partnership (Article 278.2)
–
Specifics of taxation related to 0% rate application to entities engaged in
educational or/and medical activities, 0% rate application to tax base with shares
transactions, tax rate application to taxpayers – participants of regional investment
projects, taxation in special economic zone in Kaliningrad region (Articles 284.1284.3, 288.1, 288.2)
–
Income of banks, insurance companies, non-state pension funds, brokers and foreign
legal entities (Articles 290-300)
–
Income from term deals (Articles 301-305).
–
Taxation related to PE income (Articles 306-308)
–
Other specifics of taxation for foreign legal entities, avoidance of double taxation,
specific provisions (Articles 309-312)
–
CFC rules
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(xv)
§4
STUDY GUIDE
5
Tax accounting for corporate profits tax
(a)
Define and apply basic tax accounting rules based on Articles 313-320, Article 322323.
§4
Excluded topics
–
Tax accounting special rules for profits tax purposes:
for federal institutions (Article 321),repair expenses (Articles 324, 324.1), expenses
on exploration of natural deposits (Articles 325, 325.1),
for operations with securities (Articles 326, 327, 329, 333),
for insurers and banks (Articles 330, 331),
for trusts (Article 332),
for consolidated tax group of taxpayers (Article 321.2)
6
Use of exemptions and reliefs in deferring and minimising corporate profits tax
liabilities
(a)
Explain how the maximisation of available tax reductions and concessions can defer
or minimise corporate profits tax liabilities.
(b)
Identify, compute and apply the right concession/reduction in given circumstances.
D
VALUE ADDED TAX
1
Scope of value added tax (VAT)
(a)
Describe the scope of VAT.
(b)
Identify the VAT rates applicable to different types of activities (no detailed
knowledge of the application of the 10% rate is required).
(c)
Explain the difference between zero rated and exempt items.
§8
Excluded topics
–
–
–
–
VAT registration
Waiver of VAT liability (Article 145)
VAT related to imported goods, works, services (Articles 150-152, 160)
Place of sale of goods, works, services (Articles 147, 148)
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
§4
(xvi)
STUDY GUIDE
2
Computation of VAT liabilities
(a)
Explain how the tax point is determined under the accruals method.
§8
(b)
Apply VAT exemptions to transactions which are not the object of taxation (Article
146).
§8
(c)
Explain the consequences of a non-confirmed export and compute the related VAT.
§9
(d)
Compute the VAT on trade debt factoring for both parties.
§9
(e)
Compute the VAT on a fixed asset disposal.
§9
(f)
Compute the VAT on a self-supplied construction.
§9
(g)
Compute the VAT on sales made through commissioners for both the principal and
the commissioner.
§9
(h)
Compute the VAT on sales performed in a foreign currency.
§8
(i)
Explain the rules of non-recognition of currency differences for VAT purposes for
both the seller and the customer.
§8
(j)
Explain the general deduction criteria for input VAT.
§8
(k)
Explain the timing and methods of recovery of input VAT.
§9
(l)
State the major cases for the inclusion of input VAT in expenses.
§8
(m)
Explain the allocation principles for taxable and non-taxable activities .
§8
(n)
Compute the allocation of input VAT between taxable and non-taxable activities.
§8
(o)
State the situations where VAT should be included in the cost of asset.
§8
(p)
Explain and apply the specific rules for VAT recovery relating to capital
construction and self-supplied construction.
§8
(q)
Compute the claw-back of recovered VAT on property where it is subsequently used
for non-vatable transactions.
§8
(r)
Prepare a basic VAT computation showing separately all elements of input and
output VAT.
§9
(s)
Explain and apply the specific rules for VAT recovery related to zero rate supplies
(export).
§9
(t)
Explain and apply specific rules in respect to taxpayer’s right for early VAT
recovery related to advances paid to suppliers.
§9
(u)
Explain the main requirements for declarative procedure of VAT recovery.
§9
(v)
Explain the application of VAT rules and amended VAT invoices in the case of
price change or quantity changes for goods (services, property rights) after shipment.
§9
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
(xvii)
STUDY GUIDE
Excluded topics
Output VAT:
–
Zero rate supplies other than export of goods and related services
–
Types of VAT exempted outputs (Article 149)
–
Types of income subject to VAT at 10% rate
–
Self-assessed VAT on objects other than capital construction
–
VAT on income from exchange of goods, works, services
–
VAT withholdings on income paid to foreign legal entities (VAT reverse charge)
–
VAT on transport services, on sale of an enterprise (Articles 157, 158)
–
VAT related to product sharing agreements
–
Input VAT on payments to foreign legal entities.
§9
3
VAT payment and reporting
(a)
Explain the usage of VAT invoices and journals.
(b)
List the information that must be given on both VAT invoice and amended VAT
invoice.
(c)
State the deadlines for the filing of returns and making of VAT payments.
(d)
Explain the procedure for VAT refunds (including the refund of VAT on exports).
(e)
State the set of documents for confirmation of export in a basic situation.
(f)
Explain the requirements for electronic VAT invoice for VAT recovery.
Excluded topics
–
Payments of customs VAT
E
INSURANCE CONTRIBUTIONS
1
Scope of insurance contributions (IC)
(a)
Describe the scope of insurance contributions.
(b)
Recognise and apply the major types of income exempt from insurance contributions
based on Article 422 of the Tax Code.
2
Contributions made by employers for employed persons
(a)
Prepare a basic insurance contributions computation with the split by relevant funds
in respect of employees under labour agreements, under civil law agreements and
under copyright agreements.
(b)
Explain how employers report and pay SIC in respect of employees.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
§10
(xviii)
§10
STUDY GUIDE
3
Contributions made by individual entrepreneurs with the disbursements
to physical persons
(a)
(b)
Prepare a basic insurance contributions computation for an individual entrepreneur.
Explain how individual entrepreneurs report and pay insurance contributions.
§10
Excluded topics
–
–
–
–
–
–
IC for expatriates employed in Russia
IC for Russian employees offshore
IC for agricultural units, North residents and lawyers
IC for individual entrepreneurs who do not pay to the other physical persons
IC exemptions other than specifically stated above
IC for employees in technoparks (special innovative areas with low rates)
F
CORPORATE PROPERTY TAX
1
Scope of corporate property
(a)
Describe the scope of corporate property tax.
(b)
Define the tax base in respect of both head office property and the property of
separate subdivisions of Russian legal entities.
(c)
State the maximum tax rate and tax period.
2
Computation of corporate property tax liabilities
(a)
Describe the method of property valuation used to determine the corporate property
tax base, including the relevant tax base for non-residential property, office premises
and shopping centres mentioned in Article 378.2.
(b)
Compute the corporate property tax base for both a head office and its separate subdivisions.
3
Payment and reporting requirements
(a)
State the deadline for filing the annual tax return and advance tax calculations
(Article 386).
(b)
State the deadline for property tax payments and advance tax payments (Article
383).
§11
§11
Excluded topics
–
Article 373 (taxpayers).
–
Property taxable for both foreign legal entities with permanent establishments in
Russia and foreign legal entities without activity via permanent establishments.
–
Article 374 (it.2, 3, 4.2), Article 375 (it.2), Article 376 (it.2.5), Articles 377-378,
378.1, 381, 382(it.5), 383(it.4-6), 384, 385, 385.1, 385.2, 386.1
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
§11
(xix)
TAX RATES AND ALLOWANCES
SUPPLEMENTARY INSTRUCTIONS
The following supplementary instructions will be included in the June and December 2017 exams:
1. Calculations and workings need only be made to the nearest RR.
2. All apportionments should be made to the nearest month, unless the law requires otherwise.
3. All workings should be shown in Section B.
TAX RATES AND ALLOWANCES
The following tax rates and allowance are to be used in answering all questions on this paper unless
the question states otherwise.
Children allowances
First and second child (up to 350,000 RR)
Third child (up to 350,000 RR)
1,400 RR per child
3,000 RR
General limitation on “property” allowance
Investments in residential property and land for tax purposes
Interest on mortgage loan
2,000,000 RR (upper limit)
3,000,000 RR (upper limit)
Statutory exclusions from taxable income
Prizes and awards
Gifts at work
Support payments
4,000 RR (upper limit)
4,000 RR (upper limit)
4,000 RR (upper limit)
Maximum limit for social deductions listed below
120,000 RR
(medical, personal educational, non-state pension insurance, voluntary pension insurance, voluntary life
insurance and additional insurance contributions for the accumulated part of labour pension – subject to
certain conditions set out in the law)
Educational deduction for children
50,000 RR (upper limit)
Professional deduction – general
– designer, photographer, architect
– musician, sculptor
– creator of literary works, including
theatre, cinema, circus
20%
30%
40%
Charity deduction
up to 25% of income
Gains on property sales:
– immovable residential property
– immovable non-residential property
– movable property
1,000,000 RR (upper limit)
250,000 RR (upper limit)
250,000 RR (upper limit)
Vi , where
V  i ÷ 
i 3
Investment deduction
i 3
Ks × 3,000,000 RR (upper limit)
n
n
Ks =
20%
i
Vi – gain from sale (redemption) of all securities in the tax period with the ownership period of i years
n – quantity in full years of ownership periods for securities subject to sale/redemption in the tax period
as a result of which taxpayer becomes eligible for this deduction
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
(xx)
TAX RATES AND ALLOWANCES
Statutory per diem rate for personal income tax:
– for domestic business trips
– for foreign business trips
700 RR per day
2,500 RR per day
Exempt employer contributions for personal income tax and insurance contributions
Additional insurance contributions for the accumulated portion of the pension 12,000 RR
Birth of a child
50,000 RR for each birth
Threshold interest rates for personal income tax purposes
Rouble bank deposits
Foreign currency bank deposits
Rouble loans
Foreign currency loans
CB refinancing rate* increased by 5%
9%
2/3 of the CB refinancing rate*
9%
Threshold interest rates for profits tax purposes for controlled bank loans
Loan currency
Lower limit
Upper limit
RR
75% of CB key rate*
125% of CB key rate*
GBP
EUR
USD
CHF
Other currencies
GBP LIBOR + 4%
EURIBOR + 4%
USD LIBOR + 4%
CHF LIBOR + 2%
USD LIBOR + 4%
GBP LIBOR + 7%
EURIBOR + 7%
USD LIBOR + 7%
CHF LIBOR + 5%
USD LIBOR + 7%
*Note: CB refinancing rate is equal to CB key rate
Thresholds for insurance contributions for the year 2017
(Note: several categories of insurance contributions subject to special incentives and
reduced rates are not examined.)
Remuneration per annum Rate
Pension Fund (PF):
Up to 876,000 RR
22%
Over 876,000 RR
10%
Social Insurance Fund (SIF):
Up to 755,000 RR
Over 755,000 RR
Federal Fund of Obligatory Medical Insurance (FFOMI):
2.9%
0%
5.1% (no upper threshold)
Expenses for profits tax purposes
Voluntary medical insurance expenses (subject to conditions set out in the law) are limited
to 6% of labour costs.
Voluntary life insurance expenses (subject to conditions set out in the law) are limited to
12% of labour costs.
Voluntary personal insurance against accident at work resulting in death or permanent
physical disability is limited to 15,000 RR per employee per annum.
Certain advertising expenses are limited to 1% of sales revenue.
Reimbursement of interest on employees’ mortgage loans is limited to 3% of labour costs.
Entertainment expenses (subject to conditions set out in the law) are limited to 4% of labour costs.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
(xxi)
TAX RATES AND ALLOWANCES
Special depreciation ratios
Non-current assets received under financial leasing
3 (upper limit)
Historic costs of non-current assets
100,000 RR (minimum)
Allowances for receivables
General limitation
Aged 0 to 44 days
Aged 45 to 90 days
Aged more than 90 days
10% of sales
0% of receivables
50% of receivables
100% of receivables
Value added tax (VAT)
Standard rate
Reduced rate
Exports
18%
10%
0%
Limit for VAT-exempt promo gifts
100 RR (upper limit)
General profits tax rate
20%
Tax on dividends for residents
Tax on dividends for foreign companies
13%
15%
Property tax rate
General rate
Office premises and shopping centres
2.2%
1.3%
Personal income tax rates
Basic rate
Higher rate
13%
35%
Tax on dividends for residents
13%
Central Bank refinancing and key rates (notional)
1 January to 30 April 2017
1 May to 30 September 2017
1 October to 31 December 2017
15%
7%
5%
Number of days in calendar months (assumed for all years)
January
February
March
April
May
June
July
August
September
October
November
December
31
28
31
30
31
30
31
31
30
31
30
31
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
(xxii)
EXAMINATION TECHNIQUE
EXAMINATION TECHNIQUE
Reading and Planning Time





During the 15 minutes of reading and planning time you may write on the question paper
but not in your answer booklet.
Try to rank the questions in Section B according to their level of difficulty; plan to attempt
the easiest of these questions first and the most difficult last. This should help keep your
confidence high during the exam.
Although you may use your calculator during the reading and planning time, it would be
more effective to jot down your ideas for the written elements of the Section B questions.
Any calculations done in the reading and planning time should be restricted to those that do
not need to be presented in your script as a working (otherwise you will waste time copying
out workings).
It is unlikely that you will have any remaining time but if you do it could be used to start
selecting correct answers for Section A questions that do not involve calculations.
Time Allocation


Section A of the exam consists of 15 multiple-choice questions (MCQs) of 2 marks each
and Section B consists of four 10 mark questions and two 15 mark questions.
The time available for the exam is 180 minutes and this has to be allocated between the two
sections.



54 minutes should be allocated to Section A so each MCQ should take, on
average, just 3.6 minutes. Although the non-computational MCQs may take only
seconds to answer, those requiring detailed calculations might take as long as 5
minutes.
126 minutes should be allocated to Section B. It is vital to give each question the
attention that is called for according to its mark allocation. Allocating 1.8 minutes
per mark means that each 15-mark question should be given 27 minutes and the
10-mark question should be given 18 minutes. If you aim to give them slightly
less, that will leave a few minutes at the end of the exam to review your script for
completeness.
The first marks are the easiest to gain in each longer type question, so it is always better to
start the next question rather than overrun on the time that should be allocated.
Multiple Choice Questions (Section A)

These objective questions mostly consist of:



a “stem” (the question);
a “key” (the correct answer); and
3 “distracters” (plausible but incorrect answers).
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
(xxiii)
EXAMINATION TECHNIQUE
Illustration 1
OOO Majjorka employed the following individuals during the year 2017:
–
200 employees in sales, marketing and promotional activities with a gross
monthly salary of 87,000 RR per person; and
–
90 administrative employees with a gross monthly salary of 55,000 RR per
person.
What is the amount of insurance contributions payable by OOO Majjorka for the
year 2017?
78,783,800 RR
56,931,800 RR
74,751,800 RR
80,460,000 RR
A
B
C
D
Solution
Step 1: Start by reading the question in bold. This tells you what you have to do:

amount of insurance contributions
Step 2: Write down or think about anything that will help you:




30% (22% + 2.9% + 5.1%) rate applies up to annual threshold 755,000 RR per individual
27.1% (22% + 5.1%) rate applies to excess up to 876,000 RR
15.1% (10% + 5.1%) rate applies to excess over 876,000 RR
amounts given are monthly.
Step 3: Solve (see exam advice which follows):
A sales and marking employee earns (87,000 × 12)
ICs thereon:
(755,000 × 30%) + ((876,000 – 755,000) × 27.1%)
+ ((1,044,000 – 876,000) × 15.1%)
Therefore 200 employees (284,659 × 200)
An admin employee earns (55,000 × 12)
ICs thereon: (660,000 × 30%)
Therefore 90 employees (198,000 × 90)
Step 4: Select the appropriate box on your answer sheet:

C
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
(xxiv)
RR
1,044,000
RR
284,659
56,931,800
660,000
198,000
17,820,000
––––––––––
74,751,800
––––––––––
EXAMINATION TECHNIQUE
Exam Advice





Cover up the answers A, B, C, D when doing calculations.
Jot down your workings on the question paper – narrative and how you derived your answer
are or no relevance to the marker. You will get 2 marks for a correct response on the answer
sheet provided and 0 marks for selecting an incorrect response. (If you select more than one
response you will get 0 marks!)
It is not unusual for one of the distracters to be a number that will be calculated before
reaching the final solution. Especially under exam pressure you may think you have the
correct answer before you have completed the calculation.
If you do not (or cannot) calculate an amount that corresponds to any of the amounts offered
do not select one that stands out as disproportionate to the others; it is possibly more likely
to be a distracter than the key.
If you are getting close to the end of your time allocation for Section A and you still have a
few questions left to answer – guess! There is no negative marking for incorrect answers so
do not leave as blank any responses to this section. If you have time at the end of the exam
you can still come back and check them. Avoid leaving questions unanswered before you
move to Section B as you will NOT be allowed to complete the MCQ answer sheet when
the examination supervisor instructs you to stop writing.
Section B
Numerical requirements


Before starting a computation, picture your route. Do this by noting down the steps you are
going to take and imagining the layout of your answer.
A columnar layout is often appropriate and it helps to avoid mistakes and is easier for the
marker to follow. Write clearly and leave space.
Presentation is important!




Include all your workings and cross-reference them to the face of your answer.
State any assumptions – if you are not sure how to interpret something in the question then
state your assumed interpretation.
If you later notice a mistake in your answer, it is not worthwhile spending time amending
the consequent effects of it. The marker of your script will not penalise you for errors
caused by an earlier mistake.
If you cannot perform a particular calculation but it is needed in a later step, make a sensible
guess and continue.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
(xxv)
EXAMINATION TECHNIQUE
Planning for written requirements


Read the requirement carefully to identify exactly what is required and how many separate
points you are being asked to address.
The published answers to the specimen exam suggest that you should work to a general rule
of ½ mark being awarded for each point and each point in a sentence.

Note down relevant thoughts on your plan – this may be on the question paper.

Give your plan a structure that you can follow when you write up the answer.
Presentation is important!

Use a heading or subheading to give your answer structure and to make it easier to read.

Use a short sentence for each point that you are making.


Use bullet points where this seems appropriate (e.g. for a list of advantages/disadvantages).
However, each bullet point must read on from an introduction to the list or be complete in
itself. You must not write in “note form”.
Write legibly using a good-quality black pen.
Writing style





Long philosophical debate does not impress markers.
More points briefly explained tend to score higher marks than just one or two points
explained in detail.
Appropriate comments on amounts that have been calculated incorrectly will be given
credit.
If you could not complete the calculations required for comment then assume an answer to
the calculations. As long as your comments are consistent with a sensible assumption (e.g.
it must not contradict information in the question) you will be awarded the marks for the
comments.
As you write, refer back to the requirement to ensure that you are addressing it.
“Knowledge dumping” on a topic will not earn any marks if it does not address the
requirement.
GOOD LUCK!
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
(xxvi)
RUSSIAN TAX SYSTEM
OVERVIEW
Objectives

To explain the tax regulatory framework in Russia.

To summarise the types of taxes levied on legal and physical persons in
Russia and explain each tax and its operation.

To explain rights and obligations of taxpayers and tax agents in Russia.

To summarise the types of business activities in Russia.
FUNCTION AND
PURPOSE OF
TAXATION
REGULATORY
FRAMEWORK
CONDITIONS OF
TAXATION
DIFFERENT TYPES
OF TAXES








Federal, regional and local taxes
Direct and indirect taxes
Profits tax
Personal income tax
Value added tax
Social insurance contributions
Corporate property tax
Simplified tax system



Funding for government spending
Redistribution of income and wealth
Correcting market inefficiencies







Tax Code
Amendments to the Tax Code
Calculation of time-limits (art. 6.1)
Regional and local tax legislation
Tax regulatory bodies
International tax legislation
Court system


Elements of taxation
Definitions
TAXPAYERS AND
TAX AGENTS




©2017 DeVry/Becker Educational Development Corp. All rights reserved.
Taxpayers
Tax agents
Tax avoidance and tax
evasion
Ethical approach
0101


TYPES OF
BUSINESS
ACTIVITIES
General
Branches of Russian
legal entities
RUSSIAN TAX SYSTEM
1
FUNCTION AND PURPOSE OF TAXATION
1.1
Providing funding for government spending
Taxation is the process whereby charges are imposed on entities, individuals or
property and collected to raise finance for the state and public purposes.
So, the primary purpose of taxation in an economy is to provide funds for government
spending on areas such as education, health care, defence and law and order.
This primary function is normally guided by principles of:




1.2


1.3
Economic efficiency – the tax system will affect the incentive people have to
work. If taxes are high, this may provide a disincentive to work.
Equity – the system should be “fair”.
Simplicity – the more complex a tax system is, the more expense tax payers
will incur to minimise their tax liabilities (e.g. through optimising exemptions
and deductions).
International competitiveness – in the modern world, where economies have
become much more open, there is a risk that high tax economies suffer, as
companies move their operations to lower tax economies. Also, individuals may
prefer to move from high tax countries to lower tax jurisdictions.
Redistribution of income and wealth
Some policy makers see the taxation system as a way of redistributing wealth
– imposing higher taxes on the rich, and redistributing it to the poor.
Providing support to poorer families through unemployment benefits and
child benefits is one means commonly used to redistribute income.
Correcting market inefficiencies
Where markets fail to factor in pollution or the health effects of certain behaviour (e.g. drinking and
smoking) policy makers may use indirect taxation to correct these. For example, by imposing excise
duties on fuel, alcohol and tobacco products.
2
REGULATORY FRAMEWORK
2.1
Tax Code

The Tax Code is the main tax legislative act, which consists of two parts:
(1)
Defines the basic concepts used throughout the Code (e.g. types of taxes,
definition of taxes, sales revenue, market price for tax purposes, etc), provides
general rules for tax payment and collection, lists rights and responsibilities of
tax payers and tax authorities, etc.
(2)
Is designed to govern the procedure of calculation and payment of specific
taxes and other fees.
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0102
RUSSIAN TAX SYSTEM
2.1.1
Tax Code (Part I)

Tax Code (Part I) contains the following main sections:







types of taxes and fees levied in the RF
rights and obligations of taxpayers;
rights and obligations of tax authorities;
grounds for origination (amendment, termination) of tax liability;
forms and methods of tax control;
tax fines and penalties;
tax appeal procedure.
Part I of the Code came into force (except for a few provisions) on 1 January 1999.
2.1.2
Tax Code (Part II)

The following chapters of Tax Code (Part II) are effective in 2017:




















Chapter 21 (VAT);
Chapter 22 (Excises);
Chapter 23 (Personal Income Tax);
Chapter 25 (Corporate Profits Tax);
Chapter 25.1 (Tax on Objects of Wild Nature, Water and Biological Resources)**;
Chapter 25.2 (Tax on Water)**;
Chapter 25.3 (State Duty)**;
Chapter 26 (Tax on Extraction of Commercial Minerals)**;
Chapter 26.1 (Unified Agricultural Tax)**;
Chapter 26.2 (Simplified System of Taxation);
Chapter 26.3 (Unified Tax on Imputed Income)**;
Chapter 26.4 (Taxation of Product Sharing Agreements)**;
Chapter 26.5 (License-based Taxation System)**;
Chapter 28 (Transport Tax)**;
Chapter 29 (Gaming Tax)**;
Chapter 30 (Property Tax);
Chapter 31 (Land Tax)**;
Chapter 32 (Individual Property Tax)**
Chapter 33 (Shopping/Collection tax)**;
Chapter 34 (Insurance Contributions).
** Are not examinable in F6-Rus.
2.2


2.2.1

Making amendments to the Tax Code
Any changes in the Tax Code are made through the adoption of
corresponding federal laws.
All federal laws are adopted first by the State Duma and then the Federation
Council, and signed by the President. They enter into force not earlier than
after their official publication.
Article 5, Part 1
Acts of tax legislation that increase tax rates, or which in any other way
worsen the position of taxpayers, may not apply retroactively.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0103
RUSSIAN TAX SYSTEM


Tax acts become effective not earlier than one month after the date of their
official publication and not earlier than the first day of the following tax
period for the corresponding tax.
The provisions of laws, which improve a taxpayer’s position, may be retroactive and
can become effective from the date of their official publication.
Example 1
Suppose that a new Law introducing a change to the Tax Code Chapter 22 “Excises”
was officially published on 5 January 2017. The law states that it comes into force
from the date of official publication. According to the new Law the excise rate on beer
is reduced retroactively starting 1 January 2017. Assume one month as a tax period for
excises.
Required:
Briefly comment on the effective date of the law.
Example 2
Facts as in Example 1 except that according to the new Law the excise rate on beer is
increased retroactively starting 1 January 2017.
Required:
Briefly comment on the effective date of the law.
2.3

Calculation of time-limits (art. 6.1)
The time-limit on taxes and fees is determined by a calendar date or the
expiry of a period of time that is calculated in terms of years, quarters,
months, weeks or days.
Time calculated
in terms of:
Expiry
Explanation of period
Years
In the corresponding month and on the
day of the last year of the period.
Any period of 12 successive calendar
months is recognised as a year
Quarters
Last day of the last month of the period.
A quarter is 3 months. Counted from
beginning of the year.
Months
In the corresponding month and on the
day of the last month of the period
A calendar month is a month. If there
is no corresponding day then the last
day (e.g. 28th or 29th in February).
Weeks
Last day of a week.
Five working days in a row.

References to days should normally be counted only in working days, unless specifically
stipulated to be calendar days. Thus a 10-day deadline for a reporting requirement would
actually last for two weeks (i.e. 14 calendar days).
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0104
RUSSIAN TAX SYSTEM

2.4


Where a time limit (e.g. for filing a return or making payment) falls on a holiday, then the
next working day is applied as the deadline. Performance can be met up to midnight of the
final day, and may be effected at a post office or other communications organisation.
Regional and local tax legislation
The constituent republics of the Russian Federation, krais, oblasts,
autonomous formations, federal cities Moscow and St. Petersburg (commonly
referred to as regions or “subjects” of the Russian Federation) issue laws on
regional taxes and regional rules affecting some federal taxes.
Municipal (local) legislative authorities within the regions issue acts on local taxes.
Regional tax laws and local tax acts must not contradict federal tax laws.
2.5
Tax regulatory bodies

Tax Code states that the tax legislation is comprised of:



the Tax Code itself and other federal laws;
laws of the subjects of the Russian Federation;
legislative acts of municipal authorities adopted in accordance with the Tax Code.
Commentary
For example, regions can set rates of corporate profits tax and corporate property tax
within stipulated federal limits.

The Government, the Ministry of Finance, the Federal Tax Service (FTS) of
the Russian Federation, State Customs Committee, Central Bank, etc may
regulate the tax rules only in the cases specifically provided by the tax
legislation; they cannot amend the tax legislation.
Illustration 1
Chapter 25 (corporate profits tax) of the Tax Code has given Russian Government the
right to establish the classification of fixed assets into depreciation groups for profits
tax purposes, therefore this classification approved by the Government is binding for
taxpayers. Ministry of Finance has the right to issue clarifications on taxation issues.

2.6


Instructions, letters, telegrams and other regulations issued with respect to federal,
regional, and local taxes by the FTS, state tax inspectorates in the regions and
municipalities, as well as by other executive bodies may not introduce tax rules affecting
principal tax matters (i.e. should generally cover administrative tax issues only).
International tax legislation
One of the constitutional principles is the rule that international agreements
concluded by the Russian Federation take precedence over its national legislation.
This rule is reiterated by the Tax Code and is equally applicable to conventions for
avoidance of double taxation and prevention of fiscal evasion with respect to taxes
(“double tax treaties”) and other international tax agreements of the Russian Federation.
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0105
RUSSIAN TAX SYSTEM
2.7

Court system
The Russian tax regulatory framework does not explicitly recognise the concept of a
precedent as a legal source. However, decisions and clarifications of the Economic
Collegium of the Supreme Court, which is the highest court in resolving disputes between
corporate taxpayers and the tax authorities, are binding for the lower arbitration courts,
which handle the majority of tax cases.
Commentary
Thus, such decisions and clarifications effectively establish the ultimate
approach towards a disputed tax matter.

The other two of Russia’s highest courts (the Constitutional Court and the Supreme Court)
play an active role in testing the legality of tax acts and, thus, also effectively change the tax
rules by means outside the scope of the legislative process. In quite an impressive number of
decisions, parts of tax laws have been declared invalid as contradictory to the Constitution
(by the Constitution Court), and Presidential Decrees, Governmental Regulations, FTS
Instructions contradictory to tax laws (by the Supreme Court).
3
CONDITIONS OF TAXATION
3.1
Elements of taxation
A tax is established if tax payers and all elements of taxation are defined:






tax object;
tax base;
tax period;
tax rate;
procedure for tax calculation;
procedure and deadlines for tax payment.
3.2
Definitions
Tax object – any object (property, profit, income etc.) having a cost, quantitative or
physical characteristic whose existence is linked to the emergence of a tax liability of the
taxpayer is deemed to be an object of taxation. Each tax has an independent object of
taxation defined in compliance with part II of the Tax Code (art.38).
Tax base represents a value, physical or other parameter of a taxable item (art.53)
A tax period is a year or any other period of time with regard to a taxpayer's liabilities for
individual taxes after the end of which the tax base is determined and the due amount of
tax assessed (art.55). The tax period may consist of one or more accounting periods, tax
reporting periods or advance payment periods. The tax period will normally correspond
with a calendar year, but will differ when an organisation is established or wound up
during the course of a year. (This will normally result in a tax period of less than twelve
months, but in the case of a new business commencing in December, the tax period can
run until the following 31 December.)
Tax rate represents the amount of tax levied on a unit of measurement of a tax base
(art.53).
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0106
RUSSIAN TAX SYSTEM
4
DIFFERENT TYPES OF TAXES
4.1
Federal, regional and local taxes
The Russian tax system consists of federal, regional and local taxes:

Federal taxes:











Regional taxes:







land tax;
individual property tax;
other local taxes and fees.
Federal taxes are levied throughout the territory of the Russian Federation,
while regional and local taxes are levied on the taxpayers registered or
operating within the territory of the region (municipal district).
No federal, regional or local taxes can be established which are not provided
for by the Tax Code.
The rates (within the limits set at the federal level) of regional/local taxes are
normally set and respective tax concessions are granted at the regional/local
level. The results vary over the territories:


corporate property tax;
transportation tax;
gambling tax.
Local taxes:

4.2
corporate profits tax (CPT);
value-added tax (VAT);
customs duties, customs fees;
excise duties;
personal income tax;
other federal taxes.
some territories introduce as many taxes as possible and raise their
rates to the maximum;
others refrain from introduction of excessive number of taxes and
use their authority to establish lower tax rates, thus, offering a more
favourable tax regime to lure inbound investments.
Direct and indirect taxes
Direct tax is normally taken to mean situations where the tax authorities collect tax
from the person who is being taxed – so most taxes are categorised as direct taxes.
Indirect tax is where the tax is collected from another party – not the party who is
suffering the tax. VAT is an example of an indirect tax. The seller of the goods
adds VAT on to the price – so the final consumer is the person who suffers the tax.
However, it is the seller who collects the tax and passes it on to the tax authorities.
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0107
RUSSIAN TAX SYSTEM
4.3

Profits tax on corporate incomes
Profits tax is payable in Russia on the profits of Russian legal entities and foreign legal
entities carrying out business activities in the Russian Federation, calculated as
operational and non-operational income less tax deductible expenses and losses.
Exam advice
Profits tax levied on foreign legal entities is not examinable.

It is still possible for profits taxation purposes to recognise revenues either on a cash
basis or on an accruals basis.
Commentary
The choice of cash method for CPT is not available to taxpayers with
average quarterly income exceeding 1 million. RR (excluding VAT).


Under the accruals method operational income and expenses are recognised when they
are accrued, while under cash method they are recognised when paid.
A corporate taxpayer must maintain a tax accounting system for the purpose of
calculating corporate profits tax (CPT) liabilities. Reconciliation between accounting
and taxable profits is not required for tax reporting purposes.
Commentary
However, a reconciliation is necessary for accounting purposes for the
determination of deferred tax assets and liabilities.




Deductibility of certain categories of business expenses and losses is restricted under
the Russian taxation rules, while a few types of expenses are wholly non-deductible.
The profits tax rate is set at 20% of the taxable business profits, where 2% is payable to
the federal budget and 18% to the regional budget. The regions have been granted the
power to decrease the regional rate down to 13.5% for certain categories of taxpayers.
Some categories of income are subject to withholding profits tax. For example
dividend income payable by a Russian company to another Russian company with a
participatory share less than 50% is taxable at source at the rate of 13%.
Consolidated tax reporting is allowed for large groups with subsidiaries that are at
least 90% owned by the parent company. Few groups qualify, however, as the
conditions are that the group must have at least:



annual turnover – 100 billion roubles; and
assets – 300 billion roubles; and
total tax take – 10 billion roubles per year.
Several of the largest Russian companies created consolidated groups in 2012 following their
introduction, but currently there is a freeze on new consolidated tax groups being formed.
Exam advice
Unified tax on imputed income and withholding income tax on income of foreign legal
entities are not examinable.
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0108
RUSSIAN TAX SYSTEM
4.4
Personal income tax

Personal income tax (PIT) applies to income of individuals.




4.5


Base PIT rate is 13%. A rate of 35% applies to certain types of income.
A taxpayer is granted a number of standard, professional, social and property
deductions (allowances) when calculating his taxable income.
All Russian legal entities are required to withhold individual income tax from the
salaries of their employees (individuals engaged under labour contracts) and
income paid to other individuals engaged by them under civil-law contracts.
Individual entrepreneurs make regular payments of PIT for themselves and for hired
workers.
Value added tax
Value added tax (VAT) is generally chargeable on sale of all goods and services in
Russia and on importation of goods into the territory of the Russian Federation.
The standard rate of VAT is 18%. Certain supplies including items such as food
products and goods for children are charged a 10% VAT, while exports of goods
and related works and services are subject to VAT at 0% rate.
Sales of certain goods (works, services) are VAT exempt.
Key point
 VAT rules for exempt operations are very different to those for operations subject
to 0% rate.



Input VAT (i.e. VAT paid to suppliers) is generally allowed as a credit against
output VAT (i.e. VAT charged to customers and payable to the budget) after the
services/materials/fixed or intangible assets are reflected on the books.
Exemption from VAT of certain sales may be disadvantageous to the supplier since
VAT incurred on inputs may not be recovered and so charged to the costs of
production. Sales subject to 0% VAT (e.g. exports) allow recovery of input VAT.
There is a uniform invoicing procedure for VAT purposes applicable to all
taxpayers providing goods, works, or services. VAT invoices of a standard
format (“schet-factura”) are to be issued and registered in a sales journal of
the seller and incoming VAT invoices from suppliers are to be recorded in a
purchases journal of the buyer. Compliance with the VAT invoicing
procedures is critical to the buyer’s ability to recover input VAT.
Exam advice
The VAT withholding requirement (“reverse charge” VAT) applicable to payments
made to foreign companies is not examinable.
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0109
RUSSIAN TAX SYSTEM
4.6




Insurance contributions
Insurance contributions (ICs) are obligatory payments for mandatory social insurance
regulated by the Tax Code, Federal Laws and respective regulatory legal acts.
Tax Code Chapter 34 now provides the main framework for ICs enacting the
regulation rules established by the Federal Law # 212-FZ.
ICs combine payments to several state funds, which are made by employers and
individual entrepreneurs to secure state medical, pension and social insurance.
ICs represent:


4.7


4.8

for employers an additional cost (on top of the salaries) which is
allowed as a deduction in arriving at the corporate profits tax base;
for an individual entrepreneur an additional cost generally
deductible from taxable business income.
Corporate property tax
Property tax is payable on immovable fixed assets of Russian and foreign legal
entities located in Russia, based on either their cadastral value (i.e. according to an
official register of property values) or their annual average net book value.
The property tax rate is set at the regional level and may not usually exceed
1.5% or 2.2 %.
Simplified tax system
Taxpayers are eligible for the simplified tax system (STS) if they fall within
certain scale thresholds:



annual turnover is below 45 million RR;
combined net book value of fixed and intangible assets is below 100 million RR; and
fewer than 100 persons are employed.
Exam advice
2017 changes to these thresholds are not yet examinable.



A taxpayer operating under the STS may continue to do so until annual
turnover exceeds 60 million RR. These criteria change periodically and can
be amended annually.
Certain types of organisation are specifically not allowed to use the STS.
These include foreign companies, companies with branches or representative
offices, companies owned more than 25% by other companies, banks,
insurance companies, and pension and investment funds.
Taxpayers wishing to use the STS must inform the tax authorities before the
start of the year in which it is to be used.
Commentary
Newly established corporations or newly registered individual entrepreneurs
have 30 days from the date of registration to give such notification.
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0110
RUSSIAN TAX SYSTEM

Under the STS the taxpayer may pay tax at either:





6% of income (i.e. revenue with no deductions); or
15% of “profit” (income less deductible expenses) but not less than
1% of income (so called “minimum tax”).
This tax is a substitute for profits tax, property tax (other than cadastrallyassessed amounts) and VAT. Corporate property tax on assets such as office
and shopping centres is still payable.
Employers must still make obligatory pension contributions and withhold and
remit income tax from their employees’ income. Insurance contributions are
payable at a reduced flat rate of 14% for individual entrepreneurs using the
simplified tax system.
The tax liability is self-assessed and should be paid on a quarterly basis by
the 25th day of the month following the quarter end.
Exam advice
Other special tax regimes (imputed income, unified tax, and production
sharing) are outside the scope of the F6 syllabus and not examinable.
5
TAXPAYERS AND TAX AGENTS
5.1
Taxpayers


5.1.1

Taxpayers and payers of levies are organisations and individuals having an
obligation to pay taxes and/or fees, respectively.
In most cases a taxpayer will need to register, file regular tax returns and
make tax payments.
Principal rights (art. 21)
To receive from the tax authorities at the place of registration free information on
current taxes and levies (including information on laws on taxes and levies and
other tax related acts).

To use established tax allowances.

Not to comply with illegitimate acts and requirements of the tax authorities.

To appeal against the decisions of the tax authorities as well as their actions.


To claim full compensation of any losses incurred due to the unlawful
decisions, actions (inaction) of the tax authorities.
To receive timely offset or reimbursement of the tax amounts paid or
collected in excess of the correct amount.
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0111
RUSSIAN TAX SYSTEM
5.1.2
Principal obligations (art. 23)

To register for tax purposes if required by the Tax Code.






5.1.3

To pay lawfully established taxes.
To file tax declarations.
To maintain records of their income (costs) and taxable subjects.
To provide the tax authorities with the necessary information and documents
required to calculate and pay taxes.
To comply with the lawful demands of tax authorities to rectify violations of
tax and levies legislation.
To keep for four years the accounting records and other documents required
for the calculation of taxes and confirming payment of taxes and levies.
Tax Secrecy (art. 102)
All information held by tax authorities regarding a taxpayer is, under the Tax
Code, regarded as secret and confidential unless specifically excluded. The
main exclusions from secrecy were:





The extent of secrecy could be problematic for taxpayers regarding not just their
own tax affairs, but also in their commercial dealings where it was hard to establish
the compliance status of the relevant counterparties. Accordingly, and in pursuance
of the prevailing trend to greater transparency, a range of further exceptions to
secrecy have been introduced. The most significant of these are:





information already in the public domain anyway (with taxpayer’s consent);
details of the taxpayer’s identification number(‘TIN’);
details of any tax offences or violations and any related sanctions;
information required to be provided to other bodies, including state and
municipal authorities, other tax authorities under international treaties on
mutual tax co-operation, and to the electoral commission for State Duma.
average numbers of employees of the organisation;
amounts of tax paid and insurance contributions paid by a company;
amounts of income and expenses as shown in the entity’s financial statements.
Furthermore, these new exceptions are to be made publicly available and will
be posted on the internet in the official website of the Federal Tax Service.
This website will also publish information on:





any tax deficiencies or underpaid penalties;
registration information for entities and entrepreneurs;
details of addresses, including where these are a mass registration address or have
failed to provide connection with the company;
announcements subject to publication in the mass media (“State Registration
Bulletin”), such as corporate mergers, acquisitions, liquidations, and reduction of
share capital;
for certain types of taxpayer, information on the accounting
statements and accounting policies used.
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0112
RUSSIAN TAX SYSTEM
5.2
Tax agents
Definition
Persons (both individuals and legal entities) who, in accordance with the Tax Code,
must calculate and withhold relevant taxes from payments to taxpayers and remit these
amounts to the budget.

A tax agent does not bear the cost of the tax himself but rather acts as a collecting “agent”.

Examples are:


an employer with regards to salaries paid;
a payer of dividends.

Tax agents generally have the same rights as taxpayers.

Tax agents have the following main obligations:




to notify within one month local tax authorities of the inability to
withhold tax and the amount of the taxpayer’s liability;
to maintain records of income paid to taxpayers, taxes withheld and remitted to
budgets (non-budget funds), including personalised data on each taxpayer;
to file with the tax authorities documents necessary for the tax authorities to
monitor accuracy of the calculation, withholding and remittance of taxes.
The Tax Code provides for a penalty for failure to transfer the tax that should
have been withheld and transferred to the budget. The penalty is established
at 20% of the relevant tax amount.
Example 3
Darya starts employment for OOO Sterling as a translator. On joining she advises Ilya,
the chief accountant, that the company should not deduct any tax from her salary as she
has income from other sources, including publishing books. She demands to be paid
gross declaring that her tax adviser will account for her liabilities when submitting
returns.
Required:
Explain whether the company can agree to Darya’s request.
5.3


Tax avoidance and tax evasion
Tax evasion is the illegal avoidance of tax achieved by negligence or fraud
(i.e. non-disclosure of income or gains, or other deliberate illegal actions).
Tax avoidance is the minimisation of tax liabilities achieved through the
organisation of a taxpayer's financial affairs within the limits of tax law. In
large measure, tax avoidance is the utilisation of tax reliefs and exemptions
and ensuring the lowest rate(s) of tax ultimately apply to all taxes.
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0113
RUSSIAN TAX SYSTEM

5.4


Although legal, if a tax avoidance arrangement becomes too costly for the
government or is deemed to run contrary to the intention of the law, the tax
advantages of the arrangement can be removed by changes to the tax law (i.e.
specifically targeted anti-avoidance legislation).
Ethical approach
A taxpayer may appoint an accountant or other professional adviser to complete
tax returns, agree tax liabilities and to deal with disputes and tax audits.
Professional advisers must:






Exercise their duties competently;
Have due regard to potential conflicts of interest and not benefit personally
(apart from fees charged) from their dealings with their clients;
Keep proper records of their dealings with their clients and tax
authorities; and
Otherwise act in an ethical manner in accordance with principles
established by their professional body (e.g. the ACCA).
The main professional bodies have issued guidance on the procedures to be
followed in the event of a possible non-trivial irregularity in a client’s tax
affairs. In such cases the adviser should explain the situation to the client and
recommend disclosure to the tax authorities.
If the client refuses to disclose after normal persuasive advice, then formal
written advice should be given regarding the potential consequences. Where
the client still will not authorise disclosure, then the adviser must cease to act,
and also:

Advise the client they are no longer acting for them;

Notify tax authorities they have ceased to act, if relevant;



If appropriate, consider whether to advise tax authorities that accounts
or statements carrying a signed report can no longer be relied upon;
Respond in a professionally appropriate and careful manner to any
professional clearance letter from a subsequent adviser; and
Consider whether any reporting is required under money laundering
regulations.
Commentary
It would normally be good practice to at least refer the issue to the money
laundering reporting officer within the advising member’s firm.
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0114
RUSSIAN TAX SYSTEM
6
TYPES OF BUSINESS ACTIVITIES
6.1
General

Business activities in Russia may be conducted in the following forms:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)

full partnership (“polnoie tovarischestvo”);
commandite partnership (“tovarischestvo na vere”);
limited liability company;
company with additional liability (“obshestvo s dopolnitelnoi otvetstvennostju”);
non-public (closed) joint stock company (OOO);
public (open) joint stock company;
production co-operative;
individual in business (individual entrepreneur);
simple partnership (created under a “joint activities” agreement);
branch of Russian entity;
branch of foreign entity.
Entities listed under items 1-7 are legal persons subject to corporate taxes.
Exam advice
For exam purposes all company designations will be “OOO”.


Individual entrepreneurs are liable to personal income tax (PIT) and social
insurance contributions. They are also VAT payers with certain limitations.
A simple partnership’s profit is added to other income of the partner and
taxed according to corporate or personal income tax rules as appropriate.
6.2
Branches of Russian legal entities

The Tax Code operates with a notion of a “separate sub-division” of a legal entity.
Definition
Any sub-division with permanent working places in a location other than the location
of the head office.





The working place is considered to be “permanent” if it is created for more
than one-month period.
Branches (separate sub-divisions) are not considered to be independent
taxpayers. The organisation has the obligation to pay taxes locally at the
place of location of its separate sub-divisions.
Corporate profits tax is allocated between a branch and its head office according
to special rules which will be explained in detail in relevant sections.
Property tax of a branch is calculated based on the value of the property of the
branch and is paid to the tax inspectorate at the branch location at that local rate.
Individual income tax on wages and salaries of the employees in the branch
are calculated based on the salaries of relevant employees.
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0115
RUSSIAN TAX SYSTEM
Exam advice
Taxation of branches of foreign legal entities is not examinable.
FOCUS
You should now be able to:














describe the purpose (economic, social, etc) of taxation in a modern economy;
explain the difference between direct and indirect taxes;
recognise the types of taxes levied on legal entities and physical persons in the Russian Federation;
list the legal forms of business activities in Russia and identify the relevant taxes for each
type of business activity;
explain the tax regulatory framework in the Russian Federation including the process for
making changes and amendments to the Tax Code (art. 5 of Part I);
explain how the tax terms/periods set by the Tax Code (art. 6.1 of Part I) are determined;
outline the application of regional and local tax laws, defining the relevant tax regulatory bodies;
explain the difference between tax avoidance and tax evasion;
explain the need for an ethical and professional approach;
list the data available for the taxpayer in the form of public data on the internet web site from
the Federal Tax Service and not subject to tax secrecy;
understand the basic principles of the operation of the simplified tax system in Russia as it
applies to companies and the self-employed;
differentiate between taxpayers and tax agents;
explain the rights and obligations of both taxpayer and their agents;
explain the concept of separate “sub-division” as it applies to corporate profits.
EXAMPLE SOLUTIONS
Solution 1
The Law establishes more favourable rules for taxpayers and may therefore be
retroactive. There is nothing wrong with the effective date being 1 January 2017.
Solution 2
The Law worsens the taxpayer’s position and cannot be retroactive. It will enter into
force one month after the date of its official publication (5 February) but not earlier
than the first day of the reporting period (1 March). Therefore, the effective date is 1
March 2017.
Solution 3
No. OOO Sterling is the tax agent in respect of Darya’s salary and must withhold personal
income tax. Failure to do so would result in the company being liable to penalties.
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0116
CORPORATE PROFITS TAX – SCOPE, COMPUTATION AND INCOME RECOGNITION
OVERVIEW
Objectives

To understand the scope of corporate profits tax.

To demonstrate the computation of corporate profits tax liability.

To explain the methods of income and expense recognition for tax purposes.
SCOPE
TAX LIABILITY




Taxpayers
Tax object and tax base
Tax and reporting periods
Tax rates





Computation
Income classification
Expense classification
Exclusions
Direct vs indirect expenses
ACCRUALS
METHOD OF
INCOME
RECOGNITION








CASH METHOD
OF INCOME
RECOGNITION



General rules
Sales income
Production and sales expenses
Allocation of direct expenses
Non-operational income
Non-operational and other expenses
Accruals method summary
Special rules
TRANSFER
PRICING





Income
Expenses
Taxable profits
New legislation
Controlled transactions
Transfer pricing methods
Reporting and control
Advance Pricing Agreements
Commentary
All article references are to the Tax Code unless otherwise stated.
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0201
CORPORATE PROFITS TAX – SCOPE, COMPUTATION AND INCOME RECOGNITION
1
SCOPE
1.1
Taxpayers (art. 246)

Enterprises and organisations, that are legal entities created under Russian Law, are subject
to the corporate profits tax (CPT) with certain exceptions (none of which are examinable).
1.1.1
Exceptions




Entities subject to unified tax on imputed income (a simplified tax for small business).
Small enterprises using simplified tax and accounting systems.
Gambling businesses (this income is subject to special tax on gambling business).
Agricultural entities (with the exception of agricultural enterprises of industrial type).
Specific taxation rules relating to certain categories of taxpayers (e.g. banks, credit
institutions, insurance companies, pension funds, etc) are not examinable (art. 290 – 300).
Taxation of foreign legal entities acting in Russia through permanent establishments
(art. 306-308) is not examinable. Withholding profits tax on income of foreign legal entities
from sources in the Russian Federation (art. 309-312) is also not examinable.
1.2


Tax object and tax base (art. 247, 274)
Tax object for CPT is the taxpayer’s profit, calculated as gross income (operational
and non-operational) reduced by tax deductible expenses and losses.
Tax base is the profit defined as a tax object in money terms.
Income received in-kind (non-monetary) is determined based on the agreement terms taking
into account the market price (art.40).
1.3
Tax and reporting periods (art. 285)

The tax period (“nalogovyi period”) is a calendar year.

The reporting period (“otchetnyi period”) may vary, depending on the CPT
payment system, used by a taxpayer:


if a taxpayer uses a quarterly system, the reporting periods are first
quarter, half a year and 9 months of the year;
if a taxpayer makes monthly advance payments of CPT based on actual
profits, the reporting period is a month, two months, three months and so
on until the end of the calendar year.
Illustration 1
XYZ Company’s data follows (in million RR):
1st quarter
2nd quarter
3rd quarter 4th quarter
200
180
220
300
Deductible expenses (non-cumulative) (80)
(70)
(100)
(150)
9 months
year
350
500
Taxable revenue (non-cumulative)
1st quarter 1st half
Taxable profits (cumulative)
120
230*
* taxable profits for the half of the year include 120 from the 1st quarter and 110 from the 2nd
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0202
CORPORATE PROFITS TAX – SCOPE, COMPUTATION AND INCOME RECOGNITION
1.4
Tax rates (art. 284)
1.4.1
General profits tax rates

The general CPT rate is fixed at 20%, this rate is provided in the examination.

The total rate is comprised of the federal and regional portions. In 2017:


the federal portion of the tax is fixed at 2%;
the regional portion of CPT is set at 18%.
Exam advice
The 2017 change to 3% and 17% portions is not yet examinable.


The regional rate can be decreased by the local legislative body for certain
categories of taxpayers by 4.5% maximum (i.e. from 18% to 13.5%).
Some lower corporate profits tax rates are applicable in certain circumstances. For
example a 0% rate applies to companies disposing of unlisted shares in Russian
companies acquired after 2010, providing these have been held for at least five
years (so would only arise in 2016 or later).
Exam advice
For exam purposes the 20% rate is the only rate provided and no detailed
knowledge of other rates would be expected.
1.4.2
CPT rates on dividends

The Tax Code provides for special tax rates on dividend receipts and distributions.

If an entity pays dividends it must withhold CPT at source at:




0% if dividends are paid to a Russian legal entity which has owned for at
least 365 days not less than 50% of the entity;
13% if dividends are paid to a Russian legal entity (unless the recipient is
entitled to 0% rate);
15% if dividends are paid to a foreign legal entity or a Russian legal
entity 100% owned by a foreign legal entity.
The above rates will be provided in the examination.
Commentary
Other rates of 5% under double tax treaties or 30% for foreign companies acting
for non-disclosed third party interests are considered to be outside the syllabus.

If an entity receives dividends it pays CPT at:



0% if dividends are received from a Russian legal entity (as either specifically
qualifying for zero rate or already subject to 13% tax at source);
13% if dividends are received from a foreign legal entity (unless 13%
deduction at source has been made or 0% rate applies).
For more details see Session 4.
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0203
CORPORATE PROFITS TAX – SCOPE, COMPUTATION AND INCOME RECOGNITION
2
TAX LIABILITY
2.1
Computation

Taxable profit includes profits from sales of goods (works, services) and nonoperational profits.
Outline of computation of tax liability
+
Sales income
–
Sales expenses
=
Operational profit
+
Non-operational income (Session 4)
–
Non-operational expenses ( Session 4)
=
Tax base (before loss carry forward)
–
Loss carried forward from previous years (Session 4)
=
Tax base (after loss carry forward)
×
Tax rate
=
Tax liability
Detailed proformas for the calculation of tax liabilities for production and trading
companies are set out in Session 4.
2.2


Income classification (art. 248, 249, 250, 315)
Taxable income consists of sales income (“dohodi ot realisatsii” art. 249) and nonoperational income (“vneralizatsionnie dohodi” art. 250).
Income in tax accounting is classified into the following main “baskets”* (art. 315):




Basket 1 - income from sales of goods (works performed, services rendered);
Basket 2 - income from trading operations (sales of purchased goods
(merchandise inventory));
Basket 3 - income from sales of fixed assets;
Basket 4 - non-operational income.
Income is determined without including taxes (mainly VAT in all examinable
cases) to be reimbursed by the buyers according to the Tax Code.
* The term “baskets” (korzini) is used for convenience only, as there is no such
definition in the Tax Code. There are more “baskets” according to the Tax Code
classification, however for exam purposes only the main baskets are covered.

Non-operational income is all other types of income than sales, for example, it can
be rental income, foreign currency exchange gains, interest income, etc. Often
income streams in this basket will be items not subject to VAT. (See s3.5 below
and Session 4 for more details).
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0204
CORPORATE PROFITS TAX – SCOPE, COMPUTATION AND INCOME RECOGNITION
2.3




Expense classification (art. 252, 315)
The Tax Code (art. 252) defines expenses as justifiable (“obosnovannyie”) and
documentary proved costs. Justifiable expenses mean economically sound expenses.
For deductibility purposes an expense must be linked to income-generating activity.
Like income, expenses are classified into production and sales expenses (“rashodi,
svjazannie s proizvodstvom i realisatsiei”) and non-operational expenses
(“vneralizatsionnie rashodi”).
The “basket” concept is applicable to expenses as well. For exam purposes there
are three baskets of production and sales expenses and one basket for nonoperational expenses. Profit (or loss) is established for each basket first and then
the results are added up to determine the total taxable profit or loss.
Losses received in certain baskets cannot decrease profits in others or can only decrease
it according to special rules (e.g. losses on disposal of fixed assets, Session 3).






2.4

2.4.1
Expenses in tax accounting are classified into the following “baskets”:




Basket 1 – expenses on production and sales of goods (works, services);
Basket 2 – expenses incurred on sales of merchandise inventory;
Basket 3 – expenses incurred on sales of fixed assets;
Basket 4 – non-operational expenses.
Other types of expenses are not examinable.
For the purposes of taxable profits calculation on accrual basis, sales and production
expenses are further split into direct and indirect categories (see section 2.5).
Non-operational expenses are not split into direct and indirect. They decrease the
taxable base of the period when they are recognised for tax purposes (see section 3.6).
Deductibility of certain expenses is limited by statutory norms (see next session).
Losses incurred by taxpayer can also be attributed to expenses according to special
rules (see Sessions 3 and 4).
Exclusions (art. 251, 270)
Certain types of income/expenses are excluded from taxable base, which means that
although they represent economic income or costs for the company they are not subject to
profits tax nor included in tax-deductible expenses.
Excluded income (art. 251)
The following items are not taken into account when defining the tax base:




advances received by taxpayers using accruals method of income recognition;
property received as a deposit (guarantee) for enforcement;
contributions received to charter capital (including additional paid-in capital);
VAT received within contributions to charter capital which is subject to deduction
by the receiver (according to Chapter 21 of the Tax Code);
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0205
CORPORATE PROFITS TAX – SCOPE, COMPUTATION AND INCOME RECOGNITION







property (including cash) received by commissioner (except commission income);
loans received;
interest amounts received from the State budget in respect of tax overpayments ;
investments in the form of integral improvements to rented property made by the
lessee (or made by a borrower who has free use of such property);
property received free of charge by a Russian legal entity from a legal entity which
owns more than 50% of the taxpayer;*
property received free of charge by a Russian legal entity from a legal entity which
is more than 50% owned by the taxpayer;*
property received by a Russian legal entity from a physical person who owns more
than 50% in the capital of the taxpayer.*
* This property (with the exception of cash) is excluded from income unless it is transferred
to a third party within one year from the date of receipt.
2.4.2
Excluded expense (non-deductible)
The following items should be remembered (art. 270):

















advances for goods (works, services) made by taxpayers who recognise income/
expenses on an accruals basis;
dividends and profits distributions;
penalties and fees paid to budget and state bodies;
contributions to charter capitals;
expenses incurred for purchase or production of depreciable property (Session 3);
partially deductible expenses in excess of statutory norms;
property (including cash) transferred to a commissioner (except commission expense);
loans given to other companies or payments (cash or other property) transferred for
redemption of the principal amounts of loans received;
gifts in cash or in-kind and related expenses payable to employees which are not
included in a labour contract;
property given free of charge and expenses related to such commitment;
financial aid to employees (“materialnia pomosch”);
price differences when selling goods (works, services) to employees below market prices;
free or subsidised meals to employees, compensation of commuting expenses to
and from the work place (except such costs provided under labour contracts);
various other benefits for employees (i.e. non business travel, recreation, sports,
entertainment) (art.270). These are excluded even if provided for in the contract;
payments to the members of the board of directors of the taxpayer’s organisation;
taxes that are included in the sales price (e.g. VAT, excises);
expenses, which are not justifiable and/or documentarily proved.
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0206
CORPORATE PROFITS TAX – SCOPE, COMPUTATION AND INCOME RECOGNITION
2.5




Direct vs indirect expenses (art. 318, 320)
The Tax Code further classifies production and sales expenses (baskets № 1 and №
2 only) into direct and indirect for the purposes of tax accounting for those
organisations applying the accruals method.
Tax-deductible direct expenses of the reporting period partially decrease taxable
base, partially are allocated to work-in-progress and finished goods (see 3.4 below).
Tax deductible indirect expenses incurred in the reporting period decrease the
taxable base of this period.
This classification is not applied to non-operational expenses. Classification rules
are different for production and trading operations (see s3.4).
3
ACCRUALS METHOD OF INCOME AND EXPENSES RECOGNITION
3.1
General rules (art. 271, 272)




Under the accruals method income and expenses are recognised in the reporting
period to which they relate, regardless of the timing of money and/or property
receipts/payments.
Income and expenses under the accruals method should be matched with each
other. Those expenses which relate to several income generating activities should
be allocated between them based on percentage from these activities.
If income/expenses are related to different reporting periods they must be split
according to the terms of the sales agreement.
Income is recognised for CPT purposes under the accruals method on shipment
(transfer) date:
This date is defined (art. 39) as the date of transfer of the title of ownership for
goods (works, services). Thus, if the goods were shipped to customer but the title
of ownership remains with the seller (“goods in transit” – not delivered to
customer’s warehouse or special conditions of the contract) the “shipment date” in
a tax sense has not occurred yet.


Under the accruals method advances (prepayments) received from customers are
not subject to CPT until the dispatch (title transfer) takes place.
If the sale is performed through commissioner (agent), the shipment date is defined
according to the sale date indicated in the commissioner’s report. However the Tax
Code provides that a commissioner must inform the principal about the sale within
three days after the end of the reporting period in which the sale took place (art. 316).
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0207
CORPORATE PROFITS TAX – SCOPE, COMPUTATION AND INCOME RECOGNITION
3.2

Sales income (art. 271)
The following table summarises the timing of sales income recognition under the
accruals method:
Type of income
Timing of recognition
Income on sales of goods
The date of transfer of the title to goods
Income on sales of securities
The date of transfer of the title of securities
or the date of offsetting of counter-claims
Income on sales of works
The date of transfer of the results of
completed works to customer
Income from services (other than factoring
services)
The date of services provision (as per
acceptance act)
Income on sale of property rights
(i.e. factoring)
The date of transfer of these rights to a new
creditor
Income from factoring services
(not on initial debt assignment)
The date of receivable collection or its
subsequent sale by its new holder
Income from sale of goods (works, services),
property rights through commissioner (agent).
The sale date indicated in the
commissioner’s report (see above).

Income received in foreign currency is converted to roubles on the date when it is
recognised (art. 271.8).
Example 1
State the date of income recognition for CPT purposes for the following transactions.
Assume that the company uses the accruals method and pays CPT on a monthly basis:
(1)
On 20 January OOO Alfa made a delivery to OOO Beta, which issued a promissory
note with a two-month payment term. Alfa received the money on the note’s
redemption on 20 March.
(2)
On 25 January Alfa shipped goods worth 10 million RR to Beta. According to the
terms of agreement title to the goods passes to Beta only after Beta receives and
inspects them in its warehouse. The receipt and inspection occurred on 5 February.
(3)
Alfa sells its goods through a commissioner Beta. Alfa has delivered the goods to
Beta in February. Beta has delivered the goods to a final customer in May. The
customer paid to Beta in June. Beta paid to Alfa in July.
(4)
Alfa has shipped some goods to a foreign customer on 1 March. It presented the
package of export confirmation documents to the tax authorities on November 20.
(5)
Continuing from (4), assume that a prepayment for exported goods was received in
January.
(6)
Alfa has an account receivable, which it considered as non-collectible. The
delivery was made in January. In August Alfa has sold this receivable to Beta,
which paid for it in September.
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0208
CORPORATE PROFITS TAX – SCOPE, COMPUTATION AND INCOME RECOGNITION
Solution
(1)
(2)
(3)
(4)
(5)
(6)
3.3

Production and sales expenses (art. 272)
The table below summarises the timing of recognition of production and sales
expenses under the accruals method:
Type of expense
Timing of recognition
Raw and other materials used in
production
The date of transfer from warehouse into production
Depreciation/amortisation expense*
Monthly at the date of accrual of this expense
Wages and salaries expenses
Works, services used in production
The date services are provided (as per acceptance act)
Mandatory and voluntary insurance
expenses
The date of payment. For payments covering more than
one reporting period the expense is allocated in equal
portions over the agreement term based on the number of
days. This means that there is an additional condition (i.e.
they must be paid for) for such expenses to be recognised
for CPT on accruals basis.
* This starts from the month following the month when the asset was put into use.

Expenses incurred in foreign currency are recalculated to roubles on recognition.
Example 2
State the timing of inclusion in deductible expenses of the following items for an accrual
basis taxpayer, which pays and reports CPT on a monthly basis:
(1)
Materials booked in February, consumed in production in March, paid in April.
(2)
Fixed assets booked and put in use in April, paid in June.
(3)
Capital repair services received in July, prepaid in June.
(4)
Intangible assets with estimated 5-year service life, purchased in January, booked
and put in use in February.
(5)
Voluntary medical insurance paid on the 15 March for the period from 5 March
2017 to 5 March 2018.
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0209
CORPORATE PROFITS TAX – SCOPE, COMPUTATION AND INCOME RECOGNITION
3.4

3.4.1


Allocation of direct production and sales expenses (art. 318, 319, 320)
Split of operational expenses into direct and indirect with their further allocation is
performed only if the accruals method is used for CPT purposes.
Trading operations (art. 320)
In tax accounting production and sales expenses are classified into direct and
indirect. This does not apply to non-operational expenses. Classification rules are
different for production and trading operations.
For trading operations the rules are straightforward and easy to remember:


direct expenses – are the purchase cost of merchandise inventory and related
transportation costs on delivery of goods to the warehouse of taxpayer;
indirect expenses – are all other expenses incurred on purchase and sales
of merchandise inventory.
Note that bonuses from a seller to a customer subject to certain conditions in
agreements (volume bonuses) are included in non-operational expenses (and not
subject to VAT).



Tax deductible indirect expenses incurred in the reporting period decrease taxable
base of this period and are not prorated (allocated between different tax periods).
Direct expenses of the reporting period partially decrease taxable base and partially
are allocated to work-in-progress and finished goods.
Cost of closing merchandise inventory is determined using one of the following
costing methods (art. 268):



First-in, first-out (“FIFO”);
Weighted average cost;
Actual unit cost.
Last-in, first-out (“LIFO”) is no longer permitted.


Transportation costs, which are billed separately (i.e. delivery is not included in the
purchase cost and paid for as an additional expense) are allocated to the closing
merchandise inventory using the following steps:
Step 1:
Add up transportation costs allocated to the opening merchandise
inventories and incurred in the current reporting period.
Step 2:
Add up the cost of closing inventory and merchandise sold.
Step 3:
Divide the cost of closing inventory by the result in Step 2 to give a
proportion.
Step 4:
Multiply the transportation costs (Step 1) by the proportion (Step 3) to
give the transportation costs to be allocated to the closing inventory.
The difference between Step 1 and Step 4 is the deductible transportation cost in the
current tax period.
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0210
CORPORATE PROFITS TAX – SCOPE, COMPUTATION AND INCOME RECOGNITION
Illustration 2
Company A has started its operation in January 2017. The following data is available for
January (VAT is ignored for simplicity):
On 5 January the company purchased 3,000 units at 160 RR per unit. Agent’s commission
80,000 RR, insurance costs – 50,000 RR, transportation costs 140,000 RR.
On 15 January the company purchased 3,000 units at 190 RR per unit. Agent’s commission
100,000 RR; loading costs – 30,000 RR; transportation costs 175,000 RR.
In January the company sold 4000 units at 320 RR per unit.
The FIFO method is used for tax accounting purposes.
(1)
(2)
(3)
(4)
(5)
Cost of goods purchased is 1,050,000 RR ((3,000 × 160) + (3,000 × 190))
Cost of goods sold is 670,000 RR ((3,000 × 160) + (1,000 × 190))
Closing inventory 380,000 RR (1,050,000 – 670,000)
Indirect expenses are 260,000 RR (80,000 + 100,000 + 50,000 + 30,000)
Direct expenses (transportation costs) are 315,000 RR
Allocation of direct expenses:
Step 1:
Sum of transportation costs in the opening inventory and costs incurred in January:
0 + 315,000 = 315,000 RR
Step 2:
Sum of the cost of goods sold and closing inventory 1,050,000 RR
Step 3:
Proportion of closing inventory 380,000 ÷ 1,050,000 = 0.362
Step 4:
Transportation expenses allocated to closing inventory:
315,000 × 0.362 = 114,030 RR.
The remainder (200,970 RR) decreases the CPT taxable base of the reporting period.
Calculation of taxable profits:
RR 000
Sales income
Less:
cost of goods sold
direct transportation costs
indirect expenses
(670)
(201)
(260)
––––––
Taxable profits
3.4.2

RR 000
1,280
(1,131)
––––––
149
––––––
Production operations (art.319)
All direct expenses of production company must be prorated (i.e. apportioned or
split) between:


cost of sales (i.e. decrease taxable base);
inventories (work-in-progress, finished goods, goods in transit).
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0211
CORPORATE PROFITS TAX – SCOPE, COMPUTATION AND INCOME RECOGNITION
Illustration 3
Direct expenses allocated to opening inventory – 50,000 RR
Direct expenses incurred in the reporting period – 200,000 RR
Direct expenses in goods sold – 180,000 RR
Direct expenses allocated to closing inventory: 50,000 + 200,000 – 180,000 = 70,000 RR

For production operations expenses are classified into direct and indirect as follows:
- direct expenses – direct materials, depreciation of production fixed assets, direct
wages and salaries and related insurance contributions (see Session 10);
- indirect expenses – all other production expenses which are not connected directly
to production process. These expenses include:












material expenses other than direct;
depreciation of fixed assets which are not used in production directly;
10% (30%) write-off of initial cost of fixed assets;
depreciation of intangible assets;
indirect wages and related insurance contributions (IC) and voluntary
insurances; and
other production costs according to art.264.
“Direct” materials are defined as materials and components directly used in
production (art. 254). The purchase price of materials includes related
transportation fees, commission expenses, and customs duties.
“Indirect” materials include materials used for packaging, fuel and energy,
instruments, special cloths, low-value items that do not fall into fixed assets category.
Tax deductible indirect expenses incurred in the reporting period decrease the
taxable base of this period and are not prorated (i.e. not allocated between periods).
Direct expenses of the reporting period partially decrease taxable base, partially are
allocated to work-in-progress and finished goods. The allocation principles must be
stated in the tax accounting policy of the company.
Allocation of direct expenses depends on the types of taxpayer’s activities:
Type of activities
Method of allocation of direct expense
Production of finished goods (processing
of raw materials)
Percentage of raw materials in closing
inventory to total raw materials (in natural
units)
Works and services
Direct expenses in this case could be
recognised in the reporting period without
allocation (item 2 art. 318).
Allocation of direct expenses of a production processing company is illustrated as
follows:
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0212
CORPORATE PROFITS TAX – SCOPE, COMPUTATION AND INCOME RECOGNITION
Illustration 4
A company processes apples into apple juice.
Opening inventory included:


Work in progress (1,000 kg of apples consumed) valued at 900 RR;
Finished goods (30,000 kg of apples consumed) valued at 29,000 RR;
During the reporting period 79,000 kg of apples worth 81,100 RR were purchased for
production.
Direct wages and salaries, related IC and direct depreciation of the reporting period were
78,000 RR.
Closing inventory included:


Work in progress (8,000 kg of apples consumed)
Finished goods (25,500 kg of apples consumed)
Direct expenses will be distributed as follows (VAT is ignored for simplicity):
Work-in-progress
(a)
Total weight of apples in the opening WIP + weight of apples purchased during the
period: 1,000 + 79,000 = 80,000 kg
(b)
Weight of apples consumed in production (i.e. transferred from WIP to finished
goods): 80,000 – 8,000 = 72,000 kg
(c)
Allocation percentage to finished goods: 72,000 ÷80,000 × 100% = 90%
(d)
Direct expenses allocated to finished goods (900 + 81,100 + 78,000) × 0.9 =
144,000 RR
Finished goods
(e)
Total weight of apples in the opening finished goods + weight of apples consumed
into juice during the period: 30,000 + 72,000 = 102,000 kg
(f)
Total weight of apples in juice, which was sold in the period 102,000 – 25,500 =
76,500
(g)
Allocation percentage 76,500 ÷ 102,000 × 100%= 75%
(h)
Deductible direct expenses (29,000 + 144,000) × 0.75 = 129,750 RR

Allocation of direct expenses of a service company is illustrated as follows:
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0213
CORPORATE PROFITS TAX – SCOPE, COMPUTATION AND INCOME RECOGNITION
Illustration 5
A company performed repair services to five customers for 20,000 RR in total. However,
one customer has not accepted the work (amount of the bill – 3,000 RR). Total direct
expenses for the period are 12,000 RR (no direct expenses exist as at the beginning of the
reporting period).
Direct expenses will be allocated as follows (VAT is ignored for simplicity):
(a)
(b)
(c)
average percentage 3,000 ÷ 20,000 = 15%;
direct expenses allocated to ending balance 12,000 × 15% = 1,800 RR
direct expenses decreasing taxable base of the reporting period (12,000 – 1,800) =
10,200 RR
3.5
Non-operational income (art. 271)

The table below summarises the timing of recognition of non-operational income
under the accruals method:
Non-operational income
Interest income on loans and liabilities
(debt securities)
The earlier of the last day of each month (if the loan
term exceeds the reporting period) or the date of
agreement termination (or cancellation of liability).
Claw-backs of allowances and provisions
(Session 4)
Income from participation in simple
partnership
Last day of reporting (tax) period.
Rental income*
Licence payments (including royalties)*
The invoicing date as provided in the agreement or
the last day of the reporting (tax) period.
Penalties for the breach of commercial
contracts
Compensations for losses
Date of debtor’s acceptance of the claims or effective
date of court decision.
Income of previous years identified in the
current year
Either the date of income discovery or amended for
the previous period (see Session 4 s.1)
Gifts in-kind (i.e. property, works, services)
The date of signing the act of property (works,
services) transfer.
Gifts in cash
Dividends
The date of cash receipt.
Property (materials) received due to
dismantling of liquidated fixed assets
The date of official act of fixed asset liquidation
Surpluses of commodity materials exposed
due to stocktaking
The date of discovery of surpluses (the date of
physical inspection)
* For exam purposes this income is recognised on the earlier of the invoicing date as
provided in the agreement or the last day of the reporting (tax) period.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0214
CORPORATE PROFITS TAX – SCOPE, COMPUTATION AND INCOME RECOGNITION
Non-operational income
Positive currency differences** for a
buyer.
The date of payment of liability or the receipt date in
case of prepayment for goods (works, services).
Positive currency differences for a seller.
The date of payment of receivable or the shipment
date in case of prepayments.
Foreign exchange gains.
Receivables and payables expressed in foreign
currency are recalculated into RR on the earlier of :
– their fulfilment; or
– the last day of each month.
Assets expressed in foreign currency are recalculated
into roubles on the earlier of:
– transfer of title date; or
– the last day of reporting (tax) period.
** When a purchaser is invoiced in a
foreign currency payable in RR at the
Central Bank rate on the day of payment,
a currency difference may arise due to
exchange rate differences (between the
day of receiving the invoice and the
payment date).
Example 3
State the timing of inclusion of the following items in taxable income for an accrual basis
taxpayer, which reports and pays CPT on a monthly basis (VAT is ignored):
(1)
OOO Axis rented one of its buildings for 12 million RR. The term of rental
agreement is one year, starting 1 January 2017. The agreements provide for 4 equal
rental payments to be made on the last day of each quarter.
(2)
In June 2017, Axis has discovered that sales income pertaining to 2016 was not
accounted for tax purposes in that year.
(3)
On 1 January 2017 Axis gave its subsidiary a loan of 10 million RR for 1 year.
Interest on loan is 12% per annum paid on 1 January 2018.
(4)
The same as above with the exception that interest is to be paid in 2 equal portions
on 1 July 2017 and on 1 January 2018.
(5)
Axis shipped goods worth 100 million RR to OOO Basis on 11 March 2017. The
payment term indicated in the agreement is 20 days after the shipment date. With
effect from the 21st day (1 April) a 0.1% fine should be applied for the delay in
payment. No payment was received in 2017. No court case was filed.
(6)
In January 2017 Axis received 1 million RR of dividends from OOO Gamma (a
Russian company). These dividends relate to the 2016 profits of Gamma.
Solution
(1)
(2)
(3)
(4)
(5)
(6)
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0215
CORPORATE PROFITS TAX – SCOPE, COMPUTATION AND INCOME RECOGNITION
3.6

Non-operational and other expenses (art. 272)
The table below summarises the timing of recognition of non-operational and other
expenses under the accruals method:
Other expenses
Accrual of those taxes, which are recognised as
expenses by the Tax Code
Accrual date
Commission fees
Works, services rendered by third parties
The invoicing date as provided in the
agreement or the last day of the reporting
(tax) period.
Business travel expenses
Business entertainment expenses
Date of approval of expense report
(“avansovyi otchet”).
Compensation for usage of private cars for
business purposes
Compensation payment date.
Non-operational expenses
Interest expense on loans and on debt securities
(bonds and notes)
Earlier of the last day of each month (if the
loan term exceeds the reporting period) or
the date of agreement termination (or
cancellation of liability).
Rental payments
The invoicing date as provided in the
agreement or the last day of the reporting
(tax) period.
Creation of tax deductible allowances
Accrual date.
Penalties for the breach of commercial contracts
Compensations for losses
Date of debtor’s acceptance of the claims or
effective date of court decision.
Foreign exchange losses
As for foreign exchange gains.
Negative currency differences for a seller
The date of payment of receivable or the
shipment date in case of prepayments
Negative currency differences for a buyer
The date of payment of liability or the
receipt date in case of prepayment for goods
(works, services)
Bank services costs
The last day of the reporting (tax) period (in
accordance with the documents)
Expenses of the shareholders meeting
The invoicing date
Bonus (discount) paid to a customer for the
fulfilment of certain conditions (e.g. volume of
purchases)
The invoicing date as provided in the
agreement or the last day of the reporting
(tax) period.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0216
CORPORATE PROFITS TAX – SCOPE, COMPUTATION AND INCOME RECOGNITION
3.7

Accruals method summary
In order to calculate taxable profits under the accruals method the following steps
are necessary:
Step 1:
Find right income “basket” for income received.
Step 2:
Recognise income in the appropriate “basket” at the date of its receipt for
tax purposes.
Step 3:
Find right expense “basket” for expense incurred.
Step 4:
Analyse whether expense is deductible in full or partially.
Step 5:
Analyse whether expense is direct or indirect (for baskets № 1 and № 2
only). If indirect – include in the appropriate expense basket in the proper
amount. If direct – prorate between cost of sales and closing inventory.
Step 6:
Results per each basket are added up to come to overall taxable profits/loss.
Exceptions: losses on fixed assets sales and losses on factoring which are
treated separately (not mixed with results in other baskets).
3.8
Special rules of income/expense recognition
3.8.1
Simple partnerships (art.278)


The purpose of simple partnership is to separate revenue and expenses of joint
business efforts of several companies without creating a separate legal entity.
Simple partnership has its own balance sheet on which it accounts property
received from partners. It also separately determines the profits or loss from its
operations not later than at the end of each reporting period. This profit is then
added to the financial results of each participating partner.
Illustration 6
Two companies created a joint partnership which generated profits of 1 million RR. The
share of the first partner is 40%, while the remaining 60% belongs to the second one.
The first company will add 400,000 RR to its taxable profits, the second company 600,000
RR.
3.8.2

Commission income and expenses
Income received by a commissioner from the final customer should be allocated to the
principal in the full amount. Agent’s commission represents an expense for the principal.
Illustration 7


Some goods were sold by an agent for 10,000 RR (this is the amount received from
customers) and the agent withheld 10% commission.
The revenue of the principal will be 10,000 RR. Commission expense will be 1,000
RR. The revenue of the agent is 1,000 RR.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0217
CORPORATE PROFITS TAX – SCOPE, COMPUTATION AND INCOME RECOGNITION

The principal must report its income in the period when shipments were made by
the agent to customers.
Example 4
In July 2017 OOO Alto delivered its products to OOO Bass which acted as a commissioner
for Alto for a commission fee, which was determined as 5% of the sales proceeds (net of
VAT at 18%) received from the final customer.
Bass delivered the products to the final customer in November 2017. The final customer paid
18,880 RR (gross) to Bass in December 2017. Bass paid the sales proceeds net of
commission fee to Alto in January 2018.
Required:
Explain the tax treatment of the above for OOO Alto.
Solution
4
CASH METHOD OF INCOME RECOGNITION (ART. 273)
4.1
Income




A taxpayer can use cash method only if its average sales of goods (works, services)
(without VAT) for the previous four quarters did not exceed 1 million RR each
quarter.
If a taxpayer chooses the cash method, but during the tax period the taxpayer’s
average sales of goods (works, services) (without VAT) exceeded 1 million RR per
quarter, it must recalculate its sales on the accruals basis from the beginning of the
tax period.
Income is recognised under cash method on:



For example, under cash method income will be recognised in the following cases:





receipt of cash to bank account or petty cash fund;
receipt of property (works, services) or property rights;
cancellation of liabilities to the taxpayer by any other means.
mutual settlement (“zachet”) is performed;
receivable is factored to a third party (in the amount of cash received from
factor);
property in-kind (including securities) is received.
The issuance of a promissory note by the buyer to the seller of goods (works,
services) does not constitute a cash receipt for the seller. The payment is
recognised on the day when the payment against the note is actually made or on the
day when the note is sold or transferred to a third party.
Under the cash method advance payments received from customers are taxable upon receipt.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0218
CORPORATE PROFITS TAX – SCOPE, COMPUTATION AND INCOME RECOGNITION
4.2

Expenses
Expenses are recognised on the cash basis only after they are actually paid. The
term “payment” is understood as cancellation of liability to the seller for the
purchased goods (works, services).
List of expenses (art. 273)
Timing of expense recognition
Raw materials
When paid and consumed in production.
Wages and salaries, interest expenses and
services rendered by third parties
When paid.
Depreciation
Amounts accrued for the reporting (tax)
period on fixed assets paid for and used in
production.
Currency differences
Not recognised under the cash method.
Example 5
State the timing of inclusion of the following items in deductible expenses for a cash basis
taxpayer (assume CPT monthly reporting and payment system):
(1)
(2)
(3)
(4)
(5)
Materials booked in February, paid in March, consumed in production in April.
Fixed assets booked in March, put in use in April, paid in June;
Capital repair services received in July, prepaid in June;
Rent of the building accrued for January – March was paid in April.
Interest on loan accrued for January – June was paid in August.
4.3
Taxable profits

In order to calculate taxable profits under the cash method the following steps are
necessary:
(1)
Find right income “basket” for income received.
(2)
Recognise income in the appropriate “basket” at the date of its receipt for
tax purposes.
(3)
Find right expense “basket” for expense incurred.
(4)
Analyse whether expense is deductible in full or partially.
(5)
Recognise expense in the appropriate “basket” at the expense date for tax
purposes. A split of expenses into direct and indirect is not required
under the cash method.
(6)
Results for each basket are added up to come to overall taxable profits.
Exceptions: losses on fixed assets sales and losses on factoring which are
treated separately (not mixed with results in other baskets).
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0219
CORPORATE PROFITS TAX – SCOPE, COMPUTATION AND INCOME RECOGNITION
Example 6
Company ABC uses the cash method for CPT purposes. Data for the year is as follows:
Billings to customers
Cash receipts
Bad debts write-offs
Materials purchased
Wages accrued
Depreciation accrued
RR 000
200
120
10
80 (paid 60, consumed 55 – all paid for)
30 (paid 25)
15 (all fixed assets are paid for)
Required:
Calculate taxable profits for the year. (Ignore VAT.)
Solution
RR 000
RR 000
Sales income
Deductible expenses:
________
_________
Profits
________
5
TRANSFER PRICING
5.1
New legislation
In order to avoid loss of tax revenues from profits being artificially manipulated between
parties, the Russian Federation has, like other advanced economies, introduced
comprehensive measures to control transfer pricing.
Legislation was introduced taking effect from 1 January 2012. This legislation seeks to
identify “controlled transactions”, in respect of which the taxpayer has to document and
justify the pricing methods applied, and report these to the tax authorities.


If the transfer price does not represent a fair market price, the taxpayer can propose
an appropriate tax adjustment.
If the tax authorities do not accept that the pricing method has achieved a fair
market price, or that it has been appropriately tax-adjusted, then they can
recalculate the tax accordingly.
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0220
CORPORATE PROFITS TAX – SCOPE, COMPUTATION AND INCOME RECOGNITION
5.2
Controlled transactions
There are various types of controlled transactions, each with different threshold amounts.
Threshold amounts relate to cumulative transactions between the same parties during a
calendar year.
5.2.1



5.2.2

Cross-border transactions
Related party transactions, no minimum amount. (However transfer pricing rules do
not apply to transactions below 10 million RR provided these are less than 5% of
the total turnover with the related party.)
Third party transactions, sale of certain mineral commodities in excess of 60 million RR.
Transactions with parties in “blacklisted” offshore tax jurisdictions, in excess of 60
million RR.
Domestic transactions
Related party transactions where one party is exempt from corporate profits tax or
is a resident of a special economic zone (in excess of 60 million RR).

Related party transactions where one party pays unified tax (in excess of 100 million RR).

Other related party transactions (in excess of 1 billion RR).
Commentary
Certain detailed exclusions apply (e.g. members of a consolidated tax group, or
parties within the same administrative region with no branches or losses).
5.2.3

Related parties
The term “related parties” is not exhaustively defined or listed, but generally refers
to “parties, the relationship between which may influence conditions or results of
transactions”. In particular these will include:



5.3

two companies where one holds directly or indirectly more than 25% of
the other;
two companies with the same parent holding directly or indirectly more
than 25% of each;
companies with the same CEO or controlling directors.
Transfer pricing methods
If a controlled transaction is to occur, the taxpayer parties are required to consider
the appropriate market price range before the contract is concluded.
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0221
CORPORATE PROFITS TAX – SCOPE, COMPUTATION AND INCOME RECOGNITION
Five acceptable methods
(1)
Comparable uncontrolled price (CUP). This method compares the price in a controlled
transaction to the price charged in a comparable uncontrolled transaction in comparable
circumstances. This is generally recognised as the best method; however, it is dependent
on a reasonably high degree of equivalence in order to make comparability appropriate.
(2)
Resale minus. This method can be applied where a product purchased in a controlled
transaction is onward sold to an independent unrelated party. The price of the onward sale
is then discounted to take account of incremental costs (storage, marketing etc) and also an
appropriate margin for contribution and profit (taking account of factors such as assets
utilised, risks assumed etc). This discounted price (resale minus) can then be compared
with the actual or proposed controlled acquisition cost.
(3)
Cost plus. This method can be applicable where a product or service is sold in a controlled
transaction. In this case the costs incurred (which could include a controlled acquisition)
are marked up by appropriate profit margins to establish a theoretical price, or range of
pricing, which may then be compared to the price charged or envisaged for the controlled
transaction.
(4)
Comparable profitability. This method (also described as “transactional net margin”) is a
more modern technique used to generate a range of values for a controlled transaction
based on an expected margin appropriate to the trading organisation. The approach needs
less detailed cost information and allows for consideration of factors such as competitive
position, management efficiency and individual strategies. This flexibility does however
introduce further elements of subjectivity.
(5)
Profit split. This is another development from the three traditional techniques. It moves
away from one-sided methods to consider instead how profits or returns could reasonably
be allocated between two or more associated operations, especially where these parties
bring significant contributions (value) to the transactions. Again, this is a sophisticated
flexible approach but full of difficulties in practical implementation.

5.4




Method (1), comparable uncontrolled price is the preferred approach and method (5) profit
split is a last resort; the others are applied as best fits the circumstances, and can be used in
combination. Other, different, methods could instead be used by the taxpayer, if
justifiable.
Reporting and control
Taxpayers are required to consider all controlled transactions (no threshold limit)
and prepare documentation justifying the transfer pricing used.
Taxpayers must submit notification to tax authorities of all controlled transactions
no later than 20 May in the following year.
Tax authorities can request more detailed information if needed. Such
documentation should be provided within 30 days but cannot be demanded before 1
June following the year of transaction.
Transfer pricing control by the tax authorities will usually run for a three-year
period (i.e. for transactions concluded in 2016 audits will not be started after 31
December 2019).
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0222
CORPORATE PROFITS TAX – SCOPE, COMPUTATION AND INCOME RECOGNITION
5.5





Advance Pricing Agreements
Large Russian taxpayer companies (e.g. annual tax payments in excess of 1billion RR)
may seek to reach Advance Pricing Agreements (“APAs”) with the tax authorities
which will guarantee against price adjustments and additional tax assessments.
The taxpayer company needs to file a detailed application to the Federal Tax Service
together with supporting documentation. The application should be examined within
six months of being filed (but this may be extended to nine months if necessary).
Agreeing an APA is a voluntary procedure for all parties and the Federal Tax
Service may decline to participate (e.g. if it might facilitate tax evasion).
Only Russian organisations may make application for an APA. (Permanent
establishments of foreign companies cannot use this procedure.)
APAs will run for three to five years and will apply from 1 January following
agreement (so agreements reached in 2017 will be effective from 1 January 2018).
FOCUS
You should now be able to:

describe the scope of corporate profits tax and the types of taxpayer to which it
applies;

define the two income recognition methods (cash and accruals);

explain and apply the effect of both methods on the timing of income recognition;

explain the timing of income recognition for the principal on sales made via commissioners
and calculate taxable income of both principal and commissioner;

apply the expense allocation rules between commissioner and principal;

state the rules for the taxation of simple partnership income;

define the method of expense recognition for tax purposes;



explain the matching principle of expense recognition if the cash method is used for profits tax
purposes;
explain the rules for recognition of direct and indirect expenses in profits tax accounting for
manufacturing and trading companies; and
explain the concept and basic principles of transfer pricing rules application based on the
transfer pricing chapter of the Tax Code (controlled transactions, related parties, the principles
of the 5 transfer pricing methods).
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0223
CORPORATE PROFITS TAX – SCOPE, COMPUTATION AND INCOME RECOGNITION
EXAMPLE SOLUTIONS
Solution 1
(1)
20 January, assuming that the title passes upon the delivery.
(2)
5 February, which is the title transfer date.
(3)
May. In this month the delivery is made to the final customer. The commissioner
must inform Alfa about the sale within 3 days from the end of reporting period.
(4)
March, no special rules of income recognition apply to export sales under profits
tax rules.
(5)
March, as the prepayment is not recognised for CPT purposes under the accruals
method.
(6)
January, assuming that the title passes upon the delivery.
Solution 2
(1)
March (after materials are consumed in production).
(2)
Tax deductible depreciation will start in May (the next month after April when
assets were put into use).
(3)
July.
(4)
1.67% of the original value per month with effect from March.
(5)
In March – 27/365 of the total insurance deductible amount, in April 30/365 of the total
insurance etc.
Solution 3
(1)
Rental income is recognised at the end of each month.
(2)
Amended tax return for 2016 must be submitted. Taxable income for 2017 is not affected.
(3)
Interest income is recognised at the end of each month.
(4)
Interest income is recognised at the end of each month.
(5)
If Basis accepts the claim (which should be stated in an exam question) Axis should
accrue penalty income with effect from 1 April 2017 and include it in CPT taxable
base at the end of each month. Otherwise, there is no interest to be accrued.
Exam advice
If this information was missing from a question you would need to write an assumption
and base your solution on it.
(6)
Dividends are income of 2017 (the year when cash is received). Dividends from a
Russian company are subject to withholding tax payable by Gamma at 13% rate.
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0224
CORPORATE PROFITS TAX – SCOPE, COMPUTATION AND INCOME RECOGNITION
Solution 4
Alto should recognise the income on the sale of products in November 2017 when delivery is
made to the final customer in the amount of 18,880 RR (including VAT of 2,880).
The amount of the commission fee expense will be recognised by Alto when either the
acceptance act is signed or at the date when invoice from Bass is received depending on the
provisions of the commission agreement.
The commission amount is 944 RR (including VAT of 144 RR).
Solution 5
(1)
(2)
(3)
(4)
(5)
April after materials are consumed in production and paid.
Tax deductible depreciation will start in June (the month paid).
June (i.e. the month when payment took place).
April (i.e. the month when payment took place).
August (i.e. the month when payment took place).
Solution 6
Sales income
Cash receipts
Deductible expenses:
Materials
Wages paid
Depreciation accrued:
RR 000
RR 000
120
55
25
15
____
95
____
Profits
25
____
SELF-TEST QUESTIONS
(1)
Which of the following are excluded from taxable income?









foreign exchange gains;
advances received by taxpayers using cash method of income recognition;
contributions received to charter capital;
commission income received by commissioner;
loan received;
property received by a Russian legal entity from a legal entity which owns
30% of the taxpayer;
property received by a Russian legal entity from a legal entity which is
more than 50% owned by the taxpayer;
property received by a Russian legal entity from a physical person who
owns more than 50% in the capital of the taxpayer;
penalties received for the breach of commercial contract.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0225
CORPORATE PROFITS TAX – SCOPE, COMPUTATION AND INCOME RECOGNITION
(2)
Which of the following is excluded from deductible expenses?










(3)
advances for goods made by accruals basis taxpayers;
dividend distributions;
penalties and fees paid to budget and state bodies;
contributions to charter capitals;
cash transferred to a commissioner (excluding commission expense);
gifts in cash or in-kind and related expenses payable to employees;
financial aid to employees (“materialnaja pomosch”);
price differences when selling goods to employees below market prices;
free meals to employees that are not provided in the labour contracts;
recreational and medical benefits provided to employees).
Which of the following expenses incurred by a production company are classified
as direct?







wage of a chief accountant;
depreciation of production building;
amortisation of a trademark;
IC assessed on wages of production employees;
cost of materials used in production;
fuel costs;
depreciation of administrative building.
SELF-TEST SOLUTIONS
(1)
Excluded items:




contributions received to charter capital;
loan received;
property received by a Russian legal entity from a legal entity which is
more than 50% owned by the taxpayer;
property received by a Russian legal entity from a physical person who
owns more than 50% in the capital of the taxpayer.
(2)
All the listed items are excluded from deductible expenses.
(3)
The following expenses are classified as direct:



depreciation of production building;
IC assessed on wages of production employees;
cost of materials used in production.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0226
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES
OVERVIEW
Objectives

To explain deductible expenses and allowances in deferring and minimising
corporate profit tax liability.
DEDUCTIBLE
EXPENSES









PARTIALLY
DEDUCTIBLE
EXPENSES
FIXED (NONCURRENT) ASSETS
General
Interest
Business travel
Advertising
Business entertainment
Business training/educational
Insurance
Compensation of interest expenses
“Thin capitalisation” rules
TAX
DEPRECIATION








LEASED ASSETS
General provisions

Straight-line method

Non-linear method
Special depreciation coefficients
Direct/indirect classification
Amortisation of intangible assets
Research and development
expenditure
©2017 DeVry/Becker Educational Development Corp. All rights reserved.


0301
Depreciation
Capital improvements


Depreciable property
Tax cost of depreciable
property
Depreciation groups
GAINS AND
LOSSES ON
PROPERTY
Fixed and intangible
assets
Materials and other
property
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES
1
PARTIALLY DEDUCTIBLE EXPENSES
1.1
General


Certain expenses may be partially deductible or totally disallowed for
corporate profits tax (CPT) purposes.
The examination calls for the application of tax rules relating to certain nondeductible and partially deductible expenses. The deductibility norms will be
provided in the tax tables in the examination.
1.2
Interest (art. 269, art. 328)
1.2.1
General





Treatment of interest does not depend on the loan purpose and the type of the
loan provider. Interest may be deductible even if the debt is overdue.
Debt obligations of a taxpayer in particular include commercial credits, bank
loans, loans received from enterprises and individuals, and debt securities
issued by a taxpayer (i.e. notes and bonds).
For taxation purposes interest will be calculated for the period of actual usage
of the borrowed funds (even if the obligation is overdue).
Interest calculation is based on the number of days of the loan (i.e. rounding
up is not possible).
Interest starts accruing on the date following the loan receipt date and stops
accruing on the loan payment date (including this date).
Illustration 1
If a loan is taken out on 1 January and paid back on 3 February (both principal and interest),
the interest will be calculated for 33 days (30 days in January and 3 in February).

For accruals basis taxpayers, accrued interest should be recognised on the
earliest of:




the last day of each month of the reporting period (if the loan term
exceeds the reporting period); or
the date of agreement termination (or cancellation of liability).
If a loan is taken in foreign currency by an accruals basis taxpayer the interest
is also calculated at the end of each month of the reporting (tax) period using
the exchange rate on this date.
Interest on debt obligations is included in non-operational expenses of a taxpayer.
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0302
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES
1.2.2




Interest deductibility limits
Since 2015, interest deduction is only restricted by reference to transfer
pricing legislation.
Interest on debt arising from uncontrolled transactions will be deductible in
full based on the actual interest rates charged.
For controlled transactions (e.g. a loan from a related party) transfer pricing
rules will apply: the taxpayer must consider whether a market rate has been
achieved and, if not, make an appropriate tax adjustment (i.e. restrict the
deduction). Controlled transactions must be reported to the tax authorities
who then have the right to challenge or investigate the treatment.
However, if the loan is a controlled transaction to or from a bank, then the
transfer pricing rules need not be applied if the interest rate falls within the
following market price ranges (varying by currency of loan):
Russian roubles
Pounds sterling
Euros
US Dollars
Swiss Francs
Other currencies
75% to 125% of CB key rate
GBP LIBOR plus 4% to 7%
EURIBOR plus 4% to 7%
USD LIBOR plus 4% to 7%
CHF LIBOR plus 2% to 5%
USD LIBOR plus 4% to 7%
Exam advice
These “safe harbour” ranges will be provided in the exam as lower and upper
limits. A notional figure for the Central Bank key rate will be provided at the same
level as the Central Bank refinancing rate.
If the interest charged falls within these ranges, then deduction is allowed in
full. If interest is charged outside of these ranges then the transfer pricing
rules should be applied and if necessary a tax adjustment may be made.

Special rules (so-called “thin capitalisation rules”) apply to interest on loans
received from a foreign legal entity or from an affiliated company of a
foreign legal entity (see s1.9).
Topic Summary
Classification of interest expense
Non-operational expenses of the current month
Types of loans on which interest
may be deductible
Debt obligations of any type, arising from business activities
Interest deductibility period
The term of actual usage of the borrowed funds (in days)
Limitations on the interest
amount
Deduction may be restricted under transfer pricing rules if
loan is a controlled transaction (unless from a bank and
interest lies within specified limits).
Otherwise, deductible in full.
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0303
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES
1.3
Business travel (art.264)
1.3.1
Types of expenses

Business travel expenses include:












travel expenses (including transfer);
accommodation expenses including additional services provided by the
hotel (except meals, laundry, sports and recreational facilities);
per diem allowance;
costs incurred on visas and passports preparation;
consulate, transit and airport fees;
Accommodation expenses are deducted in full provided that they are
confirmed by supporting documents. In the absence of such documents
accommodation expenses are non-deductible.
Per diem allowance is fully deductible in any amount as it is not limited for
corporate profits tax purposes. However to meet the requirement of
documentary proof the specific amount (internal norm) should be stipulated
by the taxpayers themselves in the internal documents of the organisation
(e.g. order of the general director).
Note, however, that for personal income tax purposes per diem allowance is limited
(see Session 6).
Travel expenses (cost of bus/air/train tickets) are deductible in full where
they are incurred to get to the place of business trip from the working place
and back. Transfers by taxi from/to airports (railway station) to the hotel are
also deductible for CPT. (Clarifications by the Ministry of Finance in this
area are conflicting, but they should be considered to be deductible for
examination purposes.)
Business phone expenses, incurred by an employee in the hotel are
deductible. Cost of personal services (e.g. laundry) is non-deductible.
Business travel expenses are classified as “other expenses” (“prochie
rashodi”) on production and sales. Consequently, such expenses are
considered to be “indirect” under the accruals method.
The table below provides a short summary of the topic:
Type of expense
Deductibility limits
Accommodation expenses
Deductible in full with supporting documents.
No deduction without supporting documents.
Per diem allowance on
business trips.
Deductible in full.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0304
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES
Example 1
An employee of a Moscow-based company went on a business trip to St. Petersburg for
3 days. The train ticket cost was 950 RR (net of VAT). Per diem allowance is fixed in
the amount of 2,000 RR per day in the company’s rules for business trips in Russia.
The hotel bill included the following (net of VAT):
RR
1,500
6,500
100
1,500
500
3,000
180
Accommodation
Restaurant
Laundry services
Cable TV in hotel room
Taxi transfer from and to the train station
Taxi for sightseeing
Business phone charges
Required:
Calculate the deductible amount for profits tax purposes.
1.3.2
Special case (travel outside Russia)
For business trips outside of Russia, the following special rules should be considered:





Per diem allowance amounts (internal norms) should also be stipulated for
business trips abroad in internal documents and in practise can vary from
those in Russia and for different countries.
The internal norms for a specific foreign country will apply starting from the
date of crossing the border to this country from Russia.
Russian internal norms will apply from the date when the border of a foreign
country to Russia is crossed.
If an employee travels from one country to another within one day, the internal
norms of the last country he visits that day apply (in case they are different).
If an employee travels to foreign country and back within one day, 50% of
the internal norm of the foreign country apply.
1.4
Advertising (art. 264 item 4)

The deductibility of advertising expenses depends on the type of advertising.


The following types of advertising expenses are deductible in full:



mass-media advertising (TV, radio, press, telecommunication networks);
out-door advertising (street posters and lights);
participation in exhibitions/fairs, maintenance of demonstration halls,
printing of advertising catalogues and brochures.
Expenses on prizes used during mass advertising campaigns are deductible up
to 1% of the sales revenue (net of VAT).
Exam advice
This limit is provided in the examination.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0305
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES

VAT on advertising expenses, which are partially deductible, is recoverable
only in the part relating to deductible expense portion.
Illustration 2
OOO Alfa spent 8.64 million RR (including VAT of 1.44 million RR) on the
acquisition of prizes awarded to winners of prize draws during a mass advertising
campaign. Sales revenue of Alfa for the year was 210 million RR (including VAT of
35 million RR).
Calculation of deductible expense:
8.64 – 1.44 = 7.2 (expense net of VAT)
(210 – 35) × 1% = 1.75 – maximum deductible limit
Thus, only 1.75 million RR is deductible for corporate profits tax.
Recoverable VAT is 1.75/7.2 × 1.44 = 0.35
Remaining portion of VAT is written off and is non-deductible for profits tax purposes.
Topic summary
Deductible limit on
advertising expense
For general advertising expenses (art. 264) no limit is
established.
For expenses on prizes used during mass advertising
campaigns – 1% of sales revenue (net of VAT).
Base for taxable limit
calculation

1.5

Sales revenue – for all types of entities including trading
companies (net of VAT).
Advertising expenses are classified as “other expenses” (“prochie rashodi”)
on production and sales. Consequently, such expenses are considered to be
“indirect” under the accruals method.
Business entertainment (art. 264 item 2)
Business entertainment expenses are connected with the reception and
servicing the representatives of other organisations (including foreign), who
conduct business negotiations with the taxpayer. They may also be incurred
with relation to the meeting of the Board of Directors.
Commentary
Fees paid to the directors themselves are specifically disallowable.
Expenses incurred on cultural and entertaining events, recreation, sports or
medical treatment of the above mentioned representatives are not tax deductible.

Business entertainment expenses include only:




costs of official reception (breakfast, lunch, dinner);
local transportation costs to and from venue;
cost of buffet (meals) held during negotiations;
cost of external translators.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0306
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES



There are some very strict rules on how the business entertainment expenses
should be documented. Tax deduction (within the statutory limit) is allowed
only if these rules are obeyed.
The deductible limit is set at 4% of deductible labour costs. Any excess amount is not
counted for tax purposes. Labour costs include wages and salaries deductible for CPT
purposes, contractual meals, deductible bonuses and deductible life, medical, accident and
pension insurance of workers (art. 255). They do not include IC on wages and salaries.
Composition of expense
Expenses incurred on cultural and
entertaining events, recreation, sports or
medical treatment are no longer tax
deductible
The base for calculation of
deductible amount
Labour costs
Statutory deductible norm
4% of labour costs (including insurance of
employees).
Business entertainment expenses are classified as “other expenses” (“prochie
rashodi”) on production and sales. Consequently, such expenses are
considered to be “indirect” under the accruals method.
Exam advice
This 4% limit is provided in the examination.
Commentary
Direct wages and salaries allocated to closing inventories in a production company
are disallowable within direct costs of a period, but this is a timing difference only
and should not be adjusted for when considering restrictions to indirect expenses
such as business entertainment (or employee insurance costs).
ACCA has confirmed this as the exam approach “because adjustments relevant to
the allocation of direct expenses should not be applied to indirect expenses and thus
the total amount of direct expenses should be included into the base of calculating
the indirect expenses limitation”.
However, ACCA’s published solutions for the June 2016 exam do not follow this
approach.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0307
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES
1.6

Business training/educational (art. 264 item 1, item 3)
Business training/educational expenses are deductible in full only if ALL of
the conditions listed below are met:








taxpayer concludes the agreement for education/training with a licensed Russian
or foreign educational institution (which also has an educational status); and
taxpayer pays for education/training of:
(1)
employees who have a labour agreement with taxpayer (employer); or
(2)
persons who have concluded an agreement with a taxpayer to work in
future for at least one year starting three months after finishing
education; and
taxpayer stores all documents confirming educational expenses for
the entire period of education plus one year of employee’s work but
not less than four years.
If a labour agreement with the educated person was not concluded within
three months of finishing education or the agreement was interrupted within
one year of it coming into force, training/educational expenses should be
added back to the non-operational income for CPT.
No deductibility limit is set, which means that such expenses are either
deducted in full or completely disallowed.
Business training/educational expenses include basic and additional professional
educational programmes, professional basic trainings and additional ones.
Therefore there is no limitation on the level of educational programmes and can be
higher, middle-special or special professional courses.
Expenses on entertaining, recreation or medical services are not tax deductible.
Training and education expenses are classified as “other expenses” (“prochie
rashodi”) on production and sales. Consequently, such expenses are
considered to be “indirect” under the accruals method.
1.7
Insurance (art.255 item 16, 263)
1.7.1
Mandatory insurance of property and some types of third party liability (art. 263)

1.7.2


Premiums paid on mandatory property insurance contracts are tax deductible
within insurance tariffs set by the legislation.
Voluntary insurance of property and some types of third party liability
There is no deductibility limit on premiums for voluntary insurance of property
(e.g. assets used in the generation of income and capital construction) and some
types of third party liability (e.g. contractual liabilities to insure against infliction
of harm). .
Voluntary insurance expenses are only deductible if specifically permitted by
the Tax Code, so apart from the above categories most other voluntary
payments would be excluded (e.g. voluntary business interruption insurance
not related to production assets).
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0308
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES
1.7.3

Voluntary insurance of employees (art. 255.16)
The following table provides a summary of deductibility rules on insurance
premiums made under voluntary insurance contracts:
Type of insurance
Required conditions of insurance agreement
for deductibility
Voluntary life insurance
(1) No payments during five-year term
(except payments in case of incident or
death)
Deductibility limit
(2) Term of the agreement – not less than
five years; the agreement should be
concluded with Russian insurance
companies with relevant licence.
Voluntary pension
insurance
(“dobrovolnoje
pensionnoje
strahovanije”)
(1) Non-state pension fund has a license
Non-state pension
security
(“negosudarstvennogo
pensionnogo
obespechanija”)
(1) Fund has a license
Additional contributions
by the employer to
labour pension
(1) Documented by the internal order in the
taxpayer’s organisation or in collective or
personal labour contracts
(2) Pensions are paid up to death of
employee
(3) Payments start from the pension age
established by the Law.
(2) Pensions are accumulated on personal
pension accounts of insured employees
(3) Pensions are paid from personal account
for not less than five years.
The limit is set for total
amount of both life and
pension insurance
premiums as 12% of
deductible labour costs
(2) Employer should inform pension Fund of
RF within 3 days after the request of the
employee
(3) Employer can start payments not early
than next month after the request is
received.
Voluntary medical
insurance
Term of the agreement – not less than one
year.
6% of deductible labour
costs
Voluntary insurance
against incidents
Insurance covers incidents which caused
injury or death (not only at work place).
15,000 RR per year per
employee (calculated as
total payments divided by
total employees with
insurance).

The 6%, 12% and 15,000 RR limits are provided in the tax rates and
allowances in the examination.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0309
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES



For the purpose of calculation of these limits labour costs are taken net of any
employees’ related voluntary insurance expenses. Labour costs include
contractors, as well as employees, but do not include related IC.
Expenses on other types of employee insurance (e.g. in respect of relatives)
are non-deductible.
If the terms of insurance agreements initially satisfy deductibility conditions but then
are changed and those conditions are not met anymore, tax should be recovered.
Illustration 3
OOO Addis has signed a one-year voluntary medical insurance contract for one of its
employees in January. The contract provided for monthly payments of 10,000 RR.
Addis made 7 payments and took a tax deduction of 70,000 RR (it is assumed that
70,000 RR is less than 6% of labour costs).
However, in August the employee left the company and the insurance contract was
terminated.
Therefore, in August Addis will have to include 70,000 RR in its taxable income.

Expenses on mandatory and voluntary insurance of employees are classified as
labour costs. However, such expenses should not be considered direct even if they
relate to main production workers and thus, should not be pro-rated.
Illustration 4
OOO Bella, a production company, signed a one-year voluntary medical insurance
contract for its employees. The contract provided for an insurance premium of 900,000
RR.
During the year Bella accrued 9 million RR of wages and salaries of personnel
involved in production process and 4.5 million RR of wages and salaries of
administrative staff.
Only 80% of direct expenses for the year were deducted for CPT purposes.
Deductible insurance is limited by 6% of wages and salaries, i.e.
(9 + 4.5) × 6% = 0.81 million RR
Thus, only 810,000 RR qualifies for deduction, while 90,000 is paid out of after tax
profits.

1.8

Mandatory and voluntary insurance expenses recognition date is the date of
payment. For payments which cover more than one reporting period, expense is
allocated in equal portions over the agreement term according to the number of days.
This means that there is an additional condition (i.e. they must be paid for) for such
expenses to be recognised for CPT on accruals basis.
Compensation of interest expenses
A limited deduction is allowed for certain benefits provided by employers,
including compensation of interest on loans used for the purchase or
construction of residential premises.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0310
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES


1.9


The labour cost for CPT purposes includes such compensation of interest expense
to employees (art. 255).
Compensation to employees for their interest expenses is deductible if the loan is obtained
to finance the purchase of apartments or construction of houses. The deductible expense
is limited to 3% of labour costs, including deductible insurance costs. (Again, this limit is
provided in the examination.)
“Thin capitalisation” rules (art. 269)
“Thin capitalisation” rules relate to taxation of interest on loans provided to a
taxpayer by a foreign person or legal entity (FLE) or by a Russian legal entity
(RLE), which constitutes an affiliated company with regard to FLE.
Thin capitalisation rules apply in the following cases:




if a FLE-lender has more than 25% (directly or indirectly) in the
share capital of RLE-borrower, or has a shareholding ownership of
at least 50% in each stage of the ownership chain; or
if a loan is given by a sister or affiliated company (RLE) of a FLE
with equivalent shareholding thresholds (i.e. the 25% or 50% rule
as above); or
if FLE or its affiliated company (RLE) pledges a guarantee on loan repayment; or
the courts rule on the basis of “substance over form” that the rules should apply;
and

the loan amount (including any capitalised unpaid interest) exceeds net
assets* of a RLE by 3 times on the last day of the reporting period*.
* Net assets are defined as the difference between total assets and liabilities
of a RLE (liabilities should be taken excluding tax liabilities).
Commentary
A multiple of 12.5 is used instead of 3 in the case of banks and
leasing companies, however this is not considered to be examinable.
Illustration 5
(1)
(2)
(3)
(4)
FLE has 30% in RLE. FLE gives a RLE a loan.
FLE has 60% in RLE-1. RLE-1 has 50% in RLE-2. FLE gives a loan to RLE-2.
FLE has 40% in RLE-1 and 60% in RLE-2. RLE-1 provides a loan to RLE-2.
FLE has more than 25% (directly or indirectly) in the capital of RLE. It pledges
a guarantee for repayment of a loan taken by RLE from any source.
In all the above mentioned cases loans potentially can be considered as controlled if
other conditions are met.
In (2) indirect ownership share is 305% (60% × 50%).
In (3) direct ownership of 60% is taken into consideration and the loan will prima facie
be considered as controlled. However, an exemption is available for loans between
RLEs if there are no further loan relationships with the FLE so it can be shown that no
tax benefit arises.
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0311
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES

If the above-mentioned conditions are met the loan from foreign legal entity
(FLE) is considered as “controlled” and taxpayer must calculate
“capitalisation coefficient” on the last day of reporting (tax) period.
Capitalisation coefficient =
Amount of controlled loan
(Net assets  % of FLE' s ownership)  3
Exam advice
For exam purposes, controlled loan includes only capitalised unpaid interest.
However, ACCA has advised that in view of Ministry of Finance comments it will not
penalise students who include all unpaid interest in the controlled loan total.
Recent exam questions have used the phrase “any interest accrued and outstanding to
be added to the principal amount” as an indicator that such amounts should be
included in the controlled loan amount for calculating the capitalisation coefficient.

On the last day of each reporting (tax) period a taxpayer must calculate the
maximum amount of interest on controlled loan, which is recognised as
expense for CPT purposes:
Maximum deductible interest =
Interest accrued on controlled loan
Capitalisation coefficient
The interest accrued in this calculation may differ from actual interest if there
is a restriction applied under the transfer pricing rules (see s1.2).

The difference between the actual interest accrued on a controlled loan and
the maximum deductible amount of interest constitutes “deemed” dividends
for CPT purposes, which are taxable at the foreign shareholder rate of 15%.
Thin capitalisation rules summary
Step 1:
If a loan is received from a foreign legal entity – define whether it is controlled.
Step 2:
If the loan is not controlled – apply regular taxation rules. If the loan is
controlled – calculate capitalisation coefficient.
Step 3:
Using the coefficient determine maximum deductible amount of interest on
controlled loan, which is recognised as expense for CPT purposes.
Step 4:
Calculate tax at 15% rate on the “deemed dividends” (i.e. on the difference between
actual accrued interest and maximum deductible amount calculated in Step 3).
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0312
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES
Illustration 6
Russian company ZZZ owns 60% of shares in company AAA. A foreign company
XYZ owns 50% of shares of ZZZ.
AAA’s data at January 31:
Assets
Liabilities
RR million
300
292 (including loan from ZZZ and tax liabilities of 2)
On 1 January 2017 ZZZ gave a 60 million RR loan to AAA at 20% per annum.
Interest is paid on a quarterly basis. AAA pays CPT monthly. CBR rate (notional) is
15%. Assume transfer pricing rules are not considered applicable.
Step 1: Define whether the loan is controlled.
First condition (i.e. FLE has more than 20%) is met. FLE (XYZ) indirectly owns 50%
× 60% = 30% and the loan is given by the affiliated company of a FLE.
Second condition (i.e. the loan amount exceeds net assets of a RLE by 3 times) is also
met.
60 ÷ (300 – 290) = 6 is > 3 (tax liabilities are not taken into consideration). Thus, the
loan is considered to be controlled.
Step 2: Calculate capitalisation coefficient
Capitalisation coefficient = Amount of controlled loan ÷ (Net assets × % of FLE’s
ownership × 3) = 60 ÷ (10 × 30% × 3) = 60 ÷ 9 = 6.67
Step 3: Calculate maximum deductible interest
First calculate interest under statutory rate 60 × 20% × 30/365 = 0.99
Maximum deductible amount of interest = statutory deductible interest accrued on
controlled loan ÷ capitalisation coefficient = 0.99 ÷ 6.67 = 0.15
Step 4: Calculate tax on “deemed dividends” i.e. on the difference between actual
accrued interest and maximum deductible amount (0.99 – 0.15) × 15% = 0.13
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0313
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES
2
FIXED (NON-CURRENT) ASSETS
2.1
Depreciable property (art. 256)

The Tax Code defines depreciable property as:




property;
capital improvements made by lessee in leased property with consent of lessor;
results of intellectual activities;
other object of intellectual rights.
All of the above-mentioned property should be:



used for income generating activities; AND
have a term of useful life of more than one year; AND
have an original value of 100,000 RR or more.
Exam advice
This limit is provided in the examination.


The following items are not depreciable property:




In certain cases even depreciable property cannot be depreciated for tax
purposes. For example, tax depreciation is not accrued on:





2.2

land and natural resources;
inventory;
unfinished capital construction;
securities.
fixed assets put in conservation with a conservation term exceeding three months;
fixed assets being in the process of reconstruction and modernisation for
more than 12 months;
fixed asset given by the owner (taxpayer) to another company for
temporary usage free of charge.
Leased property is depreciated by the taxpayer, which accounts for it on its
balance sheet (see s.3).
Acquisition or creation of certain type of depreciable property (e.g. cars)
requires state registration. However, depreciation commences in the month
after the asset in brought into use, irrespective of the registration date.
Tax cost of depreciable property (art. 257)
Original tax cost of a fixed asset purchased from third parties includes its
purchase price and all costs incurred in transporting, installing and testing it.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0314
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES

The following items are not included in fixed asset cost and are instead
treated as other expenses for CPT purposes:






2.2.1

interest on loans used to finance fixed asset acquisitions;
registration fees and state duties;
foreign exchange and currency differences (see Session 2) arising on fixed asset
acquisitions.
Original tax cost of fixed assets does not include any taxes, which are
reclaimed or included in taxpayer’s expenses.
Fixed assets received free of charge are valued based on their market value,
but cannot be less than their tax net book value on the balance sheet of the
donor.
The original cost can be changed in case of reconstruction, modernisation, or
partial liquidation. Repairs (even capital) do not affect the original tax cost of
fixed asset.
Revaluations of fixed assets
Revaluations of fixed assets performed after 1 January 2002 are ignored for
tax purposes.
Illustration 7
A fixed asset with a book value of 200,000 RR is revalued in the current year to
300,000 RR.
Tax depreciation is still based on the “old” cost of 200,000 RR. Calculations of taxable
gains and deductible losses on sale of this asset are also based on the “old” cost.
2.3

Depreciation groups (art. 258)
All depreciable fixed assets are distributed between 10 depreciation groups in
accordance with the terms of their useful lives.
Depreciation group
Term of fixed asset useful life
1
from 1 year up to 2 years
2
more than 2 years up to 3 years
3
more than 3 years up to 5 years
4
more than 5 years up to 7 years
5
more than 7 years up to 10 years
6
more than 10 years up to 15 years
7
more than 15 years up to 20 years
8
more than 20 years up to 25 years
9
more than 25 years up to 30 years
10
more than 30 years
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0315
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES

Although the term of an asset useful life is determined individually by each
taxpayer on a case-to-case basis, this is done within the minimum and
maximum terms of useful life provided for the asset’s group in the statutory
classification approved by the Government of the Russian Federation.
For example, suppose the statutory classification attributes an asset to the 6th
group. This means that its term of useful life can be between 10 years and
one month and 15 years, but not less or more. The choice of the term (within
the limits) is made by the taxpayer.
For fixed assets which are not indicated in the statutory classification
taxpayer determines the useful life in accordance with the technical
conditions or producer recommendations.


The term of a depreciable fixed asset’s useful life is determined by a taxpayer
on the date when it is put into operation. A taxpayer cannot increase the
already established term unless there is a modernisation or reconstruction of
this asset. Even in these cases increased terms cannot exceed the maximum
limit as per the statutory classification.
The Tax Code gives all taxpayers an option to write-off 10% of fixed assets
cost (30% for fixed assets included in the 3rd – 7th depreciation groups).
10% (30%) write-off is also applicable to capital improvements and
modernisation of fixed assets.
10% (30%) write-off is NOT applicable to fixed assets received for free.


If 10% (30%) write-off option is used then the depreciation is charged on the
remaining asset value (i.e. on 90% (70%) of asset’s initial cost). 10% (30%)
write-off takes place in the month in which depreciation starts accruing.
If a taxpayer purchased fixed assets, which already had been used they are
included in the same group in which were included by the previous owner.
3
TAX DEPRECIATION (ART. 259)

There are two methods of depreciation calculation:
3.1





straight-line method; and
non-linear method.
General provisions
Methods of depreciation are chosen by taxpayer and defined in Tax
accounting policy. The taxpayers should inform tax authorities before 1
January of the chosen method of depreciation by Tax accounting policy
submission.
It is possible to change from one method to another beginning in the next tax
period. However, a change from non-linear method to linear method is
allowed no more than once in five years.
The chosen method of depreciation is applied to all fixed assets independent
of the date of acquisition.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0316
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES



Non-linear method is not available for buildings and transportation
mechanisms included into the classification groups № 8, 9 and 10 (but is
available for some machinery and equipment included in these groups).
Depreciation is calculated starting the 1st day of the month following the
month when the fixed asset was put in use.
Taxpayers rendering services in the area of IT technologies have the right not
to follow the rules of depreciation for computers. The cost of computers is
considered as material expenses of the current period (art. 254 item1.3).
3.2
Straight-line method (art.259.1)

Depreciation is calculated for each asset.


Depreciation per month for each fixed asset is calculated as the original tax
cost (after deduction of the 10% or 30% initial write-off if applicable)
multiplied by the depreciation rate determined for the specific fixed asset.
Under straight-line method depreciation rate for each fixed asset is calculated
using the formula:
k = (1/n) × 100%,
where



k – depreciation rate in % to original tax cost;
n – term of useful life, expressed in months.
Depreciation calculation ceases in the month following the month when full
cost has been depreciated, or when the asset is written-off or sold.
If a taxpayer purchased fixed assets, which had already been used (including fixed
assets transferred into share capital), then the term of useful life can be decreased
by the number of years/months used during previous ownership (art. 258.7).
Depreciation accrues from the 1st day of the month following the month when
the fixed asset was returned from free of charge usage or reconstruction
(modernisation) and conservation stopped.
The usage of the straight-line method is illustrated below:
Illustration 8
Company purchased and put into use a fixed asset in January. The asset cost is
160,000 RR (net of VAT). Estimated useful life is three years (36 months). Company
used the right to write-off 10% of the cost in February.
Depreciation will be calculated starting February based on 144,000.
Under the straight-line method the depreciation expense is 4,000 RR per month
(144,000 RR ÷ 36 months) or 44,000 for the whole year.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0317
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES
Example 2
The following information is available for company A’s fixed assets (net of VAT):
Production line
Initial value
Tax depreciation rate
Date put into use
500,000
10%
March 2015
In April 2017 the asset was modernised. The cost of modernisation consisted of:
– services 200,000 (net of VAT);
– materials 100,000 (net of VAT).
The new tax life of the asset after the modernisation is 15 years.
Required:
Calculate the tax net book value of the production line as at 31 December 2017 and the
total depreciation expense for 2017.
Solution
RR
Tax depreciation to 31 December 2016
Tax depreciation for January – April 2017
Depreciation for May – December 2017
__________
Total depreciation expense for 2017
__________
Tax NBV as at 31 December 2017
__________
3.3


Non-linear method (art. 259.2)
Under the non-linear method depreciation is calculated for each depreciation
group (subgroup) based on its total net balance value. Fixed assets are
included in particular depreciation group (subgroup) depending on the terms
of useful life which was assigned on the date of input into use.
If the taxpayer uses special increasing/decreasing coefficients (see next
section) for depreciation such fixed assets are included in subgroups within
respective group. The rules about creation/liquidation for groups,
increase/decrease of total balance value are applied for such subgroups
separately (independent from group). Special coefficients are applied to the
rates of depreciation for such fixed assets and consequently decrease/increase
the terms of useful life. However fixed assets are included in the subgroups
based upon the terms of useful life determined according to the classification
without increase/decrease of useful life terms (without application of
coefficients).
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0318
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES
3.3.1




3.3.2
Total net balance value (NBV) of the group (subgroup)
Total NBV for each depreciation group (subgroup) is determined as the sum of all
values of fixed assets included in this group (subgroup) minus accumulated depreciation
of the group (subgroup).
In case of change of tax depreciation policy, from linear to non-linear, total NBV
of the group (subgroup) is determined by including NBV for each fixed assets on
the 1st day of the month of the start of non-linear depreciation. Fixed assets should
be included in the same groups in which they were included when put into use.
New fixed assets are included into total NBV and increase its value by the original
cost starting the 1st day of the next month after the month they were put into use.
On the 1st day of the next month the total NBV of depreciation group
(subgroup) is decreased at the amount of depreciation calculated for the
current month.
Depreciation for each group (subgroup)
This is determined as follows:
A = B × k/100
A – depreciation per month for specific depreciation group (subgroup);
B – total NBV of corresponding depreciation group (subgroup);
k – rate of depreciation of corresponding depreciation group (subgroup).

Depreciation rates for the non-linear method (art. 259.2) will be given in
exam questions, where appropriate:
Depreciation group
Depreciation rate (per month)
1
14.3
2
8.8
3
5.6
4
3.8
5
2.7
6
1.8
7
1.3
8
1.0
9
0.8
10
0.7
The total balance value of the group is decreased by the net balance value of the fixed
assets written-off or sold. NBV of this fixed asset is determined on the 1st day of the
month according to the formula below (art.257 item 1):
Sn = S × (1 – (0.01 × k))n
Sn – net balance value after n months of usage,
S – original tax cost;
n – number of months of usage;
k – depreciation rate of corresponding depreciation group (taking into account special coefficient).
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0319
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES


If the total balance value is decreased to zero due to disposal of fixed asset
then the depreciation group should be eliminated.
The depreciation group (subgroup) can be eliminated when the total balance
value is less than 20,000 RR and no new fixed assets in the next month are
added to this depreciation group (subgroup). The remaining value of the
group is written-off as non-operational expenses of the current period.
Illustration 9
XYZ purchased and put into use a fixed asset A in December 2015. The asset cost 240,000
RR (net of VAT). Estimated useful life is three years and one month (37 months). XYZ did
not use the right to write-off 30% of the cost. XYZ used the straight-line method in 2015 and
2016. Accumulated depreciation for asset A on 1 January 2017 was 77,838 RR.
In January 2017 fixed asset B was purchased and put into use. The initial cost was 200,000
RR (net of VAT). The useful life of this asset is four years. XYZ did not use the right to
write-off 30%.
In March 2017 fixed asset A was sold.
Starting 2017 XYZ decided to apply the non-linear method of depreciation.
(1)
(2)
(3)
(4)
Total NBV on 1 January 2017 of the group (only asset A)
NBV: (240,000 – 77,838)
Asset A is included in № 3 depreciation group.
Depreciation rate is 5.6%
Depreciation for January 2017: (162,162 × 5.6%)
RR
162,162
(9,081)
–––––––
153,081
–––––––
(5)
Total NBV of the group on 1 February 2017:
(includes asset B belonging to same depreciation group)
Depreciation for February 2017: (353,081 × 5.6%)
(6)
Total NBV of the group on 1 March 2017
(7)
Depreciation for March 2017: (333,308 × 5.6%)
(8)
Next month after sale of asset A the total NBV of the group should be decreased
by the NBV of the sold fixed asset calculated according to the formula.
Important! Use NBV on 1 January 2017 (not initial cost), when the non-linear
method of depreciation started after change from straight-line method.
NBV of fixed asset A: (162,162 × (1 – (0.01 × 5.6))3
Total NBV of the group on 1 April 2017
(9)
Depreciation for April 2017: (178,227 × 5.6%)
Total NBV on 1 May 2017
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0320
353,081
(19,773)
–––––––
333,308
(18,665)
(136,416)
–––––––
178,227
(9,981)
–––––––
168,246
–––––––
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES
Example 3
The following information is available in respect of company A’s fixed assets (net of
VAT):
Fixed asset
A
B
C
Initial value
100,000
120,000
150,000
Useful life
65 months
70 months
84 months
Date put into use
December 2016
January 2017
February 2017
Date of sale
February 2017
Required:
Calculate the depreciation expense for March 2017 according to the non-linear method.
The company did not use the right for 30% write-off.
Solution
RR
Total NBV of the group on 1 January
Depreciation for January
Asset B brought into use in January
______
Total NBV of the group on 1 February
Depreciation for February
Asset C brought into use in February
NBV of the sold asset A on 1 March
______
Total NBV of the group on 1 March
Depreciation for March
3.4



Special depreciation coefficients (art. 259.3)
Depreciation rates in certain cases can be increased or decreased by special
coefficients.
Increasing coefficient up to 3 (max) may be used at taxpayer’s choice for:
(1)
leased fixed assets under financial lease. The depreciation is
calculated by the taxpayer, who accounts for the asset on its balance
sheet. However, in this case this coefficient cannot be used for
the assets in the 1-3 groups under any method of depreciation.
(2)
fixed assets used only for scientific-technical activities.
Rates lower than those stipulated in the Tax Code may be applied according
to the decision of the general director of the company (taxpayer). In this case
net balance value is determined based upon actual rates.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0321
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES
3.5


Direct/indirect classification
Under the accruals method depreciation of fixed assets which are directly used in
production will be classified as a direct expense for production companies.
Under the accruals method depreciation of fixed assets which are not directly
used in production, will be classified as an indirect expense for both
production and trading companies.
3.6
Amortisation of intangible assets (art. 257 item 3, art. 258 item 2)

For tax purposes intangible assets are classified as:


results of intellectual activities;
rights to intellectual property
purchased or created by a taxpayer used for income generating activities, with
a term of useful life of more than one year and with an original value of at
least 100,000 RR. Therefore, for example, expenses on the purchases of
exclusive rights for computer programs costing less than 100,000 RR can be
deducted in the period immediately (art. 264 item 1.26).







Original tax cost of an intangible asset includes purchase cost and related costs.
The term of useful life of intangible assets is established by a taxpayer based
upon the terms of validity of patents, certificates and/or restrictions of
agreements and legislation for intellectual property in Russia or foreign
countries.
If the term of useful life is impossible to determine, the term is established as
10 years.
Intangible assets are included into corresponding amortisation group
according to their terms of useful life.
Amortisation of intangible assets can be calculated either on straight-line or
non-linear methods.
Non-linear method is not available for intangible assets included in
classification groups № 8, 9 and 10.
Mechanism of calculation of amortisation of intangible assets is the same as
that for tangible fixed assets.
3.7
Research and development expenditure (“R&D”)
3.7.1
R&D generating exclusive rights to intellectual property

Where such exclusive rights are generated, the taxpayer has the option to
treat the R&D expenditure either



as eligible for tax depreciation as above; or
treated as a deductible expense over one or two years.
The company needs to disclose the chosen tax accounting procedure in its
accounting policies.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0322
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES
3.7.2




Other R&D expenditure
The Russian Federation has established a definitive list of R&D expenses
which can be recognised for tax purposes.
These expenses are deductible in the tax period in which the project is
completed, or progress stage achieved.
Certain expenses or contributions to specialist funds for scientific or innovative
activities are immediately deductible in the period when the expense is incurred.
Certain R&D expenses qualify for a 1.5 multiplier; this requires submission
of a special R&D completion report to the tax authorities along with the final
tax return, and may be challenged or investigated by the authorities.
Commentary
The 1.5 multiplier can apply to capitalised expenses for tax depreciation as
well as to expense deductions.

Taxpayers may set up provisions for future R&D expenses for periods of up to two
years. Expenditure in excess of the provision is allowed as a deductible expense,
whereas unused provision amounts are included in taxable non-sale income.
4
LEASED ASSETS
4.1
Depreciation (art. 264.1.10, art. 272.8.1)
4.1.1
Operating lease


4.1.2


Under such an agreement the lessor (“arendodatel”) provides an asset to the
lessee (“arendopoluchatel”), but this asset is still accounted for on the lessor’s
books.
The lessor therefore depreciates an asset under general rules. The lessee
claims deduction for the rental payments, not for depreciation.
Financial lease
Under such an agreement the lessor provides an asset to lessee, but this asset
may be accounted for on the lessee’s books (subject to the terms of the actual
lease agreement).
If a fixed asset is transferred to the lessee’s balance sheet the consequences are:


the lessor can no longer depreciate the fixed asset (as it is removed from
its balance sheet), instead it deducts the cost of the fixed asset over the
leasing period in proportion to leasing income accrued (i.e. not
necessarily in equal amounts (art. 272.8.1));
the lessee depreciates the fixed asset which is now recorded on its
balance sheet. Lease payments to the lessor are still deducted but not in
the full amount. Deductible lease payment is the total payment less
depreciation accrued on the leased asset.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0323
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES
Illustration 10
In January 2016 OOO Able (lessor) purchased and leased a fixed asset with depreciable
cost of 12 million RR to company Defi (lessee) under a lease agreement for three years.
The fixed asset has a useful life of five years. Depreciation is accrued under a straightline method. Assume that no increased coefficient applies and 30% write-off option is
not used. Defi pays to Able lease payments under the following scheme (all amounts
are in RR, VAT net):
2016 – 8 million; 2017 – 5 million; 2018 – 3 million
Option 1: An operating lease agreement was concluded.
Leased fixed asset is still on Able’s balance sheet. Able calculates depreciation as:
2016: 12 × 11/12 × 20% = 2.2 million RR
2017: 12 × 12/12 × 20% = 2.4 million RR
2018: 12 × 12/12 × 20% = 2.4 million RR
Defi takes a deduction of 8 million in 2016, 5 million in 2017 and 3 million in 2018 for
lease payment to Able. Able recognises these amounts as income.
Option 2: A financial lease agreement was concluded. The parties agreed that
fixed asset will be recorded on Defi’s balance sheet.
Able deducts 12 million of fixed asset cost under the following scheme:
In 2016:
In 2017:
In 2018:
12 × 8 (rent income for 2015) ÷ 16 (total rent income) = 6 million
12 × 5/16 = 3.75 million
12 × 3/16 = 2.25 million
Defi calculates depreciation and deducts rental payments but not in the full amounts as
shown below:
Deductible depreciation for 2016: 12 × 11/12 × 20% = 2.2 million
Deductible depreciation for 2017 and 2018: 12 × 20% = 2.4 million
Deductible rental payment for 2016: 8 – 2.2 = 5.8 million
Deductible rental payment for 2017: 5 – 2.4 = 2.6 million
Deductible rental payment for 2018: 3 – 2.4 = 0.6 million
4.2

Capital improvements (art. 258.1, art. 259.1 and 259.2)
If a lessee invests in capital improvements to a leased fixed asset two
different scenarios are possible.
Scenario 1: Lessor agrees AND reimburses lessee for these improvements


In this case the lessor depreciates these improvements starting the 1st day of
the following month after they were put into usage.
The lessor has a right to perform 10% (30%) write-off on the improvements
in the month when depreciation starts.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0324
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES
Scenario 2: Lessor agrees BUT does not reimburse lessee for these improvements





The lessor does not have a right to depreciate the capital improvements in
this second scenario.
The capital improvements should be subject to depreciation by the lessee
within the period of lease agreement.
The useful life of the leased fixed assets would be based on the fixed assets
classification approved by the Russian Government, which does not
necessarily match the rent period.
Depreciation starts from the 1st day of the month following the month of
putting the fixed asset into use.
The lessee has a right to apply the 10% or 30% write-off to the cost of capital
improvements incurred by him.
Exam advice
Capital improvements on leased fixed assets have been examined frequently.
Illustration 11
On 1 January 2017 a fixed asset was rented (not a financial lease) from Able (lessor) by
Defi (lessee). In February 2017 Defi made some capital improvements to the fixed
asset in the total value 300,000 (net of VAT). The improvements were put into usage
in March 2017. The statutory tax useful life of these improvements is three years. The
agreement term is two years.
Scenario 1: Able agrees to the improvements and reimburses them in May 2017
In April 2017 Able can perform a write-off up to 10% of capital improvements (i.e.
30,000 RR).
Able starts to depreciate capital improvements in April 2017.
Depreciation for 2017
Depreciation for 2018 and 2019:
Depreciation for 2020
(270,000 × 9/36)
(270,000 × 12/36)
(270,000 × 3/36)
67,500 RR
90,000 RR
22,500 RR
Scenario 2: Able agrees to the improvements but does not reimburse costs to Defi
No depreciation for Able. Depreciation for Defi starts from April. Defi does not use
right for 10% write off
Depreciation for 2017
Depreciation for 2018
(300,000 × 9/36)
(300,000 × 12/36)
75,000 RR
100,000 RR
NBV of the capital improvements on 31 December 2018 (125 000 RR) cannot decrease
CPT tax base.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0325
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES
5
GAINS AND LOSSES ON PROPERTY DISPOSALS
5.1
Fixed and intangible assets (art. 268)





Income on sale of depreciable property is defined as the sales proceeds less
indirect taxes (e.g. VAT) included in price.
Taxpayer can decrease income on sales of depreciable property by net book
value of this property and sale related expenses (e.g. storage, transport costs)
Note: If a fixed asset is sold to a related party which has been used for less
than five years since the date of putting it into use, the amount of write-off
(10% or 30%) should be included in the CPT base as non-operating income.
Net book value (also referred to as “residual” value) is the original value less
accumulated depreciation determined using linear and/or non-linear methods
(art. 257). Note that this amount is now increased by any clawback of
depreciation arising from a related party sale within five years of acquisition.
If a property is depreciated under decreased norms no recalculation of
depreciation is performed at the moment of disposal.
Selling price
less: VAT
less: tax net book value (NBV)
= gain/loss

If the sale of depreciable property results in a loss, such loss is to be spread
evenly over the “remaining useful life” of the asset starting the month
following the disposal (this is an exam approach). Remaining useful life is
the difference between the total estimated useful life less the actual period of
usage (including the month of disposal).
Illustration 12
In July Company Z sold a fixed asset with remaining useful life of 15 months. A loss
of 1,500 RR was realised on the sale.
Company Z will recognise monthly losses of 100 RR (1,500 ÷ 15 = 100 RR) during the
remaining useful life of the fixed asset sold each month starting August.


Taxation of operations with securities is not examinable. Taxation of barter
transactions (property exchanges) will also not be examined.
When calculating gain/loss on disposal it is important to keep in mind VAT
rules on property disposals (see 2.1 Session 9):


if VAT on initial purchase of a fixed asset was recovered then all
revenue from fixed asset sale is subject to VAT at 18/118 rate;
if VAT on initial purchase of a fixed asset was capitalised (i.e. added
to its cost) then VAT is assessed only on the margin between sales
price and net book value of fixed asset at 18/118 rate. Note that net
book value is calculated based on accounting rules.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0326
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES
Illustration 13
Company A sells fixed asset for 20,000 RR (including VAT). Tax net book value of
the asset is 18,000 RR. Accounting net book value is 10,000 RR.
Option 1: All VAT incurred on purchase of this asset was recovered.
Revenue
VAT
(20,000 × 18/118)
Tax net book value
Loss on sale
20,000
(3,051)
(18,000)
(1,051)
Loss on sale is to be spread evenly over the remaining useful life of the asset.
Option 2: All VAT incurred on purchase of this asset was capitalised.
Revenue
20,000
VAT
(20,000 – 10,000) × 18/118
(1,525)
Tax net book value
(18,000)
Gain on sale
475
Gain on sale is included into the overall taxable profits.
Example 4
On 4 December 2017 OOO ABC sold a fixed asset for 205,000 RR (including VAT)
on an arm’s length basis to an unrelated party. ABC acquired this asset in June 2017
for 320,000 RR (including VAT) and depreciated it under the straight-line method
under the same rules for tax and accounting. ABC used its right to 30% write-off.
The fixed asset was used in activities subject to VAT. The useful life of the asset was
determined by the company as seven years. ABC received payment for the asset
disposed in February 2018.
Required:
(a)
Calculate the taxable gain/deductible loss on disposal. State the moment of
gain/loss recognition for CPT purposes.
(b)
The same but assuming that the asset was used in VAT exempt activities and
all VAT on purchase was capitalised (i.e. added to fixed asset cost).
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0327
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES
5.2




Materials and other property (art. 268)
Income on sale of materials and other property is the sales proceeds less
indirect taxes (e.g. VAT) included in price.
Taxpayer can decrease income on sales of non-depreciable property by this
property purchase price and sale related expenses (e.g. storage, transport
costs).
Taxpayer can decrease income on sales of the rights (shares, participation in
other companies) by expenses related with its purchase and sales.
If the sale of non-depreciable property results in a loss, such loss decreases
taxable profits of the reporting (tax) period.
Summary of taxation rules on property disposal
Taxable gain/loss on fixed/intangible
assets disposal
Sales proceeds (excluding VAT) less net book value less
sale related expenses
Taxable gain/loss on materials and
other property disposals
Sales proceeds (excluding VAT) less purchase price less
sale related expenses
Treatment of loss on fixed/intangible
assets disposals
Loss is included in “other” expenses of a taxpayer and is
spread evenly over its remaining useful life.
Treatment of loss on materials and
non-depreciable property disposals
Full amount of loss is decreasing taxable profits of the
reporting (tax) period
Example 5
Company A made the following property disposals:
(1)
In February it sold a fixed asset for 47,200 RR (including 18% VAT). The
net book value of the asset was 54,000 RR. The remaining term of the asset’s
useful life was 16 months. The sale-related transportation costs were
2,360 RR (including VAT of 360 RR).
(2)
In March the company sold materials for 1,180 RR (including 18% VAT).
These materials were purchased for 1,300 RR (excluding VAT).
Required:
Calculate taxable gains/losses on the above transactions and explain their treatment.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0328
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES
FOCUS
You should now be able to:






state the main types of partially deductible and non-deductible expenses;[1]
define and apply the deductibility limits on bank loan interest including the
currency differences on liabilities denominated in notional currency units and
thin capitalisation rules (art. 269);[2]
calculate adjustments for other types of partially deductible expenses
(statutory limits provided);[2]
explain the treatment of expenses incurred on fixed asset acquisitions
(including bank interest);[2]
explain the differences in the rules for recognition of repair and capital
improvement expenses;[2]
explain and apply the rule for the initial 30% write-off available for new
fixed assets;[2]

define depreciable tangible and intangible assets; [2]

explain and apply the allowable depreciation methods for tax purposes;[2]






explain and apply the rules for capital improvements to leased assets (art.
258;1, 259.1 259;2);[2]
calculate the deductible expenses of both the lessor and the lessee under the
different accounting treatments of leased assets;[2]
compute the taxable income arising from leasing transactions;[2]
compute the taxable gain or loss on fixed asset disposal (including the
valuation of depreciable property);[2]
apply the relevant tax rules for losses on fixed assets disposals (art. 323);[2]
and
explain and apply the rules for research and development deductible
expenses.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0329
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES
EXAMPLE SOLUTIONS
Solution 1
RR
950
500
Fully deductible
Ticket cost
Taxi transfer
Deductible accommodation expenses:
Accommodation
Phone charges
Per diem allowance (2,000 RR × 3 days)
1,500
180
6,000
––––––
9,130
––––––
Total deductible amount
All other expenses are non-deductible.
Solution 2
RR
Tax depreciation up to 31 December 2016:
500,000 × 10% × (9 + 12)/12
87,500
–––––––
Tax depreciation for January – April 2017:
500,000 × 10% × 4/12
16,667
Modernisation cost (200,000 + 100,000)
30% write-off
Depreciation for May – December 2017:
710,000 (W) × 8/(12 × 15)
300,000
(90,000)
31,556
–––––––
48,223
–––––––
Total depreciation expense for 2017
Tax NBV as at 31 December 2017:
710,000 (W) – (87,500 + 16,667 + 31,556)
(W)
RR
574,277
–––––––
New depreciable value: 500,000 + 210,000 = 710,000 RR
Tutorial note: To some students it seems more logical to use net book value as at 1 May plus
modernisation cost. However, linear depreciation remains based on cost (less write-offs) and not on
NBV. The effect is that full tax depreciation may be given before the end of the revised useful life of
the asset.
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0330
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES
Solution 3
All fixed assets (A, B, C) will be included in one depreciation group 4 as their
corresponding useful life is within 5 – 7 years limits. Depreciation rate is 3.8%
Total NBV of the group on 1 January (includes only one fixed asset A)
Depreciation for January: (100,000 × 3.8%)
Asset B brought into use in January
Total NBV of the group on 1 February:
Depreciation for February: (216,200 × 3.8%)
Asset C brought into use in February
NBV of the sold asset A on 1 March: (100,000 × (1 – (0.01 × 3.8))2)
Total NBV of the group on 1 March:
Depreciation for March: (265,440 × 3.8%)
RR
100,000
(3,800)
120,000
–––––––
216,200
(8,216)
150,000
(92,544)
–––––––
265,440
(10,087)
Solution 4
(a)
VAT on purchase of fixed asset was recovered
Cost of fixed assets (net of VAT)
30% write-off
Depreciable value
Depreciation (189,830 × 1/(7 × 12) × 6 months)
Net book value
Sales revenue
VAT (205,000 × 18/118)
RR
271,186
(81,356)
–––––––
189,830
(13,559)
–––––––
176,271
–––––––
205,000
(31,271)
–––––––
173,729
(176,271)
–––––––
(2,542)
–––––––
Tax net revenue
Net book value
Taxable gain/(deductible loss) on sale
The loss will be spread evenly over the remaining life of the asset, i.e. 78
months (84 – 6), starting from January 2018, therefore the financial result
from this disposal should not affect the 2017 CPT tax base.
Tutorial note: A transaction is said to be “at arm’s length” when the buyer(s) and
seller(s) act independently (i.e. in their own self-interest and without pressure or
duress from the other party). Such transactions will be at a fair or market value.
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0331
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES
(b)
VAT on purchase of the fixed asset was capitalised
Cost of fixed assets (including VAT)
30% write-off
Depreciable value
Depreciation (224,000 × 1/(7 × 12) × 6 months)
Tax net book value
Cost of fixed asset (including VAT)
Depreciation (320,000 × 1/7 × 6/12)
(no 30% write-off is allowed in accounting)
Accounting net book value
Sales revenue
VAT on sales margin ((205,000 – 297,143) × 18/118)
Tax net book value
Taxable gain/(deductible loss) on sale
RR
320,000
(96,000)
–––––––
224,000
(16,000)
–––––––
208,000
–––––––
320,000
(22,857)
–––––––
297,143
–––––––
205,000
0
(208,000)
–––––––
(3,000)
–––––––
The loss will be spread evenly over the remaining life of the asset, i.e. 78
months (84 – 6), starting from January 2018, therefore the financial result
from this disposal should not affect the 2017 CPT tax base.
Tutorial note: Remember that if the sale had been made to a related party the 30%
write-off would be included in non-operational income in 2017 in both cases, and tax
net book values increased accordingly.
Solution 5
(1)
Fixed asset
RR
47,200
(7,200)
––––––
40,000
(54,000)
(2,000)
––––––
(16,000)
––––––
Sales revenue (including VAT)
VAT
Sales revenue (VAT net)
Net book value
Transportation costs (VAT net)
Loss on sale:
Loss will decrease taxable base for 1,000 RR per month. (16,000 RR ÷ 16 months)
(2)
Materials
RR
Sales revenue
1,180
VAT
(180)
––––––
Sales revenue net of VAT
1,000
Purchase price
(1,300)
––––––
Loss on sale
(300)
––––––
Loss will decrease taxable base of the reporting period in which the sale took place.
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0332
CORPORATE PROFITS TAX – OTHER INCOME AND EXPENSES, BRANCHES AND PAYMENTS
OVERVIEW
Objectives

To explain the taxation of special types of income and expense, including
allowances and losses.

To describe the tax calculation for different types of entity and the allocation
of taxable profits to branches.

To describe reporting and payment procedures for corporate profits tax.
OTHER INCOME
& EXPENSE
DIVIDENDS


NON-OPERATIONAL
INCOME/EXPENSES






SEPARATE
SUBDIVISIONS


LOSS CARRY
FORWARD
ALLOWANCES
General
Assets received for no
consideration
Profits and losses of previous
years
Forex and “notional” units
gains/losses
Commercial debt factoring
Fines and penalties



Setting up

Limitations on amount
Usage
TAX
CALCULATION




General provisions (art.313)
Tax base calculation (art.315)
Analytical tax accounting
registers (art.314)
Tax accounting policy as a tax
optimisation instrument
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0401
General rules
Production company
Trading company
TAX ACCOUNTING
Allocation of profits tax 

Payment
CPT rates
Payments



REPORTING AND
PAYMENT
PROCEDURES
Monthly estimated profits
Monthly actual profits
Quarterly payment system
CORPORATE PROFITS TAX – OTHER INCOME AND EXPENSES, BRANCHES AND PAYMENTS
1
NON-OPERATIONAL INCOME/EXPENSES
1.1
General (art. 250 and art. 265)

Non-operational income items, which may be examined include in particular:













rental income;
copyright income;
interest income;
fines and penalties for breach of commercial contracts;
free property receipts including property from dismantling or liquidating
fixed assets and surpluses identified from physical stocktakes;
foreign currency exchange gains;
gain from the transactions denominated in “notional” units (positive
currency differences);
income of past years discovered in the reporting period;
income from participation (“dohodi ot dolevogo uchastija”) in other entities;
income from simple partnership;
income from “claw-back” of previously created allowances and
provisions (e.g. bad debt allowances, repair provision); and
income received as a result of accounts payable write-offs.
Timing of non-operational income/expense recognition depends on the
method (cash or accruals) of income recognition (see Session 2).
Illustration 1
Company XX leased equipment to Company ZZ. According to the agreement ZZ pays
XX monthly not later than the last day of the current month 11,800 RR (including
VAT) for the rent invoiced. The agreement stipulates a late payment penalty of 1% of
monthly payment per day. Leasing is not a main object of XX’s activities. XX is an
accrual-basis taxpayer calculating and paying CPT on a quarterly basis. ZZ paid the
January invoice on 10 February but only recognised the penalty for the breach of the
agreement on 15 February.
The date of rent income recognition is defined as the date of settlement or the
taxpayer's submitting the documents in accordance with the terms of the concluded
agreements or as the last day of the reporting period. Therefore XX recognises rental
income at the end of each month (at the date of primary documents issue). So 10,000
RR on 31 January.
The date of penalty income recognition is the date when the claim is accepted by the
debtor or the date of entry of a court decision into legal force. So penalty income
accrues on 15 February amounting to 1,500 RR (10,000 × 1% × 15 days).
Both amounts increase XX’s CPT base as non-operational income.
1.2


Assets received or transferred for no consideration
Assets received for free are booked at fair market value but not less than net
book value (art.250).
The value of assets received for free is subject to CPT, unless the assets are
received from a parent (subsidiary) company with more than 50% ownership
share (see Session 2).
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0402
CORPORATE PROFITS TAX – OTHER INCOME AND EXPENSES, BRANCHES AND PAYMENTS

A loss on a free transfer of fixed and other assets is disregarded for tax purposes.

VAT is assessed on the asset fair market value and is paid by the donor.
Illustration 2
Company A gives a photocopy-machine valued at 100,000 RR to company B.
Company A will pay VAT of 18,000 RR (100,000 × 18%). Loss on donation is
disregarded for Company A. Company B will be potentially subject to CPT only as
VAT is paid by A.
1.3




1.4


Profits and losses of previous years, discovered in the current year
There are often accounting mistakes discovered in the current period but
relating to previous years. These mistakes can influence profits and losses of
previous years.
These mistakes are corrected in the tax returns for the period(s) to which they
relate (i.e. a taxpayer is required to file an amended tax return for the period
to which the mistake relates).
Profits of previous years discovered in the current year result in late interest
charge. Tax penalties may be applicable as well (see Session 12).
If it is not possible to identify the period in which the mistake was made, or where a
mistake led to the overpayment of tax, the tax base is corrected for the period in
which it is discovered (art.54). Any such income of past years discovered in the
reporting period is classified as non-operational.
Foreign exchange (“forex”) and “notional” units gains/losses
Gains/losses arising on forex and “notional” units transactions are
taxable/deductible.
Forex gains and losses are defined and calculated in accordance with
accounting rules.
Example 1
On 31 January 2017 OOO ABC received a three-year loan in the amount of
500,000 USD. Annual interest is fixed at 4%. The interest is paid semi-annually: the
first payment was due on 1 August 2017 and the second payment was due on 1 February
2018. Under the terms of the contract the loan principal should be repaid on 1 February
2020. All funds received under the loan agreement were converted into roubles at the
date of receipt of the loan. ABC calculates and pays CPT on a quarterly basis.
Exchange rates (notional): 31 January – 29.2; 31 March – 29.4; 30 June – 29.5;
31 July – 29.8; 1 August – 29.9; 30 September – 30.2; 31 December – 31.4
Required:
(a)
(b)
(c)
Calculate the interest expense recognised for 2017.
Calculate the foreign exchange loss on the loan recognised in 2017.
Calculate the foreign exchange loss in interest recognised in 2017.
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0403
CORPORATE PROFITS TAX – OTHER INCOME AND EXPENSES, BRANCHES AND PAYMENTS
Solution
(a)
Interest expense
USD
Ex-rate
RR
1st quarter:
2nd quarter:
3rd quarter:
July:
Aug-Sept:
4th quarter:
________
Total
________
(b)
Foreign exchange differences on loan principal
USD
Ex-rate
RR 000
Loan principal at 31 January
At 31 December
_____
Exchange difference
_____
(c)
Foreign exchange differences on interest
RR
Interest accrued as at 1 August
Actual payment at 1 August
________
Exchange difference
________
Restatement of interest accrued for August – September:
USD
Ex-rate
RR
Interest accrued at 30 September
At 31 December
_____
Exchange difference
_____
Total foreign exchange difference on loan principal and interest:

Gain/loss from the transactions denominated in “notional” units arises from
the operations when the liability is put into “notional” units but payment
should be made in roubles.
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0404
CORPORATE PROFITS TAX – OTHER INCOME AND EXPENSES, BRANCHES AND PAYMENTS
Illustration 3
Company A concluded an agreement with Company B for the delivery of materials.
According to the agreement the cost of the materials is 1,000 “notional” units and
payment should be made in RR within 30 days after delivery using CBR rate. One
“notional” unit is equal to one USD. Exchange rates (notional):
3 March – 29.3; 2 April – 29.4.
Materials were supplied by Company B on 3 March and accounted for at 29,300 RR.
Payment was made by Company A on 2 April amounting to 29,400 RR.
The 100 RR difference is the loss on transactions denominated in “notional” units and is
deductible for CPT purposes.
1.5

1.5.1

1.5.2


Gains and losses on commercial debt factoring (art. 279)
Calculation of gain/loss on commercial debt factoring depends on the timing of
the factoring (i.e. before or after the payment term of the main agreement).
Before
If factoring took place before the payment term indicated in the main agreement, any
negative difference between income received and receivable transferred is considered
a loss for the taxpayer, in the nature of a finance charge. The amount of this loss for
tax purposes is restricted to the deductible interest equivalent (in accordance with art.
269, see Session 3). The factoring is regarded as equivalent to a controlled transaction
with a bank and therefore the relevant restrictions will apply (125% of CB key rate for
rouble amounts).
After
If factoring took place after the payment term indicated in the main
agreement, the resulting loss is more in the nature of an impairment expense
and will be recognised as non-operational expense at the factoring date.
If the debt which was sold to a third party is further sold, gains/loss on such sale is
treated as profits/loss from financial services (i.e. fully taxable/deductible).
Example 2
On 22 January OOO Armada made a shipment to OOO Bella. The invoice amount is
70,000 RR. Payment date under the agreement is 23 January.
On 22 February Armada sold the receivable to OOO Gemma for 61,000 RR under a
factoring arrangement.
Required:
Calculate the deductible loss on factoring, indicate its timing (ignore VAT).
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0405
CORPORATE PROFITS TAX – OTHER INCOME AND EXPENSES, BRANCHES AND PAYMENTS
Solution
RR
Income from factoring
Receivable value
______
Loss on factoring
______
1.6
Fines and penalties for the breach of commercial contracts

There are two possible treatments:

(1)
Include in non-operational income only if they are recognised by the debtor or
confirmed by the court (art.250). Amounts are included in income on the date of
debtor’s acceptance of the claims or effective date of court decision (art. 271);
(2)
Record in accordance with the terms of the contracts (art. 317) independently
of the debtor confirmation. If a measure of the penalties is not specified in the
contract, no income should be recognised.
For exam purposes, the first approach (art. 271) should be used (i.e. only
confirmed amounts should be booked as income/expense).
Example 3
In accordance with the terms of the contract between OOO Almond and one of its
debtors, Almond is entitled to charge late payment interest in the amount of 0.2% per
day for late payment of invoiced amounts.
The outstanding debtor’s liability as at 31 December was 48,000 RR, of which 20,000
was due for payment on 1 November and the remaining part was due on 14 December.
As at 31 December the debtor accepted the late payment interest claim. The principal
debt and the late payment interest for the whole period of delay were paid to the
company on 10 January in the following year.
Required:
Calculate OOO Almond’s income resulting from the above transactions assuming that
it is an accruals basis taxpayer. Ignore VAT.
Solution
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0406
CORPORATE PROFITS TAX – OTHER INCOME AND EXPENSES, BRANCHES AND PAYMENTS
2
ALLOWANCES
Exam advice
The only examinable topic here relates to allowances for receivables (“bad debt provisions”).
2.1
Setting up an allowance for receivables (art. 266)

The Tax Code defines a bad debt as any debt which is:




not paid in the term provided by the agreement; and
not covered by guarantees.
An allowance for bad debts is created based on the examination of outstanding
accounts receivable as at the last day of the reporting (or tax) period.
The main criterion (provided in the examination) is the age of the debt:
Age of debt


Amount of allowance
More than 90 days
100%
45 to 90 days
50%
Less than 45 days
0%
Amounts posted to receivables allowance tax account are included in the nonoperational expenses at the last day of the reporting period.
The allowance for bad debts for tax purposes is available to accrual basis
taxpayers only.

Specific rules for banks and insurance companies are not examinable.
2.2
Limitations on amount of allowance


The maximum amount of the allowance cannot exceed 10% of sales revenue
of the reporting period excluding VAT (art. 249).
The term “sales revenue” is understood here as the revenue from sales of goods
produced or purchased by the taxpayer including sales of fixed and other assets.
2.3
Usage of allowance

The allowance is used for the write-off of the following types of debts:




debts with expired statute of limitation (generally three years for trade receivables);
debts, which were cancelled due to the decision of the state body, or liquidation
of the debtor.
If the amount of actual debts to be written off exceeds the allowance, the
difference is included in non-operational expenses for tax purposes.
If the allowance exceeds the actual bad debt write-offs, then the difference can be carried
forward to the following the reporting period. Carry forward rules are illustrated below.
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0407
CORPORATE PROFITS TAX – OTHER INCOME AND EXPENSES, BRANCHES AND PAYMENTS
Illustration 4
OOO Apple is an accrual-basis taxpayer. Apple reports profits tax on a quarterly basis
(i.e. quarter is a reporting period for CPT). It commenced operations in January. At
the end of the first quarter an allowance for bad debts amounting to 2 million RR was
created. No bad debt write-offs took place in this quarter.
In the second quarter, bad debts amounting to 500,000 RR were written off. The
examination of bad debts at the last day of the reporting quarter indicated that the new
amount of allowance is:
(a)
(b)
3 million RR; or
1 million RR.
Sales revenue of Apple (not including taxes) is 100 million and 10 million RR in the 1st
and 2nd quarters respectively.
Tax consequences of these transactions are as follows:
First quarter: In both cases Apple will have a tax-deductible non-operational expense
of 2 million RR. 10% limitation does not apply (100 million × 10% > 2 million).
Second quarter:
(a)
The allowance will be decreased by 500,000 RR (actual write-offs) and increased
by 1.5 million RR to reach the new level of 3 million RR. The result is a taxdeductible non-operational expense of 1.5 million RR (10% limitation does not
apply, 110 million × 10% > 3 million).
(b)
The allowance will be decreased by 500,000 RR (actual write-offs) and further
decreased by 500,000 to reach the new level of 1 million . This 500,000 RR is
included in the taxable non-operational income of the six months.
Example 4
Company Y had a bad debt allowance of 10 million RR as at 1 January. According to
the accounts receivable evaluation as at 31 December this allowance should be 25
million RR. The company’s sales (including VAT) for the year are 236 million. One
account receivable of 1.18 (including VAT) was written-off during the year.
Required:
Calculate the bad debt expense for the year.
Solution
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0408
CORPORATE PROFITS TAX – OTHER INCOME AND EXPENSES, BRANCHES AND PAYMENTS
Example 5
OOO Elm is an accrual basis taxpayer. Elm’s policy in 2016 was not to create debt
allowances. The company’s tax accounting register shows the following information
about the company’s debts in 2017 (in million RR and including VAT at 18%):
Age of bad debt
More than 90 days
From 45 to 90 days
Less than 45 days
As at 1 January 2017
72
28.8
48
As at 31 December 2017
40.8
108
88
The statute of limitation in respect of one debt amounting to 14 million RR (including
2.33 million RR of VAT) expired in August 2017, and this debt was then written off
from the tax accounting register. Elm decided to create an allowance for receivables.
Sales revenue for 2017 was 495.6 million RR (including VAT at 18%).
Required:
Calculate the bad debt expense for the year 2017.
3
LOSS CARRY FORWARD (ART. 283)
3.1
General rules



If calculation of a taxable base has resulted in a loss, such loss can be carried
forward and utilised over 10 subsequent years.
There is no limit on the proportion of losses that may reduce future reporting
profits (i.e. 100% can be used).
If a taxpayer incurred losses over several tax periods, they are utilised under
first-in first-out (FIFO) principle.
Illustration 5
OOO Ash had a 100 million RR tax loss in 2015. In 2016 Ash had a taxable income 40
million RR before loss carried forward. In 2017 Ash had also a taxable income 100
million before loss carried forward.
Tax loss of 100 million RR can be carried forward and utilised in 10 subsequent years
to decrease taxable profits without any limitations.
Therefore, in 2016, 40 million RR of tax loss can be utilised and 60 million RR will be
carried forward to 2017 and potentially further on. In 2017 the remaining 60 million
RR of tax loss will be fully utilised.
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0409
CORPORATE PROFITS TAX – OTHER INCOME AND EXPENSES, BRANCHES AND PAYMENTS
Example 8
On 1 January 2016, the balance of allowable unused losses brought forward consists of
the following:
Tax loss from 2014
Tax loss from 2015
24 million RR
28 million RR
Taxable profits before loss utilisation were 25 million RR in 2016; 60 million in 2017.
Required:
Calculate the losses utilised in 2016 and 2017 and losses (if any) to be carried forward
to future years.
Commentary
New rules that restrict the use of brought forward losses to 50% of profits (and
allow carry forward of unutilised losses indefinitely) are not yet examinable.
4
DIVIDENDS
4.1
CPT rates on dividends (art. 284, 275)

The Tax Code provides for special tax rates on dividend receipts and distributions.


If an entity receives dividends it pays CPT at:



If an entity pays dividends it must withhold CPT at source at:




13% if dividends are received from a Russian legal entity;
13% if dividends are received from a foreign legal entity;
0% if dividends are received meeting the conditions 4.2 below (a
beneficial rate to help promote Russian holding companies).
13% if dividends are paid to a Russian legal entity (unless entitled to 0% rate
– see below);
15% if dividends are paid to a foreign legal entity (or a 100%
subsidiary of a foreign legal entity).
The tax should be remitted to budget not later than the day following the
payment date.
CPT rates applicable to dividends will be provided in the exam.
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0410
CORPORATE PROFITS TAX – OTHER INCOME AND EXPENSES, BRANCHES AND PAYMENTS
4.2

Payments to Russian legal entity
Dividends paid to a Russian legal entity are subject to 0% CPT rate if the
following conditions are all met on the dividend announcement date:



a Russian legal entity, which receives dividends (i.e. the recipient)
owns at least 50% shares in the capital of another legal entity which
pays the dividends (i.e. the payer);
the above mentioned ownership must be constant during at least 365
calendar days before the date of the decision to pay dividends;
the dividends received constitute at least 50% of all dividends
accrued by the dividend payer;
Note that Russian legal entities dividend-recipients should prove their right for 0% rate by
submitting to tax authorities the relevant documents listed in Tax Code (art. 284 item 3).

When making calculation of dividend amount subject to withholding tax at 13%, tax
agent takes all dividends subject to distribution and deducts the amount of dividends
received (except the dividends taxed at 0% rate) by the tax agent itself in the same or
preceding reporting tax period. The remaining portion is subject to tax withholding.
The same rules apply to personal income tax withholding on dividends payable
to individuals (see Session 6).
Gross dividends for distribution in the reporting period
Less:
dividends received by the company itself in the same or
preceding reporting period (except those taxed at 0%)
Equals: Taxable dividends
Taxable dividends
Multiply: Tax rate
Multiply: Recipient’s shareholding (%)
Equals: Tax which should be withheld
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0411
CORPORATE PROFITS TAX – OTHER INCOME AND EXPENSES, BRANCHES AND PAYMENTS
Illustration 6
OOO Lime holds 800 shares out of 4,000 shares of OOO Yew placed with
shareholders.
Yew acquired 70% of shares of another Russian company OOO Nut in November
2015. The total value of investment equals 550 million RR.
In December 2017 Lime received dividends from Yew.
Yew distributed all of its after-tax profits for 2017. Its taxable profits amounted to
40,000,000 RR and it paid profits tax at 20% rate.
In July 2017 Yew received interim dividends for 2017 from its daughter company
OOO Tree in the amount of 7,000,000 RR (CPT on these dividends was withheld at
13% rate at the source of payment).
In December Nut’s shareholders decided to pay dividends to Yew amounting to
10,500,000 RR which is more than 50% of all dividends to be paid. The dividends
were transferred on 15 December 2017.
The calculation of CPT withheld by Yew on dividends paid to Lime is as follows:
Yew profits tax for 2017: 40 million RR × 20% = 8 million RR
After-tax profits for distribution: (40 – 8)
Less: dividends received by Yew itself:
Received from Tree (tax withheld at 13%)
Received from Nut (tax not withheld as all conditions are met for 0% rate)
Dividends subject to withholding tax
CPT to be withheld (25 × 13%)
Lime’s share in total dividends: 800 shares/4,000 shares
CPT on Lime’s dividends: (3.25 × 20%)

RR mln
32
(7)
0
–––
25
–––
3.25
20%
650,000 RR
The above procedure does not apply to dividends paid to foreign legal entities, where
15% should be multiplied by the total amount of dividend income accrued to such entities.
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0412
CORPORATE PROFITS TAX – OTHER INCOME AND EXPENSES, BRANCHES AND PAYMENTS
5
TAX CALCULATION
5.1
Production company

The suggested format of the answer presentation for a production company
is shown below:
Amounts
X
Income from sales of produced goods (works, services)
Expenses incurred in the production and sale of goods (work,
services), including:
Direct expenses (note 1):
Materials
Wages/salaries and related ICs of direct production
Workers
Depreciation on production fixed assets
(X)
(X)
(X)
(X)
Indirect expenses
Wages and salaries of other personnel and related ICs
Depreciation of other fixed assets
One-off 10% or 30% depreciation write-off (all assets)
Services rendered by third parties
Amortisation of intangible assets
Repair expenses
Property insurance
Business travel expenses
Business entertainment expenses
Business training expenses
Advertising expenses
(X)
(X)
(X)
(X)
(X)
(X)
(X)
(X)
(X)
(X)
(X)
(X)
Total expenses:
Profits/loss on sale of produced goods (works, services)
X/(X)
Income from sale of fixed, intangible assets and other property
Tax net book value of fixed/intangible assets or purchase price of
other property plus related expenses
X
(X)
Profit/loss on sale of fixed/intangible assets/other property
X/X
Non-operational income
Non-operational expenses
X
Interest expense
Bad debt expense
Loss on factoring
Other non-operational expenses
(X)
(X)
(X)
(X)
Profits or loss from non-operational activities
X/(X)
Less loss carried forward from previous periods if any
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0413
(X)
CORPORATE PROFITS TAX – OTHER INCOME AND EXPENSES, BRANCHES AND PAYMENTS
Tax base for the reporting/tax period
X/(X)
Tax rate
Tax accrued
Tax already paid
@X%
X
(X)
Tax payable
X
Dividends
Tax on dividends
X
X
Sample note 1:
“Direct expenses”: Direct expenses were prorated between cost of goods sold and
closing inventory based on the given percentages.
Cost of goods sold (X%)
Closing inventory (X%)
Direct materials
X
X
Direct wages and ICs
X
X
Direct depreciation
X
X
Total
X
X
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0414
CORPORATE PROFITS TAX – OTHER INCOME AND EXPENSES, BRANCHES AND PAYMENTS
5.2
Trading company

The suggested format for the answer presentation for a trading company is
shown below:
Amounts
X
Income from sales of merchandise inventory
Expenses incurred in sale of goods, including:
Direct expenses:
Purchase cost of merchandise inventory
Transportation expenses
(X)
(X)
Indirect expenses:
Depreciation on all fixed assets
One-off 10% or 30% depreciation write-off
Wages and salaries and related ICs
Amortisation of intangible assets
Repair expenses
Property insurance
Business travel expenses
Business entertainment expenses
Business training expenses
Advertising expenses
(X)
(X)
(X)
(X)
(X)
(X)
(X)
(X)
(X)
(X)
Total expenses:
(X)
Income from sale of fixed, intangible assets and other property
Tax net book value of fixed/intangible assets or purchase price of
other property plus related expenses
X
(X)
Profit/loss on sale of fixed/intangible assets
X/X
Non-operational income
Non-operational expenses
X
Interest expense
Bad debt expense
Loss on factoring
Other non-operational expenses
(X)
(X)
(X)
(X)
Profits or loss from non-operational activities
X/(X)
Less loss carried forward from previous periods if any
(X)
Tax base for the reporting/tax period
X/(X)
Tax rate
Tax accrued
Tax already paid
@X%
X
(X)
Tax payable
X
Dividends
Tax on dividends
X
X
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0415
CORPORATE PROFITS TAX – OTHER INCOME AND EXPENSES, BRANCHES AND PAYMENTS
6
SEPARATE SUBDIVISIONS (ART. 288)
6.1
Allocation of profits tax



A taxpayer with separate subdivisions (“branches”) must allocate profits tax
to these subdivisions.
Where subdivisions are all located within one subject of the Russian
Federation it is permitted not to do the allocation between them. The
taxpayer can choose the subdivision which will pay tax for all subdivisions in
this territory and inform the respective tax inspectorate about this.
CPT allocation is based on the following formula:
Total CPT of organisation × (A (or B) + C)/2





6.2




A – % calculated by dividing the average number of employees of a
branch to the total average number of employees for the reporting
period;
B – % calculated by dividing wages and salaries expenses of a
branch to the total wages and salaries of the company for the
reporting period;
C – % calculated by dividing tax net book value of fixed assets of the
branch to the total value of fixed assets of the company for the
reporting period.
If the taxpayer uses the non-linear method of depreciation the net book value of
fixed assets can be determined according to the data from accounting registers.
The head office must select between A and B for calculation purposes and
inform the tax inspectorate about the method chosen. The formula must be
used consistently throughout a tax period (calendar year).
Payment
The head office pays the federal portion of profit tax relating to branches to
its tax inspectorate.
The head office should make advance and final payments of regional and
local share of CPT to regional and local budgets.
The above payments are made to the budgets at branches’ locations at regular
deadlines (see later). Branches can also make the payments themselves on behalf of
head office based on the information received from the head office. This is usually
the case when a branch has a separate balance sheet and bank account, although the
Tax Code does not distinguish between branches based on these criteria.
CPT on profits allocated to a branch is paid at the rates existing in the place
of branch location.
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0416
CORPORATE PROFITS TAX – OTHER INCOME AND EXPENSES, BRANCHES AND PAYMENTS
Example 7
Moscow based company has branches in St Petersburg, Samara and Omsk.
The following data is available for the reporting period:
Moscow
Average employees’ number
for the reporting period
St Petersburg
Samara
Omsk
750
330
300
120
Tax net book value of fixed assets
for reporting period (RR million)
16
12
8
4
Federal CPT rate
Regional CPT rate
2%
18%
2%
18%
2%
13.5%
2%
14%
Company’s taxable profits are 370,000 RR.
Required:
(a)
Calculate profits tax liability of head office and branches.
(b)
Explain how the tax is paid (do not state the deadlines). Assume that
branches in St Petersburg and Samara have balance sheets and separate bank
accounts, while branch in Omsk does not.
Solution
(a)
Head office and branches
Moscow
St Petersburg
(1) % of average employees
(2) % of fixed assets
(3) Average of (1) and (2)
(4) Taxable profits allocated
(5) Federal portion of CPT
(6) Regional portion of CPT
(b)
How paid
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0417
Samara
Omsk
Total
CORPORATE PROFITS TAX – OTHER INCOME AND EXPENSES, BRANCHES AND PAYMENTS
7
TAX ACCOUNTING
7.1
General provisions (art.313)



7.2



Tax accounting is defined as “a system for summing up information for
defining the tax base on the basis of the data from the basic documents
grouped in accordance with the procedure stipulated by the Tax Code”.
The tax accounting system should be organised by the taxpayer and in
accordance with established tax accounting policy.
Any changes in the tax accounting policy can be effected from:


Tax base calculation (art.315)
Taxpayers calculate the tax base on the results of every reporting period
based on the data in the tax records.
The tax base for the reporting period is calculated cumulatively in conformity
with the norms established by the Tax Code, from the start of the year.
The tax base calculation should contain the following data:
(1)
(2)
+
Period of calculation; and
The sum of income, expenses, profit or loss, as shown below:
Sales income, including income from:



–
the beginning of a new tax period; or
the moment that changed legislation comes into force.
sales of goods (works performed, services rendered);
trading operations (sales of purchased goods (“merchandise
inventory”));
sales of fixed assets
Sales expenses, including expenses incurred on:



production and sales of goods (works, services);
sales of merchandise inventory;
sales of fixed assets;
=
Operational profit
+
Non-operational income
–
Non-operational expenses
=
Non-operational profit/loss
=
Tax base (before loss carry forward)
–
Loss carried forward from previous years (s.3)
=
Tax base (after loss carry forward)
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0418
CORPORATE PROFITS TAX – OTHER INCOME AND EXPENSES, BRANCHES AND PAYMENTS
7.3
Analytical tax accounting registers (art.314)
7.3.1
General provisions




The sum making up the tax base must be confirmed by the underlying
accounting documents and analytical tax registers.
Analytical tax accounting registers are consolidated forms for the systematisation
of the tax accounting data, grouped in accordance with the Tax Code requirements
(i.e. in the “baskets”). Therefore, each tax register should display a list of
operations providing the specific income or expenses “basket” (or a part thereof).
Taxpayers can use statutory accounting registers with necessary
corrections/additions or independent registers.
The primary analytical tax register form should contain the following details:
Tax register name
Period
The operation’s
measuring indices in
volume terms
(if possible)
The operation’s
measuring indices in
RR
Transaction description
Signature of the responsible person
Date

The forms of the tax accounting registers and the way of reflecting in them
the analytical data should be established in the Appendices of the
organisation’s tax accounting policy.

These registers may be kept on paper or in electronic form.
7.3.2
Depreciable property (art.323)


The profit/(loss) from the disposal (sale or retirement) of depreciated property
is determined on analytical accounting of all objects.
Analytical accounting should contain information on the following:








date of acquisition, putting into operation and original cost of
depreciated property disposed of in the reporting period;
changes in original cost of such fixed assets;
period of beneficial use accepted by the organisation;
cumulative amount of depreciation and net book value of the
disposed fixed assets depreciated using straight-line method only;
cumulative amount of depreciation and summary balance of each
depreciation group and sub-group (for non-linear method);
date and proceeds (if any) of disposal;
related expenses (e.g. storage, dismantling, transportation);
profit/(loss) from the operation.
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0419
CORPORATE PROFITS TAX – OTHER INCOME AND EXPENSES, BRANCHES AND PAYMENTS



7.4



A profit on disposal increases the CPT tax base on the date of recognition of
the sale proceeds.
A loss is spread evenly over the “remaining useful life” of the asset starting
the month after the disposal (see Session 3).
Such losses and their allocation over the remaining period should be shown in
special analytical tax accounting registers.
Tax accounting policy as a tax optimisation instrument
Tax accounting policy is a document in which an organisation selects and
ratifies the methods and variants of tax accounting. It can be a prime
instrument for tax planning and optimisation.
Each organisation can choose the best variant of tax accounting (where there
are alternatives) according to the specifics of its business.
The most significant variants are as follows:





Depending on the payment terms applied it make sense to consider
the accrual or cash method for income/expense recognition;
As a list of the direct expenses is fixed in the tax accounting policy these can be
defined to maximise available tax reductions and reduce administration issues;
Method of material valuation (e.g. weighted average) should be
clearly defined, especially in conditions of instability;
Using 10% (30%) write-off and non-linear depreciation method to maximise
expenses in the first years after acquiring fixed assets and so defer CPT;
Set up of allowance (e.g. for receivables) facilitates planning of
expenses and defers tax payments.
8
PROFITS TAX REPORTING AND PAYMENT PROCEDURES
8.1
Payment bases

The payments of profits tax can be made in any of three ways:
(1)
(2)
(3)
on a monthly basis based on estimated profits;
on a monthly basis based on actual profits;
on a quarterly basis (available to certain types of taxpayers only).

The declarations are prepared on a cumulative basis.
8.2
Monthly payment system based on estimated profits


Under this payment system, there are monthly advance payments of CPT,
which are made by the 28th day of each month in the amount of 1/3 of the
estimated total CPT liability for the quarter.
On the 28th day following the end of each quarter so-called “quarterly” advance
payment is made. Its amount is calculated as the difference between actual
profits tax for the reporting period and monthly advance payments made.
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0420
CORPORATE PROFITS TAX – OTHER INCOME AND EXPENSES, BRANCHES AND PAYMENTS


For example in July taxpayer must calculate actual profits for the six months of the year
and the amount of CPT. On July 28 it must pay the difference between total CPT
liability for 6 months and the total monthly and quarterly advance payments of CPT
already made. On the same date monthly advance payment for July is also due.
The tax returns are submitted under the following deadlines:




within 28 days following the last day of the reporting quarter for
quarterly returns (in a simplified form);
by 28 March of the following year for annual return.
Final tax payment is due:

by 28 March of the following year for annual return.
A summary of payment and reporting rules under this system is presented in
the following table :
Type of payment
Payment amount
Payment deadlines
The term of tax
declaration
submission
Monthly advance
payment in 1st
quarter
Payment is equal to monthly
advance payment in the 4th
quarter of the preceding tax
period
Monthly advance
payments in 2nd
quarter
Monthly payment is equal to 1/3
of the total advance payment of
1st quarter*
Monthly advance
payments in 3rd
quarter
Monthly payment is equal to 1/3
of the total advance payment of
the 1st half of the year less the
advance payment of the 1st
quarter*
Not later than on the
28th day of every
month in the
reporting period
Not later than 28
days after the end of
the reporting period.
Declarations are
submitted in
simplified form
Monthly advance
payments in 4th
quarter
Monthly payment is equal to 1/3
of the total advance payment of
the 9 months of the year less the
advance payment of the 1st half
of the year*
Quarterly advance
payment after the
end of each reporting
period
(Tax rate) × (Actual cumulative
profits received starting the
beginning of reporting period)
less advance payments made
Not later than on the
28th day following
the end of the
reporting period
Payment after the
end of tax period
(Tax rate) × (Actual cumulative
profits received starting the
beginning of tax period) less
advance payments made
Not later than on the
28th of March of the
year following the
tax period
Not later than on the
28th of March of the
year following the
tax period
* If the resulting amount is equal to zero or negative, the monthly advance payments
are not made in this quarter.
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0421
CORPORATE PROFITS TAX – OTHER INCOME AND EXPENSES, BRANCHES AND PAYMENTS
8.3


Monthly payment system based on actual profits
Monthly payment system based on actual profits is also available to
taxpayers. However if this system is chosen, taxpayer must inform its tax
body not later than on 31st December of the year preceding the reporting one.
Once chosen the system should apply consistently over the whole tax period.
Summary of payment and reporting rules under this system is as follows:
Type of payment
Payment amount
Payment deadlines
The term of tax
declaration submission
Monthly advance
payment,
calculated based on
actual profits
(Tax rate) × (Actual
cumulative profits received
starting the beginning of
the year) less advance
payments made
Not later than on the
28th day of the
following month
Not later than on the
28th day of the
following month (in a
simplified form)
Annual balancing
payment
(Tax rate) × (Actual
cumulative profits received
for the year) less advance
payments made
Not later than on the
28th March of the year
following the tax
period
Not later than on the
28th March of the year
following the tax
period
8.4
Quarterly payment system
The quarterly payment system applies to the following types of legal entities:

organisations with an average quarterly revenue for the preceding four quarters not
exceeding 10 million RR per quarter (if average quarterly revenue exceeds this the
taxpayer must switch to a monthly payment system based on estimated profits);

budget entities;

foreign legal entities operating in Russia through permanent establishments;

members of simple partnerships;

newly-created entities with sales not exceeding 10 million RR per quarter.
Summary of payment and reporting rules under this system is presented in the following table:
Type of payment
Payment amount
Payment deadlines
Term of tax declaration
submission
Quarterly
advance payment
after the end of
reporting period
(Tax rate) × (Actual
cumulative profits
received from the
beginning of the year) less
advance payments made
Not later than on the
28th day after the end
of the reporting period
Not later than on the 28th
day of the following
quarter (in a simplified
form)
Annual balancing
payment
(Tax rate) × (Actual
cumulative profits
received for the year) less
advance payments made
Not later than on the
28th March of the year
following the tax
period
Not later than on the 28th
March of the year
following the tax period
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0422
CORPORATE PROFITS TAX – OTHER INCOME AND EXPENSES, BRANCHES AND PAYMENTS
FOCUS
You should now be able to:








explain the filing requirements and payment deadlines for corporate profits tax;
explain taxpayer’s right for the adjustments of tax base and tax in tax period when the
mistakes have been found out related to previous tax periods (art. 54);
explain the procedure for the allocation of profits between head office and branches;
explain and apply the rules for the taxation of dividends and calculate profits
tax on dividends paid and received by Russian legal entities;
calculate the taxable income on foreign currency transactions and on transactions
denominated in “notional” units;
explain the timing of income recognition for factoring operations and calculate the
taxable income from trade debt factoring for both parties;
calculate the taxable income on penalty income, rent income, interest income and other nonsale sources (art. 250);
explain and apply the rules for the creation and usage of an allowance for bad debts (art. 266);

explain and apply the rules for bad debts write-offs;

define and apply basic tax accounting rules (art. 313-320, art. 322-323);




explain how the maximisation of available tax reductions and concessions
can defer or minimise corporate profits tax liabilities;
identify, compute and apply the right concession/reduction in given circumstances.
define allowable net operating losses and calculate the amount of losses qualifying for
the carry forward tax concession;
explain the rules for calculating the maximum amount of losses allowable in
each year and calculate the loss carry forward concession;

prepare a computation of total taxable income based on the format of the profits tax return;

compute the corporate profits tax liability, applying the correct rates of tax; and

prepare calculations of the profits tax payable by branches.
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0423
CORPORATE PROFITS TAX – OTHER INCOME AND EXPENSES, BRANCHES AND PAYMENTS
EXAMPLE SOLUTIONS
Solution 1
(a)
Interest expense
Strictly, the interest expense on the loan should be recognised on the last day of each
month taking into account the date of actual payment of interest. .
USD
Ex-rate
RR
1st quarter: 59/365 days × 500,000 USD × 4%
3,233
29.4
95,050
2nd quarter: 91/365 days × 500,000 USD × 4%
4,986
29.5
147,087
3rd quarter:
July 31/365 days × 500,000 USD × 4%
1,699
29.8
50,630
61
Aug-Sept /365 days × 500,000 USD × 4%
3,342
30.2
100,928
4th quarter: 92/365 days × 500,000 USD × 4%
5,041
31.4
158,287
–––––––––
Total
551,982
–––––––––
Tutorial note: For exam purposes, when dealing with a taxpayer who reports on a quarterly
basis, interest calculations should be made at the end of the reporting/tax period (i.e. at the end
of each quarter). Using the strict monthly approach will only make a difference if the exchange
rate changes within a quarter (as in 3rd quarter in this example). Also, it is not necessary to
present the USD amounts (which are rounded here) as an intermediate calculation; they are
included here to show how the interest amounts referred to in (c), below, arise.
(b)
Foreign exchange differences on loan principal
Since the loan principal amount was not repaid at the end of the reporting period OOO
ABC must restate the company’s foreign currency liability:
Loan principal at 31 January
At 31 December
USD
500,000
500,000
Ex-rate
29.2
31.4
Exchange difference (loss)
(c)
RR000
14,600
15,700
––––––
1,100
––––––
Foreign exchange differences on interest
The difference in exchange rate on the date of accrual of interest expense and at the end of the
reporting period/actual payment of interest will be recognised as a foreign exchange loss:
Interest accrued as at 1 August:
Actual payment at 1 August:
(95,050 + 147,087 + 50,630)
(500,000 × 181/365 × 4% × 29.9)
Exchange difference (loss)
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0424
RR
292,767
296,542
–––––––
3,775
–––––––
CORPORATE PROFITS TAX – OTHER INCOME AND EXPENSES, BRANCHES AND PAYMENTS
Restatement of interest accrued for August – September:
Interest accrued at 30 September must be revalued at the year end. Note that interest
for the 4th quarter of 2017 will be accrued on 31 December, so no exchange difference
arises in respect of this.
Interest accrued at 30 September
At 31 December
USD
3,342
3,342
Exchange difference (loss)
Ex-rate
30.2
31.4
RR
100,928
104,939
–––––––
4,011
–––––––
Total foreign exchange difference on loan principal and interest:
1,100,000 + 3,775 + 4,011 = 1,107,786 RR
Exam advice
It is unlikely that calculations for interest will merit many marks in the examination. If you
are under time pressure it is recommended that you deal just with the loan principal.
Solution 2
RR
61,000
(70,000)
–––––––
(9,000)
–––––––
Income from factoring
Receivable value
Loss on factoring
Because the receivable is factored after the payment date provided in the main
agreement, the loss will decrease the taxable base as “non-operational expense” in
February.
Solution 3
Late payment interest income for the year:
60 days (29 in November and 31 in December) × 20,000 × 0.2% + 17 days × 28,000 ×
0.2% = 2400 + 952 = 3,352
Accrued late payment interest should be recognised at the date of debtor’s acceptance
of the claims (i.e. on 31 December).
Solution 4
The balance on the allowance account as at 31 December is limited to 10% of sales net
of VAT; i.e. to 20 million (10% × 236 × 100/118).
Bad debt expense for the year is: 20 (allowance recognised as at 31 December) – 10
(opening allowance) + 1.18 (bad debt write-off) = 11.8 million.
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0425
CORPORATE PROFITS TAX – OTHER INCOME AND EXPENSES, BRANCHES AND PAYMENTS
Solution 5
Sales revenue (net of VAT) (495.6 × 18/118)
Bad debt allowance limitation (10% of revenue net of VAT)
420
42
Bad debt allowance as at 31 December 2017:
(40.8 + (108 × 50%))
94.8
Write-off
14
Since 94.8 > 42, allowance created in 2017 may be deducted only up to the limitation.
Total bad debt expense (42 + 14)
56
Solution 6
Tax loss available for carry forward: 24 + 28 = 52 million RR
Maximum amount for loss utilisation in 2016 is limited by the amount of taxable
profits 25 million RR. Remaining portion of loss (52 – 25 = 27 million RR) is carried
forward to 2017. Therefore taxable profit for 2016 is 0.
The remaining amount of 27 million RR loss is utilised in 2017. Taxable profits in
2017 are 33 million RR.
Solution 7
(a)
Head office and branches
(1) % of average employees
(2) % of fixed assets
(3) Average of (1) and (2)
(4) Taxable profits allocated
(5) Federal portion of CPT
(6) Regional portion of CPT
(b)
Moscow St Petersburg Samara Omsk Total
50%
22%
20%
8%
100%
40%
30%
20%
10%
100%
45%
26%
20%
9%
100%
166,500
96,200
74,000 33,300 370,000
7,400
7,400
29,970
17,316
9,990
4,662 61,938
How paid
The head office pays the federal portion of profits tax relating to branches to its tax
inspectorate.
Branches in St Petersburg and Samara probably make advance and final payments of
regional and local share of CPT to regional and local budgets on behalf of head office
as they have balance sheet and bank account. The above payments are made to the
budgets at branches’ locations at regular deadlines. The payments are made based on
information received from head office in Moscow.
With regard to a branch in Omsk, all CPT payments are made by head office. The
federal portion of CPT is paid to the tax inspectorate of head office (Moscow). The
regional and local portions of CPT allocated to a branch are paid to tax inspectorate at
branch location (Omsk).
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0426
PERSONAL INCOME TAX – SCOPE, COMPUTATION AND DEDUCTIONS
OVERVIEW
Objectives



To explain the scope of personal income tax.
To compute taxable income from employment and business income of an
individual entrepreneur.
To recognise deductible expenses.
SCOPE



Personal income tax
Payments to budget
PIT rates
CALCULATION
AT BASE RATE



PIT calculation scheme
Gross income
Exempt income
DEDUCTIONS





Child deductions
Social deductions
Investment deductions
Property deductions
Professional deductions
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0501
PERSONAL INCOME TAX – SCOPE, COMPUTATION AND DEDUCTIONS
1
SCOPE
1.1
Personal income tax

Personal income tax (“PIT”) is applied to the income received by individuals,
i.e. by private citizens (art. 207). Usually PIT is deducted from income by
the party which makes the payment to an individual. Procedure of tax
deduction from the income paid is called income tax withholding. The entity
(a company or an individual entrepreneur) which makes the withholding is
called a tax agent (see Session 7).
Illustration 1
Andrei’s gross salary for December is 20,000 RR. PIT rate is 13%.
Gross salary
Less: PIT at 13%
Salary net of PIT (or simply “net salary”)
20,000
(2,600)
17,400
PIT is calculated, withheld and paid to the budget by the company-employer, which
acts as tax agent for PIT purposes.





At any given date, an individual will be regarded as resident (e.g. for tax
withholding) if he has been physically present in the Russian Federation for
at least 183 days of the preceding 365 days.
Tax period for PIT purposes is a calendar year (art. 216). This means that
income subject to PIT and the tax itself are calculated on a cumulative basis
from the beginning of the calendar year and up to December 31.
An individual who is physically present in the Russian Federation for at least
183 days in a calendar year is resident for income tax purposes for that year
and subject to tax on their worldwide income.
If an individual stays for less than 183 days he is considered to be nonresident for this year and taxed only on Russian-source income.
Periods abroad of less than six months for educational purposes or medical
treatments count as present in Russia.
Exam advice
Taxation of non-residents as well as the provisions of art. 208 are not examinable.
1.2


Payments of personal income tax to budget
In the majority of cases PIT is paid to budget by tax agents (i.e. by the entities
which make the payments to individuals).
However, in some cases PIT withholding at source is not provided for by the
Tax Code (e.g. PIT is not withheld at source on lottery/casino winnings).
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0502
PERSONAL INCOME TAX – SCOPE, COMPUTATION AND DEDUCTIONS

If a tax agent does not withhold PIT, it is an individual’s responsibility to
calculate and pay the tax. Generally this is done through filing a tax
declaration on PIT with a tax inspectorate.
Illustration 2
Andrei’s gross salary for December is 20,000 RR. In this month Andrei also won
500,000 RR in a lottery. He also sold his apartment and received 800,000 RR as a
taxable gain.
As was shown in Illustration 1, PIT on Andrei’s salary will be calculated, withheld and
paid to the budget by his employer which acts as Andrei’s tax agent on PIT. Andrei
will have to calculate and pay PIT on the lottery winnings and on property sale gain
personally through submitting a tax declaration on PIT to his local tax inspectorate.
1.3



PIT rates (art. 224)
The majority of income types are taxed at 13% rate. For convenience and
simplicity this is called the “main” or “base” rate of PIT.
Dividend income is also taxable at a 13% rate.
Increased rate of 35% is applied to the following types of income:
–
–
–


taxable portion of interest on bank deposits;
imputed interest on loans (except for certain type of mortgage loans
and unpaid liability on credit cards);
taxable portion of advertising prizes and awards.
The taxation rules on the above income are further explained in Session 6.
All other income of residents is taxed at 13%.
Exam advice
Special rates of 15% and 30% which are applied to income received by nontax residents of Russian Federation are not examinable.
Example 1
State the relevant PIT rates for each of the following types of income:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
Salary;
Birthday gift;
Casino winning;
Gain on property sale;
Imputed interest on a bank loan to buy a car;
Dividends received;
Taxable interest on bank deposit;
Advertising prize;
Imputed interest on corporate loan to buy an apartment (mortgage loan);
Taxable property insurance income.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0503
PERSONAL INCOME TAX – SCOPE, COMPUTATION AND DEDUCTIONS
2
CALCULATION AT BASE RATE
2.1
PIT calculation scheme

The PIT calculation scheme for the income taxed at the main (base) rate of
13% is as follows:
Tax base on
ordinary income

Main rate of 13%
×
PIT on
ordinary income
=
“Tax base on the ordinary income” means the total amount of income that
is subject to 13% rate of PIT.

Tax base on the ordinary income is calculated as the total income received in a calendar
year less exempt income, less income subject to special rates, less PIT deductions.
Tax base on
ordinary income
=
Gross income
from all
sources
–
Exempt
income &
income
taxed at
special
rates
–
PIT deductions
Child
Social
Investment
Property
Professional
2.1.1
Meaning of terms

“Gross income” means all income received by a taxpayer from all sources in a calendar year;



“Exempt income” means income which is excluded from taxation (e.g. state pensions,
alimonies, etc).
“Income subject to special rates” means types of income taxed at 35% rates.
“PIT deductions” means expenses incurred by taxpayer in a calendar year, which decrease
his taxable income (e.g. medical and educational expenses). The Tax Code strictly regulates
the types and maximum amounts of expenses allowable for deduction (see later).
2.2
Gross income
2.2.1
Forms of income receipt

Income can be received in cash or in-kind (i.e. in non-monetary form).
Payments in-kind in particular include:
–
–
–
–
–
wages and salaries paid in-kind;
partial or full payments for goods (works, services) for employees
(including meals, accommodation);
provision of free goods, works or services to individuals;
stock options;
gifts in-kind, etc.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0504
PERSONAL INCOME TAX – SCOPE, COMPUTATION AND DEDUCTIONS



Payments in-kind are taxed at their fair market value and taking account of
the transfer pricing provisions.
Fair market value for quoted securities is straightforward to establish. For
unquoted shares market price is deemed to be reference price less 20%.
Tax on payments in-kind is calculated and withheld by the tax agent from any
cash payments made to employees. The amount of withholding tax cannot
exceed 50% of cash payment amounts. If tax withholding is not possible a
tax agent must report to its local tax authority about such payment in-kind
within one month from the date of payment (art. 226.4, 226.5).
Illustration 3
Andrei received a TV set valued at 7,000 RR as a birthday gift from his companyemployer. He also received a DVD recorder valued 14,000 RR from a company-client.
This client company made no other gifts or cash payments to Andrei.
PIT on TV set will be calculated and withheld from Andrei’s monthly salary by his
employer. The company-client is not able to withhold PIT on the DVD recorder, as it
does not make any cash payments to Andrei.
Thus, the client must report to its tax inspectorate about the gift within one month from
the date when the recorder was given to Andrei. Andrei will pay PIT on the DVD
recorder himself.
2.2.2
Income recognition date (art. 223)

For PIT purposes income is generally recognised when paid. For example, when:



–
remuneration is paid under civil law contracts, copyright agreements,
performance contracts, etc;
–
cash payment is made (including wire-transfer to taxpayer’s bank account);
–
income in-kind is received;
–
interest is credited to a bank deposit account.
The major exception to the above rule relates to employment income (wages, salaries,
performance bonuses, etc), which is recognised for PIT purposes on the last date of
the month of the accrual. For example, December 2017 salary paid in January 2018 is
taxed in December 2017.
Business trip expenses, either where undocumented or where per diems are above
statutory norms, are recognised as taxable on the last day of the month in which the
expense report is approved, after the business trip.
Imputed interest on beneficial loans (see Session 6) is recognised as taxable on the last
date of each month.
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0505
PERSONAL INCOME TAX – SCOPE, COMPUTATION AND DEDUCTIONS
2.3
Exempt income (art. 217)
2.3.1
Payments and compensations established by Law

The major exemptions from personal income tax listed in the Tax Code (art. 217) are:
–
–
–
–
–
government support payments (“posobija”);
state pensions;
state compensations and financial aid;
official sports awards and prizes (see Session 6);
alimonies, etc.

Note that all income types above are required by and produced under Russian Laws.
2.3.2
Gifts from individuals



2.3.3
Gifts (except real estate property, transport vehicles, shares and securities)
received by individuals from physical persons are PIT exempt.
Gifts received from “close relatives” are PIT exempt. For gift taxation
purposes the following family members are understood to be close relatives:
–
–
–
–
–
spouse;
children;
parents (including step-parents);
brothers/sisters; and
grandparents.
Inheritance is generally exempt (special cases are not examinable).
Payments by companies to employees
Note the following exempt items related to employment:












financial assistance (“materialnaja pomosch”) up to 4,000 RR per year per employee;
gifts to employees up to 4,000 RR per year;
compensation of travel expenses up to the statutory norms;
reimbursement of business expenses paid by an employee on his employer’s behalf;
compensation of relocation expenses to the Far North regions of Russia;
cost of business training and education provided to employee;
payments by employers to Russian recreation and resort facilities (including children
camps) for the benefit of employees and/or members of their families (spouse, children
under 16). These payments are made out of after-tax-profits;
medical treatment payments made by employers for the benefit of their employees and
their spouses, children, parents (i.e. direct payments for medical services). These
payments are made out of after-tax-profits;
cost of medicine purchased (reimbursed) by employer for employees and their spouses,
parents and children up to 4,000 RR per year;
financial aid paid by the employer to employees (parents) in case of the birth of a child
up to 50,000 RR for each child*;
additional pension payments made by company to “cumulative” part of
employee’s pension up to 12,000 RR per year per employee*;
compensation to employees of interest paid on mortgage loans within the limits
deducted for CPT purposes (3% of labour cost).
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0506
PERSONAL INCOME TAX – SCOPE, COMPUTATION AND DEDUCTIONS
*
The items marked with * are included in the rates and allowances sheet
provided in the examination.
If provision of goods (works, services) for employees is required by law,
their value is not subject to PIT.

Sick leave payments are subject to PIT in the full amount.
2.3.4
Property sales income (art. 217 and art. 17.1)



2.4

Gains arising on the sale of personal property including residential houses, apartments,
summerhouses, plots of land and motor vehicles (if owned by the taxpayer for five years
or more) are exempt from PIT. This exemption is not applicable to securities (see 3.4).
Gains arising on such assets held for less than five years is included in taxable income.
Income exempt from PIT under art.217 can be excluded from the tax
declaration by taxpayer and tax agent.
Insurance and pension funds contributions (art. 213)
Insurance contributions made by an employer for the benefit of an employee
are not taxable if:
–
–

insurance of employees is required by Law;
it is a voluntary medical or life insurance of employees or any other person.
Contributions, which are made by a company on behalf of its employee under
voluntary pension agreements (“dobrovolnogo pensionnogo strahovanija”) and under
“non-state pension security” (negosudarstvennogo pensionnogo obespechenija”) are
non-taxable (but pension income will generally be taxed later when received).
Example 2
Kiril received the following benefits from his employer in addition to his salary:
–
–
–
–
–
–
medical insurance coverage (non-mandatory);
pension contributions on his behalf to a non-state pension fund under nonstate pension security;
meal tickets for free meals in the company’s cafeteria;
paid for vacation in Turkey;
company mobile phone;
company car.
Required:
Briefly explain for each benefit whether it is taxable or non-taxable.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0507
PERSONAL INCOME TAX – SCOPE, COMPUTATION AND DEDUCTIONS
Example 3
In 2017 a company made the following payments to its employee (in RR) (gross amounts):
(1)
(2)
(3
(4)
(5)
(6)
(7)
Salary 180,000
Annual performance bonus for 2017 (accrued in 2017, paid in 2018) – 30,000
Financial assistance (“materialnaja pomosch”) – 10,000*
Birthday gift – 7,000*
Payment for business training – 8,000
Payment for secondary education in Moscow State University – 50,000
Reimbursement of business travel expense:
– within the norms – 6,500
– above the norms – 3,500
(8)
Free lunches – 60,000
(9)
Payment for vacation in Egypt – 45,000
(10)
Payment for convalescence in a sanatorium in Moscow resort area – 25,000
(11)
Payment for medical operation on employee’s son – 12,000
(12)
Payment under “non-state pension security” agreement – 15,000
(13)
Compensation payment required under Russian Law – 14,000
(14)
The cost of working uniform (the uniform is not required by law) – 20,000
* Financial assistance and gifts are taxed in excess of 4,000 RR per year.
Required:
Calculate the taxable income of the employee.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0508
PERSONAL INCOME TAX – SCOPE, COMPUTATION AND DEDUCTIONS
Solution
RR
(1)
Salary
(2)
Annual performance bonus
(3)
Financial assistance
(4)
Birthday gift
(5)
Payment for business training
(6)
Payment for secondary education at Moscow State University
(7)
Reimbursement of business travel expense:
– within the norms
– above the norms
(8)
Free lunches
(9)
Payment for vacation in Egypt
(10) Payment for convalescence in a sanatorium in Moscow area resort
(11) Payment for medical operation on employee’s son
(12) Payment under non-state pension security
(13) Compensation payment required under Russian Law
(14) Cost of working uniform not required by law
______
Total taxable income
______
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0509
PERSONAL INCOME TAX – SCOPE, COMPUTATION AND DEDUCTIONS
3
DEDUCTIONS
3.1
Child deductions (art. 218)

The standard personal deduction has been withdrawn.

Monthly amounts of children deductions for 2017 are:
Deduction for first dependent child
Deduction for second dependent child
Deduction for third and subsequent dependent child






1,400 RR per month
1,400 RR per month
3,000 RR per month
Children’s deduction is allowed to both parents for each child under 18 years
(under 24 years for “ochnyie” students).
Children deduction is allowed up to the month at which the gross income taxed
at 13% rate paid by the employer giving this deduction exceeds 350,000 RR.
Child deductions are allowed to an employee at his written request at only one place
of work. If the place of work is changed during the year the new employer should be
presented with the employee’s previous income data in order to grant child deductions.
If no child deductions were provided to an individual, he may claim them
through the tax declaration (taking into account the 350,000 RR limitation).
Child deductions are allowed to individual entrepreneurs based on their
cumulative income through tax declaration submission.
A single (widowed or divorced) parent can claim a double amount of children
deduction for each child (however the limit of 350,000 RR remains the
same). Similarly, a couple may elect for only one of them to receive the
deduction, in which case it is given in double amount
Illustration 4
Anna’s monthly salary is 43,750 RR. She has a 12 year-old son.
Anna is entitled to a dependent child deduction of 1,400 RR up to and including
August.
Her taxable income is: (43,750 × 12) – (1,400 × 8) = 513,800 RR
Her PIT liability for the year is 513,800 × 13% = 66,794 RR
Example 4
Andrei’s gross monthly salary is 37,500 RR. Andrei has three children who qualify for
the children deduction. Andrei is a Russian tax resident.
Required:
Calculate Andrei’s personal income tax.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0510
PERSONAL INCOME TAX – SCOPE, COMPUTATION AND DEDUCTIONS
Solution
RR
RR
Gross income
Children deductions
______
______
Net taxable income
______
Tax
______
3.2
Social deductions (art. 219)
3.2.1
General

All social deductions are applied only to the ordinary income taxed at 13% rate.




Social deductions are allowed to an individual at his written request upon
submission of the annual tax declaration.
From 2016 employees are allowed to request that deductions for medical treatment and
education/training be given by their employer (instead of waiting for tax return
submission). The employee is required to make an application to the tax authorities with
evidence of the expense; if accepted the tax authority will issue a confirmation to the
taxpayer who can then submit this to his employer in order to be given the deduction.
However, social deductions are automatically allowable at work for contributions under
voluntary pension agreements and/or under non-state pension security agreements
provided that the employer withholds and pays such contributions to relevant funds. The
employee should submit all supporting documents to be eligible for these social
deductions at the employer’s level.
Any “unused” social deductions cannot be carried forward to future years.
The maximum amount of the three main social deductions (educational, medical,
pension deduction) is restricted to 120,000 RR (with some exceptions explained for
each specific deduction). This does not relate to charity deduction, which is
restricted to 25% of gross taxable income.
3.2.2
Charity contributions

The following charity donations qualify for tax deduction purposes:
–
–
–

charity donations made in cash to cultural, educational, scientific, health and
social security organisations wholly or partially financed from the budget;
charity donations made in cash to religious organisations;
charity donations made in cash to sports and educational organisations
for sports purposes only (there is no budget financing requirement).
The deduction is limited to 25% of the gross income taxed at 13% rate. The
gross income is understood as ordinary taxable income before all deductions.
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0511
PERSONAL INCOME TAX – SCOPE, COMPUTATION AND DEDUCTIONS
3.2.3
Education expenses

Deduction is allowed amounting to the expenses incurred by an individual:
–
–





on his own education up to 120,000 RR (aggregated with the two
other deductions detailed below); and
on the education of his children, his sisters and/or brothers (up to
50,000 RR each in addition to his own educational deduction).
The tax deduction on a child’s education may not exceed 50,000 RR for both
parents (i.e. together) for each child. A child must be under 24 years of age.
The tax deduction on a child’s education is not allowed if the education was
paid for from the mother’s capital (“materinskiy capital”). (This state support
is PIT exempt so no social deductions can be used against it.)
A taxpayer also has the right to the tax deduction when they pay study costs
for a brother/sister who is an “ochnyi” student under 24 years old.
No deduction is granted for children studying according to programmes with
correspondence education (“zaochnoe obuchenie”).
All documents confirming the expenses incurred and the status of the
educational institution (a copy of the education license) must be attached to
the annual tax declaration.
3.2.4
Medical expenses

Deduction is allowed amounting to the expenses incurred by an individual:
–
–




on his own medical treatment in medical institutions of the Russian
Federation;
on medical treatment paid for the benefit of the individual’s spouse,
parents and/or children under 18 in medical institutions of the
Russian Federation only.
The total deduction is limited to 120,000 RR (again aggregated with the two
other deductions) except for certain types of expensive medical treatment (as
per a special list approved by the Russian Federation Government). In the
case of expensive medical treatment, the deduction given is the full amount
of the actual medical expenses in addition to the general medical deduction.
The cost of medication purchased by a taxpayer in accordance with relevant
prescriptions also qualifies for the deduction.
Medical insurance purchased by a taxpayer for his own benefit or the benefit
of close relatives also qualifies for deduction.
The documents confirming the actual expenses and the status of the medical institution
(a copy of the medical license) must be attached to the annual tax declaration.
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0512
PERSONAL INCOME TAX – SCOPE, COMPUTATION AND DEDUCTIONS
3.2.5
Pension deduction
This section concerns personal expenses on non-state pension security and/or voluntary
pension insurance and additional payments to “nakopitelnay” part of the state labour pension.





This deduction is applied to pension payments made under agreements with non-state
pension security funds (“dogovora negosudarstvennogo pensionnogo obespechenija”)
for the benefit of taxpayer or his spouse, parents and/or children-invalids.
The deduction is also applicable to insurance payments under voluntary pension insurance
agreements (“dogovora dobrovolnoje pensionnoe strahovanija”) for the same beneficiaries.
Additional pension payments (made by taxpayer) to cumulative (“nakopitelnay”)
part of labour pension also qualify for this deduction.
The documents confirming the actual expenses and the status of the pension
institution (a copy of the license) must be attached to the annual tax declaration.
The total deduction allowed is again limited to 120,000 RR, in aggregate with
the two deductions explained above.
Summary
Type of deduction
Maximum amount
Charity deduction
25% of gross income taxed at 13%
rate
Educational deduction for
taxpayer
Medical deduction (except
expensive medical treatment)
120,000 RR in total for all 3 types
of deductions
Deduction on non-state pension
security and voluntary pension
insurance payments, additional
payments to “nakopitelnay” part of
labour pension

Educational deduction for
children, sisters and brothers of
the taxpayer
50,000 RR per each child
under 24 years (in total amount for
both parents)
Medical deduction for expensive
medical treatment
In full actual amount per
taxpayer, his parents, spouse and
his children below 18 years.
Where the taxpayer has educational, medical and pension expenses in the
same year and their total amount exceeds 120,000 RR, then the taxpayer must
choose himself what social deductions he would claim.
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0513
PERSONAL INCOME TAX – SCOPE, COMPUTATION AND DEDUCTIONS
Illustration 5
Karina’s income (before social deductions) is 700,000 RR out of which 140,000 RR is
subject to 13% rate and the remaining amount is taxed at 35%. During the year Karina spent:
–
–
–
–
70,000 on charitable contributions
42,000 on her own education
48,000 on contribution to non-state pension security ;
10,000 on her son’s education.
Karina’s husband did not claim any social deductions during the year and all amounts
listed qualify for social deductions. Ignoring child deductions Karina’s personal
income tax for the year is determined based on the following deductions:
The deductible charitable contribution is limited to 25% of gross income subject to
13% rate, i.e. (140,000 × 25% = 35,000 RR).
The total social deduction (42,000 RR + 48,000 RR) is less than the 120,000 RR limit
therefore 90,000 RR can be deducted.
10,000 RR spent on the child’s education may be deducted in full.
Karina’s total deductions are: 35,000 + 90,000 + 10,000 = 135,000 RR
Her PIT liability is calculated as:
(560,000 RR × 35%) + ((140,000 – 135,000) × 13%) = Total 196,650 RR
Example 5
Sergei has incurred the following expenses during the year:
(1)
(2)
(3)
(4)
(5)
(6)
Payment of 12,000 RR for his mother’s medical treatment in Kiev Medical
Academy and payment for expensive surgery in Moscow state clinic
amounting to 55,000 RR. Assume that this type of surgery is included the list
of expensive treatment approved by the Government of RF.
Payment of 14,000 RR for his wife’s plastic surgery in Moscow Institute of
Beauty;
Payment of 40,000 RR for his son’s education in a university (Sergei’s wife
has contributed another 20,000 and claimed it in her PIT declaration);
Payment of 68,000 for his own training at evening accounting courses at the
Moscow State University;
Payment of 55,000 RR to non-state pension security fund for his father’s
pension insurance.
Charitable contribution of 30,000 RR in cash to Moscow children music
school.
Sergei is a Russian tax resident. His gross taxable income during the year was 250,000 RR.
Required:
Calculate social deductions potentially available to Sergei in the given circumstances.
Explain how the deductions should be claimed.
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0514
PERSONAL INCOME TAX – SCOPE, COMPUTATION AND DEDUCTIONS
3.3


Investment deductions (art.219.1)
As part of a package of measures to increase investment in securities by
individuals, the following deductions have been introduced:
–
Annual investments of up to 400,000 RR into a personal investment
account (PIA). Any subsequent gains on these investments are
potentially taxable;
–
If this deduction is not claimed at the time of investment, then a
deduction can instead be claimed in respect of gains realised on sale
of the PIA investments;
–
A deduction of 3,000,000 RR multiplied by a weighted average
coefficient (relating to the length of shareholding) is available
against gains on disposal.
Each of these deductions is subject to restrictions, particularly in terms of
minimum ownership period.

Investment deductions are considered further in Session 6.
3.4
Property deductions (art.220)
3.4.1
Sale of personal property




Gains arising on the sale of personal property are treated as taxable income
and included in the PIT calculation.
Property deductions are allowed to taxpayers on the sale of personal property.
The amount of the deduction depends on property type and length of ownership.
If a taxpayer sells property which he owns for five years or more then no taxable gain
arises.
In certain circumstances a three-year ownership threshold allows this exemption to
apply (instead of the usual five years applicable from 2016).
Exam advice
For exam purposes, the most significant such circumstance is in respect of real estate
inherited from a relative.

A maximum 1,000,000 RR deduction is allowed for the following property if
it stayed in the taxpayer’s ownership for less than five years:
–
–
–
–

residential houses;
apartments;
summerhouses;
plots of land.
Income from sale of other property, if it stayed in the taxpayer’s ownership
for less than five years, may be decreased by up to 250,000 RR.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0515
PERSONAL INCOME TAX – SCOPE, COMPUTATION AND DEDUCTIONS





If several individuals jointly own property, the property deduction is allocated
between the owners according to their ownership share percentages (or in accordance
with the relevant agreement between the individuals, if the shares are not defined).
No property deduction is given to individual entrepreneurs upon sale of property used
for business purposes. The taxable amount on such disposals is calculated as the
difference between the selling price and net book value of the property in question.
The taxpayer may substitute the property deduction for the actual
expenses related to this income (including property acquisition cost).
In accordance with art. 228.2, no tax is withheld by the entity acquiring an
individual’s property, however, such an entity (or a registrar of the sale) must
submit to tax authorities the data on the income paid. The tax obligations are
determined upon submission of the tax declaration.
Income on property disposals is taxed at 13%.
In the event of sale of any taxpayer’s property he must submit tax return to
the tax authority. The exception to the rule is the sale of property which was
in the taxpayer’s ownership for not less than five years (see 2.3.4 above).
Example 6
Artem, a Russian tax resident, sold the following property in 2017:
(1)
A summerhouse and plot of land that was in his and his wife’s joint
ownership (with equal 50% share of each spouse) from 2015, with an
acquisition price of 1,200,000 RR. The spouses bore the costs of acquisition
in equal amounts. The selling price was 2,500,000 RR.
(2)
A car purchased in 2016 for 300,000 RR. The car was in his individual
ownership (no joint ownership with his wife). The selling price was
200,000 RR.
(3)
A garage (his individual property) purchased in 2011 for 60,000 RR.
The selling price was 150,000 RR.
Required:
(a)
Calculate the taxable gain arising from these transactions. If several options
are available, choose the one which minimises tax liabilities.
(b)
Explain the tax payment procedure.
Commentary
Special rates apply to the sale of securities (see next session).
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0516
PERSONAL INCOME TAX – SCOPE, COMPUTATION AND DEDUCTIONS
3.4.2

Housing incentive on purchase of residential property
An individual may decrease his taxable income subject to 13% rate by the
amount invested in qualifying property but not more than 2,000,000 RR. The
qualifying property includes:
–
–


If the acquisition of qualifying property is financed through bank or corporate
loans, taken especially for this purpose the interest paid on such loans is also taken
into account for the purposes of this tax incentive. Such interest is tax deductible
in addition to the deduction allowed in relation to the amounts paid in acquisition
of the relevant property (i.e. the maximum of the incentive is 2,000,000 RR plus
interest on loans taken to finance the acquisition from Russian entities but not
from foreign banks and companies). The total maximum deduction in respect of
eligible mortgage interest is restricted to 3,000,000 RR.
Allowable costs in respect of new construction or acquisition of residential
house (or share therein) include expenses incurred for:
–
–
–
–
–
–

residential houses (or share therein) in RF territory;
apartments (rooms or share therein) in RF territory.
plots of land for individual residential house construction
(“individual’noe zhilishcnoe stroitelstvo”) and plots of land with
the purchased residential houses (or share therein);
development of project documentation;
construction and decoration materials;
construction works and services including decoration;
access to electricity, gas, water, canalisation networks;
creating independent sources for water, gas, electricity, etc.
In respect of acquisition of apartment (or shares) allowable costs include:
–
–
–
expenses incurred for acquisition of apartment or rights for
apartment in house under construction;
decoration materials;
decoration works.
In the above cases the contract must contain provision that the apartment
(residential house) is acquired as incomplete residential house or apartment
without specified decoration materials and construction works.

The housing tax incentive is allowed to a taxpayer under two options:
(1)
at taxpayer’s written request supported by appropriate documents
confirming property acquisition and related payments. This request
and supporting documents are submitted to the tax authorities along
with the annual tax declaration.
(2)
if a taxpayer does not want to wait until the declaration submission
date he can ask his employer to give him this incentive. However,
before this request is submitted to employer, the taxpayer should
obtain a written consent from tax authorities. That is, a taxpayer
should first provide all documents to his tax inspectorate, which
makes a decision on the incentive within 30 days and then issues a
written confirmation (or decline) to the taxpayer. Only when this
confirmation is presented by the taxpayer to his employer can the
latter grant an incentive to the taxpayer.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0517
PERSONAL INCOME TAX – SCOPE, COMPUTATION AND DEDUCTIONS





If a taxpayer claims an incentive with his employer (i.e. Option 2) he can still
submit an annual tax declaration and request for incentive to tax authorities if
he has income taxed at 13% other than employment income and he wishes to
obtain a tax refund on this other income.
If several individuals purchase qualifying property together, each of the
joint owners may claim a deduction of up to 2 million RR.
No incentive is allowed if the purchase deal took place between related
parties (e.g. close relatives).
Any unused incentive amount is carried forward to future years until it
is fully utilised.
The housing incentive is now allowed for multiple acquisitions of qualifying
property up to an accumulated maximum of 2 million RR.
Commentary
For example, two property acquisitions in consecutive years, each costing 1.5 million RR
would allow a deduction of 1.5 million in the first year and 0.5 million in the second year.
Illustration 6
Stanislav had a taxable income for the year (before housing incentive after allowable deductions) of
800,000 RR out of which 500,000 RR were subject to 13% rate and 300,000 RR to 35% rate. During
the year he bought an apartment in his own name for 2,200,000 RR. He has never claimed the
housing incentive before.
The property deduction for the year will be limited to 500,000 RR (i.e. amount of income taxed at
13%) with the remaining 1,500,000 to be carried forward to subsequent years.
Ignoring child deductions Stanislav’s PIT liability for the year is 105,000 RR (300,000 × 35%).
Example 7
Pavel and Elena, who are both Russian tax residents, purchased an apartment in the year for 900,000
RR. They have equal ownership shares in this property (i.e. 50% each).
Pavel has paid 450,000 RR out of his savings, while Elena’s share was wholly paid with a bank loan.
In the year Elena repaid 50,000 RR of the loan principal and 36,000 RR of interest on the loan.
Pavel’s income subject to tax at 13% rate was 240,000 RR; he also had income of 60,000 taxed at
35% rate.
Elena’s income for the year subject to 13% rate was 120,000 RR. She had no other income in the
year.
Required:
(a)
Calculate housing tax incentive available to Pavel and Elena for the year and amounts to be
carried forward to future years.
(b)
Explain the tax refund procedure.
Assume that neither Pavel nor Elena applied for housing incentive in the past. Ignore child
deductions.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0518
PERSONAL INCOME TAX – SCOPE, COMPUTATION AND DEDUCTIONS
3.5
Professional deductions
3.5.1
On business income (art. 221 item 1)

Business income includes the business income of:
–
–

registered individual entrepreneurs;
private notaries and of other individuals engaged in private practice
in accordance with the law.
The taxable base in relation to business income may be decreased by:
–
–
allowable expenses; or
professional business deduction.
Business losses cannot be carried forward and utilised in future years.

Allowable deductions from business income include:
–
expenses incurred in generating this income and documentary
proven (only expenses deductible for profits tax purposes are taken
into account, including depreciation allowances); or
–
a fixed professional deduction amounting to 20% of the gross
business revenue (this deduction is not available to unregistered
entrepreneurs).
If the total amount of tax deductions is more than income in a tax period, the
tax base is zero. The difference between income and expenses (i.e. loss) is
not carried forward to later years (art. 210).



These two types of allowable deductions cannot be used simultaneously.
Insurance contributions accrued by an individual entrepreneur cannot decrease
his taxable income if a fixed professional deduction is chosen.
Professional deduction is applicable only to ordinary income taxed at 13%.
Example 8
Igor is a licensed auditor, registered as an individual entrepreneur. Igor’s gross
business income for the year is 480,000 RR. Igor’s business expenses (supported by
necessary documents) were 34,000 RR. In addition to these expenses Igor paid
insurance contributions in the amount of 95,865 RR. Igor is a Russian tax resident.
Required:
Calculate Igor’s individual income tax obligations based on:
(a)
(b)
actual expenses;
standard professional deduction.
Ignore VAT.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0519
PERSONAL INCOME TAX – SCOPE, COMPUTATION AND DEDUCTIONS
3.5.2
On income from intellectual property (art. 221 item 3)

Income from intellectual property includes:
–
–
–

Allowable professional deductions are:
(1)
(2)


copyright fees;
income from creation, performance and other usage of works of art,
literature and science;
income from inventions, etc.
actually incurred expenses (confirmed by appropriate documentation); or
fixed professional deductions (from 20% to 40% of the amount of income
depending on the nature of income). Deduction rates will be provided
in the examination. These two options cannot be used simultaneously.
Professional deductions are allowed to a taxpayer under his written request
by the tax agent (i.e. the entity that makes the payment).
In case when a taxpayer is not able to get the professional deduction from his
tax agent (e.g. income is received from source abroad) then the deduction is
given to a taxpayer by tax authorities (in this case the request for deductions
is submitted along with the tax declaration).
Example 9
A pop star Anna has concluded a CD recording contract with “IBF records”. At
Anna’s written request “IBF Records” has allowed Anna a 20% professional deduction
on the income from CD recordings. Anna is Russian tax resident.
The net amount received by Anna from “IBF Records” for work in the year was
120,000 RR.
Required:
Calculate the professional deduction allowed to Anna and the tax withheld by
“IBF Records”.
Solution
RR
Gross income
Taxable income
Tax at 13%
Anna’s net income
120,000
Solving for:
Gross income
Professional deduction
Tax withheld
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0520
PERSONAL INCOME TAX – SCOPE, COMPUTATION AND DEDUCTIONS
FOCUS
You should now be able to:



















describe the scope of individual income tax;
define residents and non-residents for individual income tax purposes;
recognise the income that is exempt from individual income tax;
compute the taxable income from employment;
explain how income in kind and material benefits are valued and calculate relevant amounts;
explain the timing of income recognition on salaries accrued, but not paid in a calendar year;
compute the exempt and taxable amounts of medical expenses paid by an employer;
compute the business income of an individual entrepreneur;
recognise the expenditure that is deductible (including depreciation allowances);
compute the amount of professional deductions available (norms will be provided);
explain the treatment of losses incurred by an individual entrepreneur;
prepare a basic individual income tax computation;
apply the correct rates of tax to the different types of income;
compute the child deduction;
explain and apply the principal social deductions, charity, education and medical
(norms will be provided);
explain and apply the principal rules of deduction on the sale of residential property;
explain and apply the principal rules of deduction on the purchase of residential
property, land, including for mortgage interest and other acquisition related
confirmed expenses (housing incentive);
explain how the maximisation of available tax reductions and concessions can
defer or minimise individual tax liabilities;
identify, compute and apply the right concession/deduction in given circumstances.
EXAMPLE SOLUTIONS
Solution 1
13%
35%
Salary
Birthday gift (this is not an advertising gift)
Casino winning
Gain on property sale
Taxable property insurance income
(this is not a life insurance)
Dividends
Taxable interest on bank deposit
Advertising prize
Imputed interest on loans (with the exception of
mortgage loan used to buy residential property
qualified for property incentive)
Imputed interest on loan to buy a car
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0521
PERSONAL INCOME TAX – SCOPE, COMPUTATION AND DEDUCTIONS
Solution 2
Medical insurance contributions made on behalf of Kiril are not subject to PIT.
Pension contributions on Kiril’s behalf to the non-state pension fund on this type of
agreement are non-taxable. However pension payments received later will be taxable.
The value of meal tickets for free meals at the company’s cafeteria is fully taxable.
Paid vacation in Turkey is fully taxable.
Company’s mobile phone is not taxable if used for business purposes.
Company’s car is not taxable if used for business purposes.
Solution 3
Taxable income includes:
RR
180,000
1.
2.
Salary
Annual performance bonus
(which is recognised when accrued, i.e. in 2017)
30,000
3.
Financial assistance (taxed in excess of 4,000) (10,000 – 4,000)
6,000
4.
Birthday gift (taxed in excess of 4,000) (7,000 – 4,000)
3,000
5.
Payment for business training (exempt)
0
6.
Payment for secondary education at Moscow State University (exempt)
0
7.
Reimbursement of business travel expense:
– within the norms (all exempt)
0
– above the norms
3,500
8.
Free lunches (fully taxed as it is not listed among exempt items)
60,000
9.
Payment for vacation in Egypt
(fully taxed as it is not listed among exempt items)
45,000
10. Payment for convalescence in a sanatorium in Moscow area resort
(all exempt)
0
11. Payment for medical operation on employee’s son
(all exempt)
0
12. Payment under non- state pension security
0
13. Compensation payment required under Russian Law (all exempt)
0
14. Cost of working uniform (uniform is not required by law)
20,000
–––––––
Total taxable income
347,500
–––––––
Solution 4
In October Andrei’s income exceeds 350,000 RR and he loses the right to use children
deduction.
RR
RR
Gross income (37,500 × 12)
450,000
Children deductions for January – September
(1,400 × 9) × 2
25,200
(3,000 × 9)
27,000
––––––
(52,200)
–––––––
Net taxable income
397,800
–––––––
Tax at 13%
51,714
–––––––
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0522
PERSONAL INCOME TAX – SCOPE, COMPUTATION AND DEDUCTIONS
Solution 5
RR
(1)
The cost of medical treatment outside Russia (in Kiev) is not
deductible. But the payment of expensive surgery for his mother in
Moscow is wholly deductible.
(2)
Plastic surgery is not included in the list of qualifying treatment.
(3)
Sergei may claim 40,000 RR on his son’s education. However,
because his wife has claimed 20,000, his share in his son’s
educational deduction is limited to 30,000 (50,000 – 20,000).
(4)
In addition to (3) Sergei may claim his own educational deduction
and deduction on payments to non-state pension security funding up
to 120,000 RR in aggregate. As his educational and pension
deductions exceed this amount (68,000 + 55,000 > 120,000) Sergei
should choose what deduction and in what amount he would claim.
120,000
Charitable deduction is limited to 25% of gross income taxed at 13%
(62,500 RR), so Sergei can claim his charitable deduction in full.
30,000
&
(5)
(6)
55,000
0
30,000
All social deductions will apply to Sergei’s income taxed at 13% rate.
Social deductions will be allowed to Sergei at his written request upon submission of the annual
tax declaration. Any “unused” social deductions cannot be carried forward to future years.
Solution 6
(a)(i)
Sale of summerhouse
Artem should not use a standard amount of property deduction (i.e. 500,000 RR or 50%
of 1,000,000 RR). He should use actual acquisition costs instead, i.e. 600,000 RR
(50% of 1,200,000 RR).
The taxable gain on the sale is 650,000 RR (2,500,000/2 – 600,000)
(a)(ii)
Sale of other property
No tax arises from the sale of the garage, which was owned by Artem for more than five
years. There is also no tax on car sale if Artem proves the purchase price of 300,000 RR.
(b)
Tax payment procedure
The tax on the sale of the summerhouse will be calculated by Artem himself and
reported in his annual tax declaration for 2017 submitted by 30 April next year. The
tax due should be paid by 15 July 2018.
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0523
PERSONAL INCOME TAX – SCOPE, COMPUTATION AND DEDUCTIONS
Solution 7
(a)
The maximum incentive amount is 2,000,000 RR. However the actual purchase cost
is only 900,000 RR and this amount is taken as available incentive. It is split evenly
between Pavel and Elena (i.e. 450,000 RR is available to each person).
Pavel’s housing incentive for the year is restricted to 240,000 RR. 210,000 RR of the
unused incentive is carried forward to be utilised in future years.
Maximum available housing incentive for Elena for the year is 486,000 RR (450,000
+ 36,000). The Tax Code does not specify that for applying the incentive, the loan
principle must be repaid. Because Elena’s income taxable at 13% is only 120,000
RR she will have an unused portion of incentive (486,000 – 120,000 = 366,000 RR)
to be carried forward to future years.
(b)
The tax incentive will be allowed to Pavel and Elena at their written request supported
by appropriate documents confirming property acquisition and related payments. This
request and documents are to be submitted along with the annual tax declaration for the
year. Alternatively they can ask their employers to provide this incentive to them.
However a written permission for this should be obtained from tax authorities first.
Solution 8
(a)
Income tax based on actual expenses
Gross business income
Business expenses (supported by documents)
Insurance contributions
Taxable income
Tax at 13%
(b)
RR
480,000
(33,400)
–––––––
446,000
(95,865)
–––––––
350,135
–––––––
45,518
–––––––
Tax based on standard professional deduction
Gross business income
Standard professional deduction (480,000 × 20%)
Taxable income
Tax at 13%
RR
480,000
(96,000)
–––––––
384,000
–––––––
49,920
–––––––
Solution 9
RR
x
Gross income
Taxable income (x – 0.2x)
0.8x
Tax at 13%
(0.8x × 0.13)
Anna’s net income (x – (0.8x  0.13))
120,000
Solving for: 120,000 = x – 0.104x = 0.896x
Gross income, x = 120,000/0.896
133,929
Professional deduction (0.2 × 133,929)
26,786
Tax (0.8 × 133,929 × 0.13)
13,929
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0524
PERSONAL INCOME TAX – SPECIAL RATES AND RULES
OVERVIEW
Objectives

To calculate the exempt and taxable amounts of dividends and other income
and re-imbursements.

INTEREST
SPECIAL
RATES AND
RULES
GIFTS, PRIZES
AND AWARDS








Gifts from individuals to
individuals
Sports prizes and awards
Lottery, totalizator and other
games based on risk
Other gifts
INSURANCE
INCOME




BUSINESS TRAVEL
EXPENSES REIMBURSEMENT
General rules
Business trips outside
Russia
INCOME FROM
INVESTMENTS


General
Life insurance
Property insurance
Pension insurance
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
Interest on bank
deposits
“Imputed” interest
Comparison
0601
Dividend income
Sale of securities
PERSONAL INCOME TAX – SPECIAL RATES AND RULES
1
INTEREST
1.1
Interest on bank deposits (art. 214.2, 217 item 27)



Interest on bank deposits is not taxable unless it exceeds Central Bank refinancing
(CBR) rate plus 5% effective during the deposit term (for rouble deposits), or 9%
for deposits in foreign currency.
The interest on rouble bank deposits exceeding the CBR rate plus 5% could
be exempt under the following three conditions:
(1)
the interest rate on rouble deposits did not exceed CBR rate plus 5% on
the date of conclusion (or prolongation) of the agreement; and
(2)
the initial interest rate was not increased during the period of
deposit agreement; and
(3)
not more than three years have passed since the rate on deposit
exceeded the CBR rate plus 5%.
All interest calculations must be based on precise (not rounded) numbers of
days in the deposit period, which then should be divided by the number of
days in the calendar year. The first day is not counted the last one is.
Illustration 1
A deposit is opened on 1 January and paid back on 1 March. The deposit period is 2
January – 1 March inclusive. Interest calculation must be based on 59 days (30 + 28 +
1) divided by 365.





Changes in the CBR rate, which may happen during the deposit term, are
taken into account when calculating the taxable portion of interest.
The excess amount is taxable at the 35% rate (for Russian Federation residents).
Interest is recognised when paid, i.e. if no interest is paid in the calendar
year – no taxable income is recognised.
The bank making the payment should withhold the tax at the moment of
interest payment and remit it to the budget not later than on the next day.
Interest on so called “pension” deposits with a term of less than 6 months are not examinable.
Example 1
Olga made a 100,000 RR bank deposit on 1 February at 25% per annum. Both the
deposit and interest on it were paid in cash on 30 September. CBR rates (assumed):
1 January – 30 April
1 May – 30 September
15%
7%
Required:
Calculate the amount of tax withheld by the bank on the interest income.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0602
PERSONAL INCOME TAX – SPECIAL RATES AND RULES
1.2





“Imputed” interest (art. 212)
If an individual receives a corporate loan at a zero rate (or at a very low interest
rate) there is a benefit. The benefit is assessed on “imputed” interest and is
subject to PIT at 35% for imputed interest on loans taken for any purposes
(for Russian residents).
Imputed interest on loans is calculated on the last day of each month in which
the loan is outstanding.
The source of a loan (bank or a company) is irrelevant for tax purposes.
However no imputed interest arises if the loan is taken to finance residential
property acquisition (or construction) which qualifies for property incentive (art.
220) and the right for the tax relief is confirmed by tax authority.
Taxable imputed interest income is calculated using 2/3 of the CBR for rouble
loans (or 9% for foreign currency loans) less the actual interest payable
accrued under the loan agreement.
All interest calculations must be based on precise (not on rounded) number of
days in the loan period, which then should be divided by 365. As before, the
first day is not counted while the last one is.

If a loan is given in several instalments, each instalment is treated as a separate loan.

No imputed interest arises in the following two cases:
(1)
During the grace period for payment on credit cards (art. 212 item 1.1).
For example, if a card agreement provides for 30-day interest free
period after the end of each month, then no imputed interest arises on
the debt during these “grace” days.
(2)
If the loan is taken to finance or refinance expenditure which qualifies for property
incentive (art. 220) and the right for the tax relief is confirmed by tax authority.
Commentary
Remember expenditure qualifying for property incentive includes not only the purchase
of residential houses or apartments, but also costs of plots of land and construction
thereon, or a participating share in any such expenditure (see Session 5).


The loan provider is responsible for calculating and withholding tax on imputed interest
from any cash income paid to the taxpayer (art. 212, art. 226). The tax must be paid on
the next day after withholding. If no cash income is paid to the taxpayer (i.e. loan is
provided not by employer but by a bank) then the taxpayer is responsible for paying tax
on the imputed interest through submission of a tax declaration.
Imputed income could arise due to futures and derivatives holdings but this
topic is not examinable.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0603
PERSONAL INCOME TAX – SPECIAL RATES AND RULES
Example 2
An employee who is a Russian tax resident received a one-year rouble loan of 30,000
RR from his employer on 5 May 2017. The loan was taken to purchase a car. The
interest rate is 1% per annum. Interest is paid on 5 September 2017 and 5 January
2018.
CBR rates (assumed):
1 May – 30 September 2017
1 October – 31 December 2017
7%
5%
Required:
(a)
(b)
Calculate imputed interest on the loan for 2017 and the tax amount.
Explain how and when the tax will be paid.
1.3
Comparison

The following table compares taxation rules for interest on deposits with
imputed interest on loans:
Imputed interest on loans
Interest on bank deposits
Statutory limits
2
/3 CBR rate
9% – currency loans
CBR rate + 5%
9% – currency deposits
Changes in CBR
rates
Such changes are taken into
consideration.
Such changes are taken into
consideration. (Rates effective
during are the period of interest
accrual are used for calculations.)
Calculation
First day is NOT counted
First day is NOT counted
Tax rate
35% – for all loans except mortgage
loans to buy residential property
qualified for housing incentive
35%
Timing of
recognition
Last day of each month in which
imputed interest accrues.
When interest is paid to individual
Withholding
Loan provider acts as a tax agent if
there is cash income payable to
individual from which PIT can be
withheld (e.g. loan is received at
work).
Bank must withhold on the interest
payment date and pay tax to the
budget on the next day.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0604
PERSONAL INCOME TAX – SPECIAL RATES AND RULES
2
GIFTS, PRIZES AND AWARDS

Taxation of prizes and gifts depends on their types.
2.1
Gifts from individuals to individuals (art. 217 item 18.1)

Gifts (as well as inheritance) from close relatives are not subject to PIT.
2.2
Sports prizes and awards (art. 217 item 20)

Sports prizes and awards in cash or in-kind are exempt from taxation if they
are received at the following events only:
–
–
–

2.3


Olympic games;
official World and European championships;
official Russian Federation championships.
Otherwise, prizes and awards are taxable taking into account the exemption
limit that applies to certain categories of prizes as explained below.
Lottery, totalizator and other games based on risk
There is no exemption limit for winnings on lotteries, totalizator and other
games based on risk.
It is important to distinguish the aim of a lottery between games based on the
risk and advertising purposes because of different PIT rates.
Commentary
A totalizator is an automated system which runs betting, calculates pay-out
odds, displays them, and produces tickets based on incoming bets.
2.4




Other gifts (art. 217 item 28)
Items such as the following are exempt in the amount not exceeding 4,000
RR in a tax period (calendar year) for each group (type) of gifts listed:
–
gifts (prizes, awards) from corporations and individual entrepreneurs;
–
assistance payments (“materialnaja pomosch”) to employees;
–
cost of prescribed medication (prescribed by doctor) purchased for
employees (or their spouses, children and parents);
–
any prizes and awards, received from competitions, lotteries, games
and other events conducted for advertising purposes.
All types of gifts, prizes and awards listed above (except the last type) are taxed at the
standard rate of 13%. Prizes and awards, received on competitions, games and other
events conducted for advertising purposes are taxed at 35%.
Tax agents generally should withhold tax on the taxable portion of gifts and awards. If
the tax withholding is not possible (no payments in cash) the tax agent must report this to
its local tax authority within one month. This tax authority sends this information to the
tax inspectorate of the taxpayer, which issues a tax notification directly to the taxpayer.
If a taxpayer received several gifts (prizes, awards) of similar type from different
entities, the 4,000 RR exemption is applied for all gifts in each group.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0605
PERSONAL INCOME TAX – SPECIAL RATES AND RULES
Example 3
Irina Gromova received the following prizes and gifts in the year:




a TV set valued at 14,000 RR from her employer as a birthday gift (income
tax was withheld from her cash salaries);
a kitchen processor valued at 5,000 RR from a company-client on the
occasion of 8 March holiday;
a 1,000 RR winning from a local radio station for answering correctly three
questions during a quiz on the air;
a car valued at 152,000 RR from a TV company for participation in an
advertising TV show.
Required:
(a)
(b)
Calculate Irina’s total income tax amount.
Calculate the portion of tax to be paid by Irina herself.
Solution
(a)
Gifts subject to
13% rate
RR
35% rate
RR
Total
RR
TV set
Kitchen processor
Winning from radio station
Car
______
_______
______
_______
______
_______
______
_______
Less: Exempt amount
Taxable
Tax
(b)
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0606
_______
PERSONAL INCOME TAX – SPECIAL RATES AND RULES
3
BUSINESS TRAVEL EXPENSES RE-IMBURSEMENT (art. 217 item 3)
3.1
General rules

The following business travel expenses reimbursed to employee are not
subject to personal income tax:
–
–
–
–
–


per diem allowance (within statutory norms – 700 RR in Russia,
2,500 RR for outside Russia business trips);
travel costs (including taxi to and from airport/railway station);
airport fees and commission charges;
accommodation expenses (hotel);
business communication expenses.
All costs (except per diem allowances) must be supported by appropriate
documents. In the absence of such documents the amounts will be fully
taxable with the exception of accommodation expenses, which will be taxable
in the part exceeding statutory limits.
Income in respect of reimbursed business travel expenses is deemed to arise
on the last day of the month in which the expense report is approved.
3.2
Business trips outside Russia

For business trips outside of Russia, the following special rules should be considered:
–
the statutory norm for travel in a foreign country applies from the date of
crossing the border to this country from Russia;
–
Russian statutory norms apply from the date when the border of a foreign
country to Russia is crossed;
–
if an employee travels from one country to another within one day, the
statutory norms of the last country visited on that day apply.
Example 4
Mikhail went on a business trip to Germany and France in June. He flew to Berlin on 5
June. Two days later on 7 June he flew to Paris where he stayed until 11 June. He
arrived in Moscow on 11 June in the evening.
Statutory per diem rates are:
Outside Russia: 2,500 per day; Russia: 700 RR per day.
Required:
Calculate Mikhail’s total statutory per diem allowance.
Solution
RR
Allowance for outside Russia
Allowance for Russia
______
Total statutory allowance
______
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0607
PERSONAL INCOME TAX – SPECIAL RATES AND RULES
4
INSURANCE INCOME (art. 213)
4.1
General

Insurance pay-outs are not taxable if they are received by individuals in relation to:
–
–

4.2

obligatory insurance effected in accordance with the law;
insurance against harm to life and health (e.g. reimbursement of medical costs).
In particular, receipts under long-term (more than five years) life insurance policies
are not taxable.
Life insurance (art. 213 item 1.2)
For receipts under short-term life insurance agreements the taxable amount is
the difference between:
–
–
total insurance pay-out received; and
total contributions made by an individual increased by the average CBR
rate as at the date of the conclusion of the agreement.

The tax is withheld at source at 13% rate.
4.3
Property insurance (art. 213 item 4)

The tax rules depend on whether property was fully destroyed or damaged.
4.3.1
Destruction of property

4.3.2


The taxable amount is the difference between the insurance compensation
received and the destroyed property market value increased by the amount of
insurance contributions.
Property damage
The taxable amount is the difference between insurance compensation
received and expenses required for the property repair (actual repair
expenses) increased by the insurance contributions.
The actual or estimated amount of repair expenses must be confirmed by
appropriate documentation. The estimated expense amount is confirmed
either by the insurance company or by an independent appraiser.
Example 5
Andrei’s car was damaged in a street accident. Andrei had an insurance protection up
to 50,000 RR (fair market value of the car at the date of signing the insurance contract).
Andrei’s insurance contributions were 7,000 RR. Actual repair expenses were 35,000
RR. Insurance company paid 45,000 RR to Andrei.
Required:
(a)
Calculate tax (if any) on this transaction.
(b)
Explain how the taxable base would be calculated if the car were completely
destroyed.
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0608
PERSONAL INCOME TAX – SPECIAL RATES AND RULES
4.4

Non-state pension security and obligatory pension insurance (art. 213.1)
The amounts of pension insurance contributions paid to RF licensed nonstate pension funds generally are not taxable, and are subject to:
–
–



social deduction (if made by an individual); or
CPT reduction (if made by employer).
Amounts of pension benefits are included in the PIT base at the time of their
receipt according to the agreements concluded with the RF licensed non-state
pension fund and the individual or employer.
Pension income can be PIT exempt only if an individual paid contributions to
the non-state pension fund himself (for himself).
Redemption amounts (surrender values) received in case of early termination
of agreement are also subject to PIT. Such sums are exempt only to the
extent of contributions by the individual for himself if he did not receive
relevant social deduction. (The tax authority must submit a confirmation to
the non-state pension fund.)

The tax is withheld at source at 13% rate.
5
INCOME FROM INVESTMENTS
5.1
Dividend income (art. 214)

Dividends are taxed at a rate of 13%.


Taxation of dividends from Russian sources only is examinable.
A Russian legal entity– a dividend payer, acts as a tax agent (i.e. withholds
and remits PIT to the budget).
When making calculation of dividend amount subject to withholding tax, tax agent takes all
dividends subject to distribution and deducts the amount of dividends received by the tax agent
itself in the reporting tax period or preceding period (if they were not counted for in the
preceding period). The remaining portion is subject to tax withholding. The same rules apply
to CPT withholding on dividends payable to Russian legal entities (see Session 4).
Example 6
In December 2017 Pavel received dividends from OOO XYZ. He holds 400 shares out
of 2,000 shares placed with shareholders. XYZ distributed all after tax profits for 2017.
Its taxable profits amounted to 20 million RR and it paid profits tax at 20% rate. In
July 2017 XYZ received dividends for 2016 from its daughter company amounting to 4
million RR.
Required:
Calculate personal income tax on Pavel’s dividend income.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0609
PERSONAL INCOME TAX – SPECIAL RATES AND RULES
Solution
RR 000
Taxable profits
Company profits tax @ 20%
_______
Profits for distribution (= total dividends)
Less: Dividends received by XYZ
_______
Dividends subject to withholding tax
_______
Pavel’s share in total dividends
Personal income tax on Pavel’s dividends:
5.2
Sale of securities (art. 214.1, 220.1)
5.2.1
Rules for calculation of taxable amount



In general, taxable income on sale of securities arises as a difference between their
selling price (or the market price for exchange, conversion or redemption) and
purchase cost. This cost consists of purchase price and all purchase-related expenses
(which could include personal income tax suffered if the shares were acquired at
under-value).
Gains on shares of Russian companies acquired after 1 January 2011 and held for at
least five years will be regarded as exempt income. The first year for which this
exemption is applicable is therefore 2016.
For non-exempt disposals the following items are specifically mentioned by Tax Code
(art. 214.1) as deductions on sales of securities (they should be actually incurred and
have documentary support):
–
purchase price of securities (using FIFO method only);
–
payments for services provided by depositary management companies;
–
commissions paid to security brokers and mutual funds;
–
registration fees and stock exchange fees;
–
bonuses and rebates paid to the investment fund’s management company;
–
taxes paid by taxpayer in relation to securities received as a gift or
inheritance and their costs which were paid by grantor;
–
other expenses directly related to purchases of securities.
Also interest actually paid on loans taken to finance securities’ acquisitions is
deductible, limited to the CBR rate multiplied by 1.1 for rouble loans and 9%
rate on currency loans.
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0610
PERSONAL INCOME TAX – SPECIAL RATES AND RULES
Illustration 2
In March Andrei, a Russian tax resident, purchased 100 shares of a bank “VTB 24” for
3,000 RR each. The agent’s commission on purchase was 20,000 RR.
To finance the purchase Andrei raised a 5-year loan from the bank of 100,000 RR,
which was received on 1 March. Interest was paid on a monthly basis on the last day of
each month.
As at 15 December these shares were traded on the stock exchange at an average price
of 3,600 RR each.
Option 1: Andrei keeps the securities and does not sell them.
No taxable income and PIT arise in this case.
Option 2: As at 15 December Andrei sells 100% of the securities for their market
price. The agent’s commission on sale is 8,000 RR. Interest accruing on the loan for
the period 1 March to 15 December totalled 6,844 RR (within the allowable norms).
The taxable gain is calculated as follows (in RR):
Selling price
(100 shares × 3,600)
Purchase cost (100 shares × 3,000)
Agent’s commission on purchase
Agent’s commission on sale
Bank interest
360,000
(300,000)
(20,000)
(8,000)
(6,844)
–––––––
25,156
–––––––
3,270
–––––––
Taxable gain
PIT (at 13%)

Taxable gains for the following groups of securities are examinable:
(1)
(2)
(3)
shares listed on the securities market (listed securities);
shares not listed on the securities market (unlisted securities);
investments (equity participation) in mutual (unit) investment funds (“PIFs”).
Note that a loss received from one of these groups cannot decrease taxable
profit in another (i.e. no netting of results between the different groups is
allowed). However, offset is permitted within a single group.

Losses arising from the disposal of listed securities only can be carried
forward and utilised over 10 subsequent years. They can decrease taxable
profit within the listed securities group only.
Illustration 3
If listed securities were sold at a loss of 50,000 RR and unlisted with a gain of 30,000,
the overall result for tax will be taxable income of 30,000 RR. Loss on sale of listed
securities cannot be netted off against a gain on unlisted, but it can be carried forward
to the next years.
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0611
PERSONAL INCOME TAX – SPECIAL RATES AND RULES

5.2.2


The loss from sale of listed securities is determined by considering the limitation of
the market price of the security (traditionally limited deviation is restricted to 20%).
The market price is defined as a “weighted average price of the security traded on the
stock exchange”.
Investment deductions
Certain investment deductions have been introduced from 2015 in order to encourage
increased private personal investment.
An investment deduction may be claimed in respect of income (gains) from sale of
securities, provided these have been acquired at a date starting 1 January 2014 and
have been held by the taxpayer for a period of at least three years. The earliest
period in which this will be available is therefore the tax calendar year 2017.
The maximum deduction allowed is 3,000,000 RR multiplied by:


the number of years the securities were held; or
if there is a range of acquisition dates, a coefficient representing the
weighted average of the lengths of ownership.

V , where
The formula for the coefficient given in the exam rates and allowances is:
n
Ks =
i 3
Vi  i ÷
n
i 3
i
Vi – gain from sale (redemption) of all securities in the tax period with the ownership
period of i years
n – quantity in full years of ownership periods for securities subject to sale/redemption
in the tax period as a result of which taxpayer becomes eligible for this deduction
Sales are deemed to be made on a FIFO basis for this purpose.
The taxpayer may apply for this deduction either to a tax agent, or to the tax
authorities when submitting the relevant tax return.
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0612
PERSONAL INCOME TAX – SPECIAL RATES AND RULES
Illustration 4
The maximum deduction is 3m RR times the number of years of ownership. This is
straightforward if the number of years of ownership for all securities is the same.
If, however, the investments sold had been acquired over a number of years then an
average length of ownership needs to be calculated. This is not a simple average (e.g.
(3 + 4 + 5 + 6) ÷ 4 = 4.5 years) but a weighted average.
For Ks, the years are weighted by their incomes (Vi).
Suppose that the incomes are as follows:
Held for 2 years: 100 – this is ignored as held for less than 3 years
Held for 3 years: 200
Held for 4 years: (100) – this is ignored as income means a positive amount
Held for 5 years: 50
The formula for Ks may be more simply considered as A divided by B, where
A = the sum (denoted by the greek symbol sigma) of each income (Vi) multiplied by
the number of years (i) from 3 onwards, and
B = the sum of the incomes
Thus A = (3 × 200) + (5 × 50) = 850
And B = 200 + 50 = 250
Ks = 850 ÷ 250 = 3.4
If the number of years had not been weighted the average of 3 years and 5 years would
have been simply 4.


Since 1 January 2015, individuals have been able to invest into a personal
investment account (PIA), opened with and managed by a broker or
securities management operation. Monies transferred into this PIA, up to the
annual maximum limit of 400,000 RR, can be claimed as an investment
deduction for the year of investment (by way of tax return submission).
Alternatively, if a deduction is not claimed at the time of investment, then a
deduction can instead be claimed for gains within the PIA at the conclusion of
its term (provided that it has run for at least three years). In this case there
is no limit on the amount of income subject to the deduction.
The taxpayer may apply for the deduction either to the tax authorities (by tax return
submission), or to the tax agent (PIA manager) but only with a certificate from the
tax authorities.
Note that 2018 will be the first year in which this deduction can be applied.
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0613
PERSONAL INCOME TAX – SPECIAL RATES AND RULES
5.2.3

Rules for tax withholdings and payments
Withholding and payment mechanism depends on the way the operation with
securities is structured:
(1)
If a taxpayer sells securities on his own name (e.g. a taxpayer sold his own
securities to a company with a taxable gain). He should calculate taxable
income himself and declare it in his tax declaration.
(2)
If a taxpayer conducts his operations through an agent (or mutual fund) the agent
acts as a tax agent and calculates and withholds tax on the taxpayer’s income.
The withheld tax should be paid to the budget during the month following the
date of tax period end or the date of the payment to the taxpayer.
Timing of tax withholding depends on the circumstances as shown in Illustration 5:
Illustration 5
Situation 1
In January Gosha contributed 100,000 RR to a mutual fund. The mutual fund invested
this amount into the purchase of listed securities with 1,000 RR commission. These
securities were then sold for 122,000 RR with 1,500 RR commission. The mutual fund
fee for investment management is 3,000 RR.
As at 31 December Gosha still keeps all his money in the mutual fund.
Mutual fund should calculate Gosha’s income and withheld PIT on it (in RR):
Revenue
Commission on purchase
Cost of securities
Commission on sale
Management fee
122,000
(1,000)
(99,000)
(1,500)
(3,000)
–––––––
17,500
–––––––
2,275
Taxable income
PIT at 13%
Situation 2
Gosha takes back 50,000 RR (gross) in October and continues to keep the remaining
amount. (Assume that the income of 17,500 was already realised by October.)
Taxable income is determined as:
Gross income received × investment taken back/total investment as on withholding date.
In this case (in RR):
Gross income before tax
Gross investment taken back (before PIT withholding)
Total investment as at withholding date
(current market value of investment)
Taxable income is (17,500 × 50,000 ÷ 117,500)
17,500
50,000
117,500
7,447
PIT to be withheld at 13%
968
On December 31 mutual fund will also calculate PIT on any other income which may
be received on the remaining amount in November and December.
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0614
PERSONAL INCOME TAX – SPECIAL RATES AND RULES
FOCUS
You should now be able to:

compute the exempt and taxable amounts of interest on bank deposits;

compute the imputed income arising from low-interest loans;


compute the imputed income arising from interest savings on (1) mortgage loans
received, and (2) new bank loans provided for refinancing the loans received, for
acquisition or new construction of residential property, acquisition of plots of land or
acquisition of shares in the above property (or other loans from an employer);
compute the exempt and taxable amounts of gifts, prizes and awards,
distinguishing between different types of gifts and prizes;

compute the tax on income from lotteries and advertising campaigns;

compute the taxable amounts of business trip expenses (statutory limits will be provided);

compute the exempt and taxable amounts of life insurance payments;

compute the taxable amounts of property insurance reimbursements;




compute the exempt and taxable amounts under agreements for non-state pension security or
obligatory pension insurance concluded with non-state pension funds (art. 213.1);
compute the tax payable on dividend income (considering the provisions of
item 2 of art. 214);
compute other property deductions, including deductions on transactions in securities;
compute the tax payable on income from the sale of listed and unlisted securities
(based on the provisions of art. 214 (1));

compute the tax payable on income from investment funds (PIFs); and

explain and apply the principal rules of investment deduction (art. 219.1).
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0615
PERSONAL INCOME TAX – SPECIAL RATES AND RULES
EXAMPLE SOLUTIONS
Solution 1
RR
Gross interest accrued (100,000 × 25% ×
Exempt interest amount:
100,000 × (15% + 5%) × 88/365
100,000 × (7% + 5%) × 153/365
241
/365)
RR
16,507
4,822
5,030
––––––
Total exempt
9,852
––––––
6,655
––––––
2,329
––––––
Taxable amount
Tax at 35%
On the same date the tax is calculated and withheld by the tax agent (i.e. bank).
This tax should be paid to the budget on the day following the withholding date.
Solution 2
(a)
Imputed interest on loan and tax amount
Imputed interest to 30 Sept
Imputed interest to 31 Dec
(30,000 × 2/3 × 7% × 148/365)
(30,000 × 2/3 × 5% × 92/365)
Actual interest payable
(30,000 × 1% × 240/365)
Imputed interest income
Tax at 35%
(b)
RR
568
252
(197)
––––––
623
––––––
218
––––––
Payment mechanism
The calculation in (a) shows the total for the year as required by the question. The company
in practice acts as a tax agent and calculates and withholds the tax on a monthly basis in
accordance with the established procedure from any cash income paid to employee. If no
cash income is paid the company must report to tax inspectorate about its inability to
withhold the tax within one month from the date when imputed interest income is recognised.
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0616
PERSONAL INCOME TAX – SPECIAL RATES AND RULES
Solution 3
(a)
Total income tax amount
Gifts subject to
13% rate
RR
14,000
5,000
1,000
TV set
Kitchen processor
Winning from radio station
Car
–––––––
20,000
(4,000)
–––––––
16,000
–––––––
2,080
–––––––
Less: Exempt amount
Taxable
Tax
(b)
35% rate
RR
152,000
–––––––
152,000
(4,000)
–––––––
148,000
–––––––
51,800
–––––––
Portion of tax to be paid by Irina
Income tax was not withheld on gifts in kind (kitchen processor and car). However
both companies must report the gifts made within 1 month after the gift date.
No tax was withheld by the radio station due to the 4,000 RR exemption.
Tax of 1,300 RR was withheld on TV set (14,000 – 4,000) × 13%
Therefore, Irina is liable to tax of 52,580 RR (53,880 – 1,300)
Solution 4
Allowance for outside Russia (2,500× 6 days)
Allowance for Russia (700 RR × 1 day)
Total statutory allowance
The day of departure and arrival are each considered as one day.
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0617
RR
15,000
700
––––––
15,700
––––––
Total
RR
53,880
–––––––
PERSONAL INCOME TAX – SPECIAL RATES AND RULES
Solution 5
(a)
Andrei’s car was partially damaged. The tax consequences are as follows:
RR
45,000
(7,000)
––––––
38,000
(35,000)
––––––
3,000
––––––
Received from insurance company
Insurance contributions paid
Repair cost
Taxable amount
(b)
In case of complete destruction no tax obligation arises as the fair market value at
the date of signing of the agreement (50,000 RR) exceeds the amount received.
Solution 6
Taxable profits
Company profits tax @ 20%
Profits for distribution (= total dividends)
Less: Dividends received by XYZ
Dividends subject to withholding tax
Pavel’s share in total dividends (400 ÷ 2,000)
Personal income tax on Pavel’s dividends:
(12 million × 20% × 13%)
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0618
RR 000
20,000
(4,000)
––––––
16,000
(4,000)
––––––
12,000
––––––
20%
312
PERSONAL INCOME TAX – OBLIGATIONS
OVERVIEW
Objectives

To explain the obligations of taxpayers and their agents for individual
income tax.

To set out the comprehensive computation of taxable income and income tax
liability.
TAX
WITHHOLDING
AND PAYMENT



FILING
REQUIREMENTS


Tax declaration
Reporting by tax agents
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Tax agents’ obligations
Taxpayer’s payment obligations
Individual entrepreneurs –
special payment rules
INCOME TAX
PROFORMA



0701
Key points
Presentation in the examination
Tax proforma
PERSONAL INCOME TAX – OBLIGATIONS
1

TAX WITHHOLDING AND PAYMENT
The tax must be calculated and paid either by:
–
–
1.1



a tax agent (from the amounts withheld); or
the taxpayer.
Tax agents’ obligations (art. 226)
Tax agents are companies or individual entrepreneurs paying income to
individuals; or as a result of relations with whom the taxpayer has received income.
No tax is withheld in relation to income paid to individual entrepreneurs and
in cases explained later in this session.
Tax agents are required to calculate the tax on a monthly basis cumulatively
from the beginning of the tax period in relation to income taxed at 13% and
separately for each amount taxed at different rates.

The withholding is made from the amount payable at the moment of payment.

If the payment is made in-kind, then:
–
–



either the withholding is performed from any cash payments to the
individual (up to 50% of the amount paid in cash); or
the withholding is not performed (if no cash is paid to individual).
The limit of 50% of the total payment amount is NOT applied for the tax
withholding for imputed interests received by bank clients.
If the tax withholding is not possible within the tax period the tax agent must
report on this in writing to the tax authorities no later than 1 March following
the end of the tax year.
The tax withheld by the tax agent should be paid to the budget not later than:
–
–
–
the date of the actual receipt of cash in the bank of the taxpayer; or
the date of a wire transfer of income to the individual’s bank
account (or to a third party’s account at the individual’s request);
the day following the actual receipt of cash by the taxpayer in other cases.
Note that although the timing of the payment is related to the receipt of income
by the taxpayer this is inextricably linked to the actions of the tax agent.


If the tax is withheld on income in-kind and on imputed income, this tax shall
be paid on the date following the date of actual tax withholding.
Payment of the PIT out of a tax agent’s own funds is not permitted.
Commentary
The only exception to this is in the case of an agent repaying an overpayment to the
taxpayer, which can now be done in advance of recovery from the budget.

Payments of PIT are made to the budget at the tax agent’s location. Tax agents with
employees working in branches also make payment of PIT at the locations of these branches.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0702
PERSONAL INCOME TAX – OBLIGATIONS
Example 1
Wages and salaries accrued by XYZ Company to its employee for December 2017
were actually paid to his bank account in February 2018.
Required:
(a)
Explain the impact of the above on the employee’s income for 2017.
(b)
Explain the obligations of XYZ in its capacity as a tax agent.
1.2
Taxpayer’s payment obligations (art. 228)

An obligation to calculate and pay tax stays with an individual taxpayer in the
cases of income received from:
–
–
–
–
–



individuals who are not tax agents (e.g. from rent of apartments to individuals);
sales of personal property (excluding PIT exempt property, see Session 5);
sources outside Russia (not examinable);
income in-kind (i.e. no tax withheld);
gambling activities and lottery prizes.
Taxpayer has to pay PIT himself in any case if the tax was not withheld by
tax agent.
The tax due in the above cases is calculated based on the tax declaration and
must be paid by 15 July of the year following the reporting calendar year. In
case of PIT overpayment, tax is refunded by the tax authorities within one
month following the date of submission the request for such a refund.
Taxpayers receiving a gross amount of income (i.e. without tax withholding)
may be required to make tax payments before submitting the tax declaration.
Illustration 1
A company making a taxable gift in-kind to a taxpayer did not withhold the tax on this
gift but reported the gift to its tax inspectorate. The relevant data was then sent to the
taxpayer’s inspectorate, which issued a payment order directly to the taxpayer.
This tax is to be paid in two equal instalments:
(1)
(2)
1.3

within 30 days after the payment order was handed over to a taxpayer;
within 30 days after the first payment.
Individual entrepreneurs – special payment rules (art. 227)
Individual entrepreneurs as well as private notaries and other persons
engaged in private practice must make advance payments of the tax. These
payments are made based on estimated income per a preliminary tax
declaration. Advance payments are made based on payment orders issued by
the tax inspectorate.
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0703
PERSONAL INCOME TAX – OBLIGATIONS
1.3.1
(1)
(2)
(3)
(4)
Amounts and deadlines
50% of the estimated annual tax liability by 15 July of the current year;
25% of the estimated annual tax liability by 15 October of the current year;
25% of the estimated annual tax liability by 15 January of the next year.
The final PIT liability is paid by 15 July of the year following the reporting one.
2
FILING REQUIREMENTS (ART. 227 ITEMS 7-10, 229)
2.1
Tax declaration





The tax declaration must be submitted by:
(1)
individual entrepreneurs, conducting business activities;
(2)
private notaries and other persons engaged in private practice;
(3)
individuals receiving income from non-tax agents or income free of
tax withholdings;
(4)
individuals receiving income from abroad.
Taxpayers included in (1) and (2) above must submit a tax declaration on
their estimated business income. This declaration must be submitted within
1 month and 5 days after the day when such income was first received. The
tax inspectorate issues payment orders based on the preliminary declaration
taking into account all available deductions.
Where there is a large increase/decrease of income compared to the amount
estimated in the first preliminary tax declaration (more than 50%) the
taxpayer must submit a new declaration on estimated income, on the basis of
which the tax inspectorate will recalculate the advance tax payments.
If business activities of an individual entrepreneur terminate before the yearend he has to submit the final tax declaration within 5 days after the date of
the termination of the activities.
The tax declaration may be submitted by individuals to obtain:
(1)
(2)



social, property and professional deductions;
standard deductions and exemptions which were not allowed (and cannot
be provided) by a tax agent at source (e.g. for a one-time payment).
The individual’s rights to the deductions should be confirmed by tax authority based
on the tax declaration and documents supporting the related expenses.
Generally the tax declaration on actual income received must be submitted
not later than 30 April of the year following the reporting one.
Any overpaid amount should be transferred from the budget to the
individual’s bank account within one month from the date of his written
application being received by the tax authority.
Housing incentive and social deductions can be claimed from the employer if tax
authority approval is given (see Session 5).
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0704
PERSONAL INCOME TAX – OBLIGATIONS
2.2
Reporting by tax agents (art. 230)

Tax agents must keep track of all income paid to individuals in a special tax
card (“nalogovaja kartochka”).

Tax agents must present to their tax inspectorate cumulative data on income
paid to individuals in a reporting year by April 1 of the next year. The data is
generally presented in an electronic form (unless the number of individuals
who received the payments is less than 26).

From 2016 onwards, corporate employers are additionally required to file
quarterly personal income tax statements (due one month after the quarter
end for each of the first three quarters).

No cumulative data is prepared on payments to individual entrepreneurs, who
have presented the documents confirming their status and tax registration.
3
INCOME TAX PROFORMA
3.1
Key points (art. 210)
 The tax base is determined separately for income taxed at different rates.
 Deductions and allowances listed in articles 218 – 221 of the Tax Code apply only
 If the cumulative amount of such deductions exceeds income taxed at 13%, the
to income taxed at the basic 13% rate.
excess amount cannot be applied to income taxed at higher rates or carried
forward to future years.
 The main exception to this rule for exam purposes is that housing incentive on
purchase of residential property can be carried forward to future years. Remember
also that losses on sales of listed securities may be carried forward for utilisation
in subsequent periods.
3.2
Presentation in the examination
3.2.1
Rules
(1)
Show income taxed at different rates separately.
(2)
Show all deductions and allowances separately, do not net them with income
items.
(3)
Always show the details and steps of calculations accurately and neatly.
(4)
It is recommended to start with calculation of different types of income and related
expenses (allowances, deductions) and then to complete the final tax proforma.
(5)
Do not forget to show the PIT withheld by each tax agent to arrive at the final
amount of PIT liability or refund.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0705
PERSONAL INCOME TAX – OBLIGATIONS
3.3
Tax proforma
Income taxed at 13%
Employment income
Less:
Standard children deduction
X
(X)
Income from business activities
Less:
Business expenses or
Standard business deduction of 20%
X
(X)
Income from sale of property
Less:
Property deductions
X
(X)
Other income taxed at 13%
Less:
Professional deductions
X
(X)
Total income taxed at 13% before social
deductions and housing allowances
X
Social deductions:
Medical deduction
Educational deduction
Charitable deduction
(X)
(X)
(X)
Investment deductions
(X)
Housing incentive
(X)
______
Taxable income subject to 13%
X
______
(I) Tax on ordinary income at 13%
X
Dividend income
X
(II) Tax on dividends at 13%
X
Income taxed at 35%
X
(III) Tax at 35%
X
______
Total tax liability (I) + (II) + (III)
Less: Tax withheld (including tax on dividends)
X
(X)
______
Additional tax payment/(refund) required
X
______
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0706
PERSONAL INCOME TAX – OBLIGATIONS
FOCUS
You should now be able to:



explain the rights and obligations of both taxpayers and their agents;
explain the filing requirements and payment deadlines for employees, employers
(as tax agents), individual entrepreneurs and self-employed persons; and
explain the procedure for obtaining deductions and exemptions at source and
upon the year-end tax declaration.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0707
PERSONAL INCOME TAX – OBLIGATIONS
EXAMPLE SOLUTION
Solution 1
(a)
Impact on employee’s income
The income date for wages and salaries is the last day of the month when wages and
salaries are accrued. Therefore, regardless of the fact that the payment was made in
February 2018 the employee’s income for 2017 will include his December salary.
(b)
Obligations as tax agent
As a tax agent, XYZ Company will calculate tax on the December salary in December
2017. At the moment of the salary payment in February 2018 this amount will be
withheld from the salary payment. The tax withheld must be submitted to the budget on
the day XYZ pays the salary into the employee’s bank account. (If the employee had
been paid in cash the tax withheld would be submitted to budget the following day.)
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0708
VALUE ADDED TAX – COMMON RULES
OVERVIEW
Objectives

To explain the scope of value added tax (VAT) and the computation of VAT
liabilities.





INTRODUCTION
Principle
Payers
Tax object
Tax rates
Tax period
OUTPUT VAT ON
DOMESTIC SALES
INPUT VAT
RECOVERY RULES







Object of taxation
Exempt activities
Tax point
VAT tax base
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0801
General deduction criteria
Additional requirements
Restriction of input VAT
VALUE ADDED TAX – COMMON RULES
1
INTRODUCTION
1.1
Principle

The principles of value added tax (or VAT) can be illustrated as follows:
Illustration 1
Company A grows trees, which it sells to Company B for 1,000 RR plus VAT.
Company B cuts the trees and sells the wood to a furniture factory for 3,000 RR plus
VAT. The furniture is sold by the factory to an individual for 8,000 RR plus VAT.
VAT rate on all the above operations is 18%.
The added values for each activity are:
1,000 RR for Company A
2,000 RR for Company B (3,000 – 1,000)
5,000 RR for the factory (8,000 – 3,000)
Value added tax = added value × VAT rate (18%):
180 RR (1,000 × 18%) for Company A
360 RR (2,000 × 18%) for Company B
900 RR (5,000 × 18%) for the factory
To calculate VAT in such a direct way in practice is very difficult, as the added value
component is not easy to determine.
To simplify things, there are three steps of VAT calculation:
First step. Output VAT is calculated on gross sales:
Output VAT for Company A = 180 (1,000 × 18%)
Output VAT for Company B = 540 (3,000 × 18%)
Output VAT for the factory = 1,440 (8,000 × 18%)
Second step. Input VAT paid to the suppliers of resources is calculated:
Input VAT for Company A = 0 (assuming that trees were free)
Input VAT for Company B = 180 (VAT shown in the invoice from A)
Input VAT for the factory = 540 (VAT shown in the invoice from B)
Third step. Determine the difference between output and input VAT, which is VAT
payable/recoverable.
VAT payable for Company A = 180 (180 output VAT – 0 input VAT)
VAT payable for Company B = 360 (540 - 180)
VAT payable for the factory = 900 (1,440 – 540)
Note that in the end all VAT will be incurred by the individual, who buys the furniture.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0802
VALUE ADDED TAX – COMMON RULES

From the above illustration several points arise:




there is a successive value increase chain and the tax paid to the
budget is paid in different stages of this chain;
a taxpayer will almost always have to pay VAT, since it usually
charges its customers more than it pays to its suppliers;
the last consumer of the chain will generally incur the whole burden of
VAT.
VAT formula is presented below:
VAT
payable/recoverable
=
Output VAT on
sales
-
Input VAT on
purchases
Example 1
Company A produces and sells goods to company B for 100,000 RR (including VAT).
Company C buys these goods from B for 160,000 RR (including VAT).
VAT is assessed on these activities at the standard rate of 18%.
Required:
Calculate the net VAT liability of B.

This formula looks quite simple; however VAT is not a simple tax at all. There
are quite a lot of rules regulating both output and input VAT calculations. And,
in many cases, there is no or little correlation between output and input VAT
(i.e. quite often these elements do not depend on each other).
1.2
Payers (art. 143)

VAT is paid to budget by:



legal entities;
individual entrepreneurs;
importers of goods (who pay VAT at customs).
Individual entrepreneurs and legal entities are liable to VAT unless their sales for 3
preceding months do not exceed 2 million RR (net of VAT). In this case, a VAT relief is
available (art. 145). However, this waiver is excluded from the syllabus.
Branches and independent subdivisions are not separate VAT payers (i.e. all VAT is paid
by the head office without allocation to branches).
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0803
VALUE ADDED TAX – COMMON RULES
1.3
Tax object (art.146)
Tax object of VAT is sale of goods and services (including free provision of goods or services).
VAT is also assessed on:



self-supply of goods (works, services);
self-supplied capital construction (see Session 9);
goods imported to the Russian Federation (see Session 9).
1.4
Tax rates (art.164)
There are three VAT rates: 0%, 10% and 18%.



18% is considered to be the base rate or “standard rate”.
10% (“reduced rate”) applies to a limited list of products (mostly to food and
children’s items). The composition of items included in this list is not
examinable.
0% (“zero rate”) applies to export of goods, works, services, etc (see Session 9).
Article 164 (item 4) introduces the notion of “raschetniye stavki” for VAT purposes.
These rates are 18/118 (for supplies taxable at standard rate) and 10/110 (for supplies taxable
at 10% rate). These rates apply, in particular, to:


sales-related items (section 2.4.3); and
sales of assets which were used in VAT exempt activities (i.e. when input VAT
paid on their acquisitions was capitalised) (see Session 9).
If a taxpayer has VATable sales subject to VAT at different rates, the tax base is
determined separately for each type of sale (i.e. for all sales subject to zero rate, all sales
subject to 10% rate and all sales subject to 18% rate).
Some types of operations are VAT exempt.
1.5

Tax period (art. 163)
VAT is calculated on a quarterly basis; the VAT tax period is a quarter. This
tax is not cumulative. The calculation of VAT for the 2nd quarter is based on
VAT on transactions from April to June (not on the period from January to
June). This is very different to and CPT and PIT, which are both calculated on
a cumulative basis.
Thus, to compute VAT for the tax period (quarter) it is necessary to:
(1)
define the tax objects (i.e. all VATable transactions, including free supplies)
and the dates of their realisation;
(2)
determine a tax base for each tax object;
(3)
apply a correct tax rate for each tax base (18%; 10% or 0%)
(4)
establish input VAT;
(5)
find the difference between output and input VAT (VAT to pay to the
budget or to reimburse from the budget)
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0804
VALUE ADDED TAX – COMMON RULES
2
OUTPUT VAT ON DOMESTIC SALES
2.1
Object of taxation (art. 146)


As was mentioned earlier the principal object of VAT (“taxable supply”) is the
sale (“realizatsija”) of goods (works, services).
A free transfer of goods, free works or services also constitutes a supply from a
VAT viewpoint . VAT is paid by the donor. When a company gives away
assets for free it will generally pay VAT on their net book value.
Example 2
Company A made a free transfer to company B of a fixed asset (other than capital
construction object) with a net book value of 10,000 RR.
Company B sold this asset for 6,000 RR (net of VAT).
Required:
Assuming the standard VAT rate calculate VAT liabilities of both companies.
Solution
VAT liability of A:
VAT liability of B:

An exception to this is the promotional gift of free advertising materials with a
cost per item of not more than 100 RR, which is exempt.
Exam advice
This limit is given in the examination.


The other main exception to the free transfer rule is the transfer of fixed assets
(intangible assets and other property) to non-commercial organisations for
their main charter activity. Such a transfer is not regarded as a supply for VAT
purposes and thus is not subject to this tax.
Self-supplied goods (work, services) are the goods (work, services) that were
produced and consumed by the company. VAT applies to such self-supplies if
they are not included in deductible expenses (for CPT purposes). For example,
VAT would be assessed on a car manufacturer using its own cars for nonproduction purposes.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0805
VALUE ADDED TAX – COMMON RULES

The Tax Code contains a list of activities, which are not regarded as supplies.
Many of them relate to the funding activities of the company. For example:



2.2

contributions to the charter capital;
withdrawals from the charter capital in the amount not exceeding the
amount of the original contribution;
transfer of assets to the successor of a reorganised company, etc.
Exempt activities (art. 149)
Certain types of income are VAT exempt such as most medical goods and
services, banking and insurance, certain aspects of childcare, education and
transportation, and also cultural and entertainment provisions.
Exam advice
You are not required to memorise these income types. Whether an activity is
exempt or not will be stated in the examination.

Generally input VAT on resources used for exempt activities is added to the
cost of resources and is not recovered.
Commentary
Note the difference to zero-rated supplies (mainly exports), where input VAT
is generally recoverable (Session 9) and normal VAT regulations of
invoicing, reporting, etc are more fully applicable.




If a taxpayer has both VATable and VAT exempt supplies, it must maintain
separate accounting of these activities.
A taxpayer may decline its right to use the exemption in relation to certain VAT
exempt supplies by submitting a special request to its tax inspectorate. In this
case output and input VAT are calculated according to general rules.
If a licence is required for an activity, which is listed as exempt, then the
exemption is granted only if such a licence has been obtained.
If a taxpayer sells exempt goods or provides works (services) through an agent
or a commissioner, usually the agent pays VAT on its commission unless
otherwise provided in the Tax Code.
2.3
Tax point (art. 167) (recognition date)

Only the accruals method is available for VAT calculations.


The meaning of the accruals method for VAT purposes is almost the same as
for CPT. The principal difference is that all advances received are immediately
VATable. (CPT applies to advances received only under the cash method.)
Output VAT is recognised on the earlier of:


shipment date;
payment date.
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0806
VALUE ADDED TAX – COMMON RULES

Special rules apply to timing of VAT recognition on certain transactions (see Session 9)
such as:




export;
debt-factoring;
self-supplied construction;
import of goods (excluded from the syllabus).
2.4
VAT tax base (art. 153, 154, 162)
2.4.1
General


2.4.2




All taxpayer’s income in cash or in-kind, connected with the sale, is subject to
VAT (i.e. included into the VAT base).
The tax base for VAT purposes is determined using the market prices in
accordance with the Tax Code (art. 40).
Sales performed in foreign currency
When a purchaser is invoiced in a foreign currency payable in RR at the Central
Bank rate on the day of payment, a currency difference may arise due to exchange
rate differences (between the day of receiving the invoice and the payment date).
Income is increased or decreased to take account of the currency difference.
The currency difference is regarded as income for the seller on the date of
settlement of the receivable for sold goods (works, services), property rights,
etc.
An equivalent adjustment arises for the buyer on the date of settlement of the
liability for goods, etc acquired.
Although these currency differences are recognised for accounting and CPT purposes,
they do not give rise to any VAT adjustment. Output VAT (and recoverable input
VAT for the purchaser) is calculated based on the exchange rate at the date of
shipment (supply/acceptance by purchaser) with no corrections or adjustments in
respect of subsequent payment at a different exchange rate.
Illustration 2
Company A dispatched goods to Company B on the 7 March for 11,800 USD (including
VAT 1,800 USD). Payment was received on the 20 March.
USD rates (notional): 07/03 – 24.28 RR; 20/03 – 24.88 RR
07/03 – VAT liability of Company A is 43,704 RR (1800 × 24.28)
20/03 – Currency difference definition at the moment of payment receipt:
11,800 × (24.88 – 24.28) = 7,080 RR
20/03 – No additional output VAT liability.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0807
VALUE ADDED TAX – COMMON RULES
2.4.3
Sales-related items

VAT applies not only to sales revenue but also to the related amounts such as:




advance payments;
interest (discounts) on bonds and promissory notes, received in
payment for goods sold;
interest on commercial credits.
Other types of sales-related payments are not examinable.

VAT applies to the above payments at the rates of 18/118 or 10/110%.

If the main sale is VAT exempt, no VAT is charged on the sales-related amounts.
2.4.4
Advance payments on domestic sales


Advance payments received for goods (works, services) are subject to VAT
immediately. An exception applies to advances for goods with a production
cycle exceeding 6 months. (Note that for CPT purposes advances received
under accruals method are not taxable.)
When the delivery is made to customer (i.e. a sale takes place) the VAT which
was previously charged on advance is available for recovery.
Illustration 3
In January Company A received an advance of 118,000 RR (including 18,000 RR of
VAT) from Company B. The goods were shipped to B in April. A will show the
following:
1st quarter
Output VAT on advance
VAT payable
2nd quarter
Output VAT on sale
Recovery of VAT on advance
VAT payable
18,000
18,000
18,000
(18,000)
0
2.4.5
Advances for export sales

Advances received for goods, etc to be exported are not subject to VAT.
2.4.6
Interest on commercial loans, promissory notes, bonds


Interest received on commercial loans (i.e. extension of payment terms provided in
the sales agreement) as well as interest on promissory notes and bonds received in
payment for VATable supplies are subject to VAT in the amount exceeding the
interest calculated, using the CB key rate.
The CB key rate for the purposes of calculation of VAT on trade interest is
taken for relevant periods of the commercial credit (promissory note, bond).
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0808
VALUE ADDED TAX – COMMON RULES
Example 3
On 5 April OOO R-trade has received a promissory note (“veksel”) from OOO Max with
a nominal value of 1,000,000 bearing interest of 18% per annum. The note’s principal
and related interest were paid on 19 September. The note was received as a consideration
for goods sold. The goods were subject to VAT at a standard rate.
Required:
Calculate VAT on interest, assuming that the CB key rates for the year were 15% up to
30 April and 7% to 30 September.
Solution
RR
6 April – 30 April:
1 May – 19 September:
______
Taxable base
______
VAT
______

Calculation of the VAT tax base on certain transactions is explained in Session 9:



sale of assets on which VAT was not reclaimed when purchased;
debt-factoring; and
self-supplied construction;

VAT related to imported goods is excluded from the syllabus.
3
INPUT VAT RECOVERY RULES
3.1
General deduction criteria (art. 171, 172)


Input VAT is available for recovery on goods, etc if they are used for activities
subject to VAT. No recovery is possible if the company’s sales are VAT exempt.
Input VAT incurred on partially deductible expenses (for CPT purposes) is
recovered within statutory norms. Non-recoverable input VAT on such
expenses is charged out of after-tax profits.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0809
VALUE ADDED TAX – COMMON RULES
Illustration 4
Total expense equals 112,100 RR (including 17,100 of VAT).
Deductible portion of the expense for CPT is 30,000 RR (net of VAT).
VAT is calculated as follows:
30,000 ÷ (112,100 – 17,100) = 31.6%
(i.e. 31.6% of the total expense net of VAT is deductible for CPT).
17,100 × 31.6% = 5,404 RR – VAT available for recovery
Alternatively: (30,000 ÷ (112,100 – 17,100)) × 17,100 = 5,400 RR. The difference of 4
RR is not material.

The following conditions have to be met to ensure VAT recovery:




3.2

goods, etc must be received and booked (reflected) in accounting records
or prepayments made for them;
VAT invoice (original) must be in place;
for prepayment agreements, the terms of prepayment must be
included and the payment order and VAT invoice put in place.
Apart from prepayments and payments at customs (import) there is no
requirement for input VAT to have been paid for the recovery of input VAT.
Additional requirements
Recovering input VAT paid to the suppliers on fixed or intangible asset
acquisitions is possible only when the assets are booked in the accounts.
3.3
Restriction of input VAT (art. 170)
3.3.1
Major cases for the inclusion of input VAT in expenses

Input VAT is not recoverable but instead should be included in the cost of
purchased goods (materials, services) when such goods (materials, services) are
used for the following operations:
–
–
–
–

production and sales of exempt goods (work, services);
sales not recognised as on the territory of the Russian Federation;
sales which are not recognised in accordance with art. 146;
acquisition of goods, etc (in particular, fixed assets and intangible
assets) by persons who are not VAT taxpayers or VAT exempt.
In summary, input VAT incurred on the sale of exempt items (art.149) or on
transactions which are not recognised as sales (art.146) must be added to related
expenses/cost of materials (or cost of a capital asset).
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0810
VALUE ADDED TAX – COMMON RULES
3.3.2


VAT clawback
Input VAT which was recovered by a tax payer is clawed back in the following
circumstance:
–
contribution of the property to charter capital (input VAT can be used
by the receiving company);
–
further use of the purchases in operations which are not subject to
VAT, or are VAT exempt; amount of VAT should be added to the
other expenses.
VAT should be clawed back in full amount or in proportion to the net book
value (for fixed and intangible assets) but disregarding any revaluation.
Illustration 5
(1)
Three years ago Company A acquired equipment for use in production for
1,180,000 RR (including VAT – 180,000 RR). In January this year the
company decided to pass the equipment free of charge to the State authority.
The accounting net book value of the equipment at the moment of the delivery
is 400,000 RR
Company A should clawback VAT and pay it to the budget i.e. 72,000 RR:
(180,000 ÷ 1,000,000 × 400,000)
72,000 RR will be included in other expenses by Company A and decrease the
CPT tax base.
(2)
In January OOO RIF purchased some materials for 118,000 RR which it
intended to use in production. VAT was recovered in the full amount in the 1st
quarter. However in April RIF contributed 50% of the materials to the charter
capital of its subsidiary. VAT of 9,000 RR is subject to claw back in the 2nd
quarter. This VAT is included in the amount of the charter contribution.
(3)
Last year OOO Star was a regular VAT payer. From January of this year Star
began to produce VAT exempt products. Last year Star bought a fixed asset for
118,000 RR and recovered 18,000 RR of VAT. The net book value of this
asset as at 1 January this year is 80,000. There will be a claw back of 80,000 ×
18% = 14,400 RR in the 1st quarter of this year. This VAT is deductible for
CPT.
3.3.3
Clawback on immovable property (art. 171)

Claw back on immovable property is based on a 10 year period starting from
the commencement of depreciation.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0811
VALUE ADDED TAX – COMMON RULES
Illustration 6
In December 2014 OOO Mulan purchased a building for 23.6 million RR (including
VAT of 3.6 million RR). In January 2017 Mulan started to use simplified system of
taxation under which no VAT is paid. Before this Mulan was a regular VAT payer on all
its operations.
Total VAT is first split as 3.6 million ÷ 10 years = 360,000 per year.
No clawback arises in the 2014-2016 as all operations were VATable.
Starting 2017 Mulan will perform 360,000 VAT clawback annually in the 4th quarter (in
the last tax period of each year). This VAT is deductible for CPT (indirect expenses).
If in 2018 Mulan were to become a regular VAT payer again, then there would be no
need for further clawback for 2018 and thereafter.
3.3.4


Partially exempt activities
If purchased goods (services, assets) are used both for production and/or sale of
VATable and VAT exempt goods, the input VAT on such goods is partially
recoverable and partially deductible for CPT purposes.
The split between recoverable and irrecoverable VAT is defined based on the percentage
of the sales of exempt goods, etc (net of VAT) in the total sales of goods, etc shipped (or
rendered) in the reporting period (net of VAT).
If the share of goods, etc used for production of exempt goods does not exceed 5% of the total
production costs for the given tax periods 100% of input VAT incurred on goods, etc used for both
VATable and exempt operations is available for recovery in these periods. However, VAT directly
related to exempt goods, etc is still not recoverable.
3.3.5

Allocation principles
In order to calculate recoverable input VAT on a mix of VATable and exempt
sales the following allocation principles should be applied:
Step 1:
Determine the proportion of exempt sales to total sales in the
reporting period. Sales are taken net of VAT.
Step 2:
Based on proportion found in Step 1 allocate the cost of goods
(works, services) used for both VATable and exempt operations.
Step 3:
Determine the proportion between cost of goods, etc used for exempt
supplies and total production expenses for the period.
If the ratio is:
–
–
Step 4:

equal or less than 5%, all input VAT is recoverable;
greater than 5%, go to Step 4.
Using the percentage in Step 1 determine input VAT available for recovery.
A taxpayer must maintain separate accounting for input VAT on goods, etc used for both
VATable and VAT exempt operations. In the absence of such accounting all input VAT
mentioned above will be non-recoverable and non-deductible for CPT purposes.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0812
VALUE ADDED TAX – COMMON RULES
Example 4
OOO Eltron produces VATable and VAT exempt goods. Eltron started its operations in
January and in that month it purchased 1,180,000 RR worth of materials (including
180,000 VAT). All materials were paid and consumed for production by 31 March. 10%
of these materials were used for exempt operations. 5% were used for both VATable and
exempt operations. 85% were used only for VATable operations.
Wages and salaries for the 1st quarter totalled 735,000 RR; related SIC was 215,000 RR.
2% of wages and salaries accrued related to exempt operations; 8% – to both VATable
and exempt operations; 90% – only to VATable operations.
Sales for the 1st quarter totalled 3 million RR (net of VAT) of which 200,000 RR were
sales of VAT exempt goods.
Required:
Calculate the amount of VAT available for recovery and the VAT to be added to the cost
of materials for the 1st quarter.
Solution
Step 1:
Step 2:
Step 3:
Step 4:
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0813
VALUE ADDED TAX – COMMON RULES
FOCUS
You should now be able to:


describe the scope of VAT;
identify the VAT rates applicable to different types of activities (detailed
knowledge of the application of the 10% rate is not required);

explain the difference between zero rated and exempt items;

explain how the tax point is determined under the accruals method;

apply VAT exemptions to transactions which are not the object of taxation (art. 146);

compute the VAT on sales performed in a foreign currency;

explain the rules of non-recognition of currency differences for VAT purposes
for both the seller and the customer;

explain the general deduction criteria for input VAT;

state the major cases for the inclusion of input VAT in expenses;

explain the allocation principles for taxable and non-taxable activities;

compute the allocation of input VAT between taxable and non-taxable activities;

state the situations where VAT should be included in the cost of an asset.


explain and apply specific rules in respect to taxpayer’s right for early VAT
recovery related to advances paid to suppliers; and
compute the claw-back of recovered VAT on property where it is subsequently
used for non-VATable transactions.
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0814
VALUE ADDED TAX – COMMON RULES
EXAMPLE SOLUTIONS
Solution 1
(160,000 – 100,000) ×18/118 = 9,153 RR
or using the standard method of VAT liability calculation:
Output VAT (160,000 × 18/118)
Input VAT (100,000 × 18/118)
24,407
(15,254)
––––––
9,153
––––––
VAT to be paid to the budget
Solution 2
VAT liability of A: 10,000 × 18% = 1,800 RR
VAT liability of B: 6,000 × 18% = 1,080 RR
Solution 3
Due to the fluctuations of the CB key rate over the note term, the VATable amount is
determined for two periods:
RR
6 – 30 April (25 days):
(1,000,000 × 25/365 × (18% – 15%))
1 May – 19 September (142 days)
(1,000,000 × 142/365 × (18% – 7%))
2,055
42,795
––––––
44,850
––––––
6,842
––––––
Taxable base
VAT (× 18/118)
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0815
VALUE ADDED TAX – COMMON RULES
Solution 4
Step 1: Determine the proportion between sales of exempt goods (works, services) in the
total sales of goods (works, services) shipped (rendered) in the reporting period.
200,000 ÷ 3 million = 6.7% (rounded up)
Step 2: Allocate resources used for both VATable and exempt operations based on
proportion calculated in Step 1.
Materials used for both VATable and exempt operations:
(1,000,000 × 5%)
Allocated to exempt activities: (50,000 × 6.7%)
Allocated to VATable activities: (50,000 × 93.3%)
RR
50,000
(3,350)
––––––
46,650
––––––
Wages and salaries & SIC used for both VATable and exempt operations:
(950,000 RR × 8%)
Allocated to exempt activities: (76,000 × 6.7%)
76,000
(5,092)
––––––
Allocated to VATable activities: (76,000 × 93.3%)
70,908
––––––
Step 3: Determine the proportion between cost of goods (works, services) used for
exempt supplies and total production expenses for the period.
RR
Total costs: (1,000,000 + 735,000 + 215,000)
1,950,000
Materials used for exempt operations:
(1,000,000 × 10%) + 3,350
103,350
Wages and SIC related to exempt operations:
((735,000 + 215,000) × 2%) + 5,092
24,092
–––––––––
Total exempt operations
127,442
–––––––––
Proportion (127,442 ÷ 1,950,000)
6.5%
–––––––––
The ratio is more than 5%. Prorating of input VAT is therefore necessary.
Step 4: Using the percentage found in Step 1 – determine input VAT available for recovery.
VAT on materials to be expensed (i.e. added to the cost of materials):
VAT incurred on materials used for both VATable and exempt goods
(180,000 × 5%)
VAT to be added to the cost of materials (9,000 × 6.7%)
First quarter total ((180,000 × 10%) + 603)
603 RR
18,603 RR
VAT recoverable (180,000 – 18,603)
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
9,000 RR
161,397 RR
0816
VALUE ADDED TAX – SPECIAL CASES, PAYMENT AND REPORTING
OVERVIEW
Objectives

To explain the computation of VAT liabilities in special cases.

To explain the procedures for VAT payment and reporting.
SPECIAL
CASES
OTHER
ACTIVITIES
EXPORT SALES







VAT zero rate
Output VAT
Export confirmation
package
Confirmation deadline
Timing of input VAT
recovery
Advances for future export



VAT PAYMENT
AND REPORTING






VAT invoice (“schet-factura”)
VAT journal
Commission operations
VAT declaration forms
Due dates
Recovery procedure
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0901
Sales of assets with
capitalised VAT
Factoring operations
Commission income
Self-supplied construction
VALUE ADDED TAX – SPECIAL CASES, PAYMENT AND REPORTING
1
EXPORT SALES
1.1
VAT zero rate (art. 164, 165, 167, 176)

Goods (works, services), that are subject to 0% VAT rate, include:



goods exported outside of the Russian Federation territory. (These
goods must leave Russian Federation territory and a set of documents
(prescribed by art. 165) presented to a tax inspectorate);
works (services) related to production and sales of exported goods,
such as transportation and loading of exported goods. (A list of the
works is given in art.164.)
Supplies of goods (works, services) to foreign diplomatic missions or their
staff or family within the Russian Federation are similarly zero-rated, but apart
from exports other items subject to zero-rated VAT are not examinable.
Key point
 0% rate VAT sets its own rules for output and input VAT recognition which are
quite different from general VAT rules:

no output VAT can be recognised on exported goods until export is
confirmed or unconfirmed;

1.2


no input VAT related to exported goods can be recovered until export is
confirmed or unconfirmed.
Output VAT
Recognition of output VAT on export occurs neither on the shipment date nor on the
payment date. In fact, there is a special set of VAT rules applicable to export only.
The sales of exported goods (works, services) subject to zero rate are
recognised as having occurred on:



the last day of the quarter in which the full package of the documents
proving export was collected (“confirmed export”);
the shipment date if the full package of documents was not collected
within 181 days from the date of shipment (“unconfirmed export”).
This means that:


an export is confirmed and subject to zero-rate VAT (i.e. output VAT
equals zero) on the last day of the quarter, in which the full package
of the documents proving export was collected. However this must
happen within 180 days starting from the export day;
an export is not confirmed if no documents are submitted by the 181st
day starting the export date. Export is unconfirmed on the 181st day.
VAT must be assessed on unconfirmed export at 18%. Note that
taxable base is determined retrospectively using the exchange rate on
the export date (not on the 181st day). The standard declaration for the
quarter of delivery is amended and re-submitted.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0902
VALUE ADDED TAX – SPECIAL CASES, PAYMENT AND REPORTING
Illustration 1
A Russian company exports wood abroad. Shipment of wood took place on 3 March
(export date). Shipment value is 220,000 USD.
Exchange rates (notional)
3 March –30.3; 30 June – 31.0, 30 August –31.3
Option 1: Export confirmation package was submitted on 6 June.
Export is regarded as confirmed on 30 June – the last day of the quarter, in which the
full package of the documents proving export was collected.
VAT base: 220,000 × 31 RR = 6,820,000
Output VAT at zero rate: 6,820,000 × 0% = 0
Option 2: Export confirmation package was not submitted in time
On the 181st day starting from the export day (i.e. on August 30) export is regarded
as unconfirmed. Standard VAT declaration for 1st quarter is amended and re-submitted.
VAT base: 220,000 × 30.3 (the exchange rate on the export date) = 6,666,000
VAT at18%: 1,199,880 RR
Example 1
Company Intrade exported some goods on 1 March.
Required:
State when the VAT liability is recognised assuming that the package of export
confirmation documents was collected on:
(a)
(b)
20 November;
10 June.
1.3
Export confirmation package (art. 165)


In order to enjoy the VAT zero rate, a number of documents confirming exports
must be presented to the tax authorities, along with the relevant zero rate declaration.
For goods exported outside of the Russian Federation territory directly by the
taxpayer, the following documents are required for export confirmation:



the contract (or its copy) with a foreign entity for export of goods
from the Russian Federation territory;
the customs declaration (or its copy) with the stamps of customs authorities;
copies of transport and/or other documents proving that goods
crossed the border of the Russian Federation territory.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0903
VALUE ADDED TAX – SPECIAL CASES, PAYMENT AND REPORTING

For goods exported outside of the Russian Federation territory through a
commissioner (agent) the export confirmation package will also contain the
commission (agency) agreement (or its copy).
1.4
Confirmation deadline (art. 165)
1.4.1
Summary so far




1.4.2




Export confirmation documents are to be presented to the tax inspectorate
within 180 days starting the day of customs clearance of the exported goods. If
this condition is met than export will be considered as confirmed and subject to
0% VAT rate.
The VAT base of a confirmed export is determined using the exchange rate on
the last day of the quarter in which the complete package of documents
proving the export has been collected is presented to tax authorities (art. 167.9).
If no confirming documents are presented during this time, on 181st day after
export date export will be recognised as unconfirmed, which will “trigger” a
VAT liability either at 18% or 10% rate, depending on the type of goods.
The VAT base of an unconfirmed export is calculated using the exchange rate
on the export date (art. 167.9). The Tax Code also provides for revaluation of
the unconfirmed export on the payment date (art. 153.3). However this adds to
the complexity of the calculations and is not examinable.
Additional points
Late interest is calculated at 1/300 of CB refinancing rate on VAT payable as a
result of the unconfirmed export. Late interest penalty begins on the day
following the statutory deadline for VAT payment (see Illustration 2). Any
changes in the CB refinancing rate are taken into consideration.
Even if no confirmation package is presented within 180 days starting the export day
(and export was classified as unconfirmed) it is still possible to confirm it later (i.e.
to present the confirmation package later). In this case, export will be treated as
unconfirmed first and then as confirmed (see Illustration 2).
If both 181st day and package submission day occurs in the same tax period
(quarter) for exam purposes export is regarded as confirmed in this quarter. For
example, export took place on 5 January. The confirmation package is presented
on 20 July (i.e. after the 181st day (4 July) but in the same month). Overall result:
export is regarded as confirmed in the 3rd quarter.
Input VAT related to exported goods cannot be recovered until export is confirmed
or unconfirmed. Input VAT becomes available for recovery at the same tax period
when output VAT on confirmed/unconfirmed export is recognised.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0904
VALUE ADDED TAX – SPECIAL CASES, PAYMENT AND REPORTING
Illustration 2
A Russian company exports wood to Spain under a direct contract with a Spanish
company. Shipment of wood took place on 3 March (export date).
Input VAT incurred in relation to this shipment was 703,033 RR.
The price of the shipment was 220,000 USD; revenue was received on 5 May.
Foreign exchange rates (notional)
3 March –30.3; 5 May –30.8; 30 June – 31; 29 August –31.2; 30 August –31.3; 31
August –31.4; 10 October – 32.1; 31 December – 32.3
Option 1: Export confirmation package was submitted on 6 June.
Because the package was submitted within 180 days starting from the export date, the
export will be considered as confirmed.
0% rate applies to VAT base of 220,000 × 31 (rate as at the last day of June, when the
export confirmation package was submitted).
Input VAT of 703,033 RR becomes recoverable in 2nd quarter. (Actual VAT refund will
be postponed until the tax authorities complete the verification of export documents.)
Option 2: Export confirmation package was submitted on 10 October.
3rd quarter (export is recognised as unconfirmed)
On 30 August (181st day starting from the export date) export will be recognised as
unconfirmed. VAT taxable base will be calculated using the exchange rate on export
date (i.e. on 3 March). Standard VAT declaration for 1st quarter is amended and resubmitted.
Output VAT on unconfirmed export: (220,000 × 30.3) × 18% = 1,199,880 RR
Input VAT of 703,033 RR relating to unconfirmed export is available for refund.
Late interest penalty of 1/300 CB rate applies to 496,847 RR (1,199,880 – 703,033) starting
26 April (the day after payment day for 1st quarter VAT) and up to the day of VAT
payment or subsequent export confirmation in following order:
26 April – 25 May: 165,616 RR (496,847 × 1/3)
26 May – 25 June: 331,231 RR (496,847 × 2/3)
26 June – the day of actual VAT payment: on the full amount 496,847 RR.
4th quarter (export is recognised as confirmed)
On 31 December (the last day of the quarter in which the full package of documents
confirming export is submitted to a tax inspectorate) export will be confirmed for VAT
purposes.
0% rate applies to VAT base of 220,000 × 32.3 (rate on 31 December).
VAT recognised on unconfirmed export in August (1,199,880 RR) becomes available for
recovery. (Actual recovery will be postponed until the tax authorities complete the
verification of export documents.) There is no refund of late interest penalty paid or
cancellation of late interest penalty accrued.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0905
VALUE ADDED TAX – SPECIAL CASES, PAYMENT AND REPORTING
1.5


Timing of input VAT recovery (art. 176)
The decision on the refund of input VAT (including VAT relating to zero-rated sales
as well as VAT paid in relation to exports) must be made by the tax authorities no
later than three months after the date the standard VAT declaration and documents,
confirming export, were filed and submitted to the tax authority. All VAT declarations
showing a refund from budget must therefore be checked by the tax authority.
Taxpayer can obtain a refund of input VAT before the tax authority check in the
following cases (“declarative procedure” of VAT recovery):
–
Taxpayer submits bank guarantee together with VAT tax declaration.
The bank guarantee should be issued by a bank included in the list of
banks meeting official standards;
–
Where the total amount of taxes paid to the budget by the company
for the previous three years is 7 billion RR or more. The company
must have been operating for at least three years.
Illustration 3
A Russian company exports wood abroad. Shipment of wood took place on 3 March
(export date). Shipment value is 220,000 USD. Input VAT related to export is 703,033
RR (was paid in full in February).
Exchange rates (notional): 3 March –30.3; 30 June – 31, 30 August –31.3
Option 1: Export confirmation package was submitted on 6 June.
Export is confirmed on 30 June (the last day of the quarter in which the full package of
the documents proving export was collected).
VAT base: 220,000 × 31 RR = 6,820,000
Output VAT at zero rate (6,820,000 × 0%)
0
Input VAT available for recovery:
(703,033)
Net result: VAT for recovery
(703,033)
This is shown in the standard VAT declaration. Input VAT is not immediately available
for recovery (there are 3 months for verification of this amount by the tax authorities).
Option 2: Export confirmation package was not submitted in time
On 181st day from the export day (i.e. 30 August) export is regarded as unconfirmed.
VAT base: 220,000 × 30.3 (the exchange rate on the export date) = 6,666,000
Output VAT at18%:
Input VAT available for recovery:
Net result: VAT payable
1,199,880
(703,033)
–––––––––
496,847
–––––––––
Amounts of 1,199,880 and (703,033) are shown in amended standard declaration for 1st
quarter. The net amount of 496,847 is shown as an additional VAT liability in the
amended standard VAT declaration for 1st quarter.
Late interest penalty is calculated starting 26 April.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0906
VALUE ADDED TAX – SPECIAL CASES, PAYMENT AND REPORTING
1.6

Advances for future export
Advances received for goods to be exported are not subject to VAT as other
advances.
Example 2
A Russian company exports wood to Spain under a direct contract with a Spanish
company. On 26 December 2016 the Spanish company has made a 100,000 USD
prepayment for a shipment of wood, which actually took place on 3 February 2017.
The price of the shipment was 160,000 USD and the remaining amount of 60,000 USD
was received on 5 May 2017. The Russian company has submitted a package of
documents, confirming export, on 10 October 2017.
Input VAT incurred in relation to this shipment is 520,000 RR (paid in January 2017).
Required:
(a)
Calculate the VAT liability (recoverable VAT), assuming the following
notional USD/RR exchange rates:
26 December 2016
3 February
1 August
3 August
31 December
30.1
30.3
31.2
31.4
32.3
31 January
5 May
2 August
10 September
30.2
30.8
31.3
32.1
Do not recalculate VAT on the unconfirmed export using the exchange rate
on payment day.
(b)
Explain what amounts will be shown in VAT declarations and when.
Solution
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0907
VALUE ADDED TAX – SPECIAL CASES, PAYMENT AND REPORTING
2
OTHER ACTIVITIES
2.1
Sales of assets with capitalised VAT (art. 154)



Special rules apply to VAT calculation on disposal of property with
“capitalised” VAT (i.e. VAT incurred on this property purchase was added to
its cost).
The VAT base is the sales margin, or the difference between the selling price
(net of sales tax) and the net book value (NBV) of the property, which is
calculated in accordance with financial accounting rules (item 3, art. 154).
VAT is calculated based on “raschetniye stavki” of 18/118 (or 10/110).
Illustration 4
In 2015 Company ABC purchased a fixed asset for 120,000 RR (including VAT). The
asset was used for production of VAT exempt goods and all VAT on purchase was added
to fixed asset cost.
In 2017 ABC decided to sell this asset for 80,000 RR gross (i.e. including VAT).
Accumulated tax depreciation was 45,000 RR; accumulated accounting depreciation was
55,000 RR.
VAT on sale is calculated on the margin between sales price and accounting NBV:
Sales price
Accounting NBV (120,000 – 55,000)
80,000
(65,000)
––––––
15,000
––––––
2,288
Margin
VAT at 18/118
Note that ABC has to pay VAT on the fixed asset sale even if the main sales of the
company are VAT exempt, because these are two different VAT objects.
Note also the CPT gain calculation:
Sales price
VAT
Tax NBV (120,000 – 45,000)
80,000
(2,288)
(75,000)
––––––
2,712
––––––
Gain for CPT purposes
Commentary
The treatment of gains and losses on assets disposals for CPT purposes is explained in
Session 4.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0908
VALUE ADDED TAX – SPECIAL CASES, PAYMENT AND REPORTING
2.2



Factoring operations (art. 155)
As all companies use accruals method for VAT purposes, there is normally no
VAT liability for the seller upon debt factoring as the tax was already calculated
and paid at the time of sale.
In the event of a debt being sold for an amount in excess of its original value, then
an output VAT liability will arise calculated at 18/118% on the excess.
For the new creditor (factor) the VATable base is determined as the difference
between the amount received from the debtor and the amount paid to the seller
(initial creditor).
Example 3
In May OOO Lidia made a 23,600 RR shipment to a customer (including VAT of 3,600
RR). No payment was received for this shipment and in August Lidia sold this receivable
to OOO Elf for 12,000 RR. Elf paid Lidia in October. In November Elf managed to
collect 15,000 RR from the customer.
Required:
(a)
Calculate the amount of VAT liability of OOO Lidia and state the realisation
date for VAT purposes.
(b)
Calculate the amount of VAT liability of OOO Elf and state the realisation date
for VAT purposes.
Solution
(a)
OOO Lidia
(b)
OOO Elf
2.3
Commission income (art. 156)



Companies often use agents to sell their goods (works, services) or to buy
goods. The agent may act under a disclosed commission agreement or under an
undisclosed commission agreement. In both cases, VAT is payable by the
agent on the commission income only.
If an agent sells goods, that are VAT exempt, it is still liable to VAT on its
commission with certain exceptions, which are not examinable.
The owner of the goods is liable to VAT on the full amount of sale. Input VAT
on agent’s commission is generally available for recovery.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0909
VALUE ADDED TAX – SPECIAL CASES, PAYMENT AND REPORTING
Illustration 5
Company A (principal) sells its goods under a commission agreement with Company B (agent).
On 21 March A delivered 540,000 RR worth of goods (including VAT) to the agent.
B shipped the goods to a final customer and sent the proper report to A on 15 April. The
customer paid 540,000 RR to the B on 17 May. B withheld 60,000 RR of its commission and
paid the remaining part to A on 20 May. B issued a respective VAT invoice to A on 25 May.
Output VAT of 82,373 is recognised in April (when the sale took place). In May A will
recognise input VAT on A’s commission (9,153 RR).
Company B will recognise VAT liability on its commission income only (9,153 RR) in May.
2.4


Self-supplied construction works (art. 159)
VAT is assessed on self-supplied construction services (art. 146). The VAT tax base
is the amount of all costs related to the construction as per financial accounting data.
Self-supplied output VAT is assessed on costs incurred each quarter.
It is available for recovery at the moment of the VAT charge (i.e. on the last
date of each tax period) under the following conditions:
(a)
(b)

constructed property is planned to be used for VATable activities;
cost of construction is deductible for CPT purposes (via depreciation).
Input VAT on materials and construction services from third parties is recovered
under general rules (i.e. services must be received and documents in place).
Example 4
In December 2016 Mosstroi started to build a new warehouse for its own production use.
The total cost of construction was comprised of the following (in million RR):
Costs of December 2016:
Materials
Wages and salaries
Construction services from subcontractors
23.6 (including VAT)
12
14.16 (including VAT)
Costs of 2017 (incurred evenly during January – June):
Materials
Wages and salaries
Construction services from subcontractors
118 (including VAT)
40
236 (including VAT)
The construction of the building was completed in June. The documents were submitted
for registration of the title of ownership in September 2017. The registration of the
building (certificate of ownership) was received in October 2017. The building was
intended for usage for operations subject to 18% VAT. IC was payable at 30% on
construction wages and salaries.
Required:
Calculate VAT arising on self-supplied construction. State the amounts and timing of
their recognition separately for output and input VAT on 2016 and 2017 costs.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0910
VALUE ADDED TAX – SPECIAL CASES, PAYMENT AND REPORTING
Solution
VAT in the 4th quarter 2016
mln RR
Self-supplied output VAT
Input VAT on materials
Input VAT on construction services
Recovery of self-supplied VAT
____
VAT payable/(recoverable)
____
VAT in 1st quarter of 2017
mln RR
Self-supplied output VAT
Input VAT on materials
Input VAT on construction services
Recovery of self-supplied VAT
____
VAT payable/(recoverable)
____
VAT in 2nd quarter of 2017
mln RR
VAT payable/(recoverable)
____
3
VAT PAYMENT AND REPORTING
3.1
VAT invoice (“schet-factura”) (art. 169)

VAT invoice is a document for VAT accounting which is required to offset input VAT




VAT invoices are issued within five days after the date of goods shipment
(provision of works, services) in electronic or hard copies.
VAT invoices can be issued in electronic form by mutual consent of the parties
having all required compatible technical assets and resources for admitting and
processing such VAT invoices. Electronic VAT invoices need to include:


all the details required an a paper invoice; and
an electronic digital signature of an authorised representative of the company.
A VAT invoice is required, even if the sale of goods (works, services) is VAT
exempt (under art. 149). In such a VAT invoice, it is written “without VAT”.
VAT invoices are not prepared in relation to transactions with securities (with the
exception of brokerage and intermediary services) and by banks, insurance
companies and non-state pension funds in relation to VAT-free sales.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0911
VALUE ADDED TAX – SPECIAL CASES, PAYMENT AND REPORTING


No VAT invoices are required in retail trade with physical persons and for
businesses providing services directly to physical persons. (The term “physical
persons” does not include individual entrepreneurs).
The Tax Code provides for the following detailed contents on a VAT invoice (art. 169):







date and number of invoice;
TIN (tax id number), name and address of the parties;
names and quantities of goods (services) in question;
currency;
price of goods (services);
VAT rate and amount;
Country of origin and Custom Declaration number (for imported goods).
VAT invoices issued for advanced payments should additionally contain the
number of the payment document.

Amendments to the transaction which increase or decrease the value of the
supply require an amended (“corrective”) VAT invoice to be issued:







details of items to be included in the invoice are specified by the Tax
Code and follow those for the original invoice;
where the amendment relates to an increased value of supply (and therefore
additional output VAT payable by the supplier) it is treated as being in the original
period of supply, and therefore an amended VAT return should be submitted;
where the amendment reduces the value of supply, the adjustment is
instead made in the current VAT reporting period;
changes to the VAT input recovery by the purchaser are made in the
same period as the output amendments.
VAT invoices are recorded in the following registers:



journal of VAT invoices received and issued;
sales ledger (“kniga prodazh”);
purchase ledger (“kniga pokupok”).
VAT invoices are not registered in the purchases book, if received:


in relation to gratuitous transfers; or
by a commissioner (attorney) from its principal in relation to goods
transferred for sale (see next section).
VAT invoices should be entered in the sales ledger in chronological order in the
period in which the liability arises.


Confirmed exports should therefore be entered at the end of the
quarter when all documents are submitted.
In the case of an export not being confirmed within 180 days, entry in
the sales ledger should be made for the date of shipment, even if this
requires inserting an additional sheet in the ledger.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0912
VALUE ADDED TAX – SPECIAL CASES, PAYMENT AND REPORTING
3.2


VAT journal
The VAT journal is essentially a log book in strict sequence of received and
issued invoices (including those relating to exempt supplies). Keeping such a
journal is a statutory requirement and subject to government regulation; it is
expected that changes to these regulations will shortly be introduced following
the acceptance of electronic invoicing.
The journal is a prime source supporting the VAT return and would not
normally be part of the double entry accounting system of the business.
3.3
Commission operations
3.3.1
Commissioner (agent)

An agent issues a VAT invoice showing the price of the goods (work, services)
plus VAT, in its own name. Two copies are issued (based on the chronological
numbering sequence for VAT invoices of the agent rather than the principal):




3.3.2


one copy is issued to the buyer;
the second copy is attached to the ledger of issued VAT invoices,
BUT is not registered in the sales book.
The agent issues a separate VAT invoice addressed to the principal for its sales
commission. This invoice is registered in the sales book. One copy is given to
the principal; the other is retained by the commissioner.
The agent does not register the VAT invoice received from the principal for the
cost of the goods (work, services) in its purchases book.
Principal
The principal issues two copies of a VAT invoice (one for itself and one for the
agent) including all the details included by the agent in the agent’s VAT invoice
issued to the buyer. This invoice is registered in the sales book. The VAT invoice
is numbered in the chronological numbering sequence of the principal.
The principal registers the VAT invoice received from the agent for its
commission in its purchases book.
Example 5
OOO Prodinvest sells its goods under a commission agreement with OOO Lanstore. In
January Prodinvest delivered 360,000 RR worth of goods to Lanstore who sold them to a
customer in March. The customer paid 360,000 RR to Lanstore in May. Lanstore
withheld 44,000 RR of its commission and paid the remaining amount to Prodinvest in
July. Lanstore submitted the report about the sale in March and issued a VAT invoice to
Prodinvest dated 31 March on 3 April.
Required:
(a)
Calculate the VAT liability of OOO Prodivest and state the timing of VAT
liability recognition.
(b)
Explain VAT invoicing procedures for OOO Lanstore.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0913
VALUE ADDED TAX – SPECIAL CASES, PAYMENT AND REPORTING
Solution
(a)
(b)
3.4



3.5


VAT declaration forms
Since 1 January 2007 there has been just one type of VAT declaration – the
standard declaration to be filed by all taxpayers. There is now a compulsory
requirement for these VAT returns to be submitted electronically.
VAT adjustments introduced by the taxpayer prior to an audit by the tax
authorities with respect to the VAT amounts charged must be disclosed in a
separate (amended) VAT declaration for the relevant tax period.
Organisations maintaining separate subdivisions are required to file a copy of
the VAT return prepared by the head office
Due dates for payments and declaration submission (art. 174)
The VAT declaration is submitted quarterly not later than 25th day of the month
following the current tax period.
Tax is due in three equal parts not later than 25th day of each of the three
months following the current tax period.
3.6
VAT recovery procedure (art. 176)

If input VAT exceeds output VAT, the excess amount can be recovered either:





by offset against current tax obligations; or
by refund to the taxpayer after obligatory cameral tax inspection.
The excess amount is first applied to offset against any outstanding tax liability
(including customs duties), late tax interest and assessed tax penalties payable to the
same budget. The tax inspectorate makes such offset without the taxpayer’s
involvement. The time period for the offset is three calendar months following the
reporting period. If all or a portion of the excess amount is not utilised within three
calendar months, it must be refunded to the taxpayer upon his written request.
For very large companies which have operated for at least three years and who
submit an appropriate bank guarantee, the declarative procedure of VAT
recovery can be applied (see section 1.5).
Where the deadline for refund is missed, daily interest at the CBR rate is
accrued on the amount.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0914
VALUE ADDED TAX – SPECIAL CASES, PAYMENT AND REPORTING
Example 6
OOO Univers has exported some goods to the UK. Export confirmation package were
submitted to the tax inspectorate on 6 July. The amount of VAT for recovery, shown in
the declaration, was 120,000 RR.
Assume that tax inspectorate has the following records of Univers:
Total due from Univers as at 24 July – 99,000 RR:
–
–
–
–
taxes due – 32,000 RR;
late interest due – 3,000 RR;
penalties assessed and confirmed by the court – 8,000 RR;
penalties assessed (still under court consideration) – 56,000 RR.
Required:
(a)
Calculate the amounts available for the offset and refund based on the above
information. Ignore allocation of tax amounts between different budgets.
(b)
Explain the recovery procedure.
Solution
(a)
(b)
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0915
VALUE ADDED TAX – SPECIAL CASES, PAYMENT AND REPORTING
FOCUS
You should now be able to:

explain the consequences of a non-confirmed export and compute the related VAT;

compute the VAT on:
–
–
–
–
trade debt factoring for both parties;
a fixed asset disposal;
a self-supplied construction;
sales made through commissioners for both the principal and the
commissioner;

explain the timing and methods of recovery of input VAT;

prepare a basic VAT computation showing separately all elements of input and output VAT;

explain and apply the specific rules for VAT recovery related to zero rate supplies (export);



explain and apply the specific rules for VAT recovery relating to capital construction and
self-supplied construction;
explain the main requirements for declarative procedure of VAT recovery;
explain the application of VAT rules and amended VAT invoices in the case of price
change or quantity changes for goods (services, property rights) after shipment;

explain the usage of VAT invoices and journals;

list the information that must be given on both VAT invoice and amended VAT invoice;

state the deadlines for the filing of returns and making of VAT payments;

explain the procedure for VAT refunds (including the refund of VAT on exports);

state the set of documents for confirmation of export in a basic situation; and

explain the requirements for electronic VAT invoice for VAT recovery.
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0916
VALUE ADDED TAX – SPECIAL CASES, PAYMENT AND REPORTING
EXAMPLE SOLUTIONS
Solution 1
(a)
Collected 20 November
1 March is the export date. The export sale will be recognised as unconfirmed on 28
August, which is 181st day later. VAT declaration for the 1st quarter should be amended
and re-submitted to tax authorities in August. VAT taxable base will be calculated using
the exchange rate on 1 March.
In the 4th quarter the export will be confirmed and export confirmation date will be 31
December (the last day of the quarter for the tax period when confirmation package and
VAT declaration will be submitted).
(b)
Collected 10 June
30 June, which is the last day of the quarter in which export package was presented to the
tax authorities.
Solution 2
December 2016 – Advance payment is not subject to VAT.
February 2017– No VAT consequences arise on 3 February as the goods are shipped for
export and accruals method does not apply.
May 2017 – No VAT consequences arise on 5 May because the payment relates to export.
August 2017
On 2 August (i.e. on 181st day starting from the export date) export will be recognised as
unconfirmed. VAT taxable base will be calculated using the exchange rate on the export
date (i.e. on 3 February 2017).
Output VAT on the unconfirmed export is calculated as:
(160,000 × 30.3) × 18% = 872,640RR
This amount is shown in amended VAT declaration for 1st quarter 2017. Input VAT of
520,000 RR will decrease the VAT payable to the budget:
Output VAT on unconfirmed export
Less: Input VAT
872,640
(520,000)
–––––––
352,640
–––––––
VAT payable
December 2017
On 31 December (the last day of the quarter in which the full package of documents confirming
export is submitted to a tax inspectorate) export will be confirmed for VAT purposes:
VAT base: 160,000 × 32.3 = 5,168,000 RR
This amount is shown in a standard VAT declaration as:
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0917
5,168,000 (VAT base) × 0% = 0.
VALUE ADDED TAX – SPECIAL CASES, PAYMENT AND REPORTING
VAT amounts previously recognised on unconfirmed export in August will again be
shown in standard VAT declaration for 4th quarter 2017.
VAT on unconfirmed export available for recovery
(872,640RR).
The decision on the refund of this input VAT should be made no later than 3 months after
the date the VAT declaration and documents, confirming export, were filed.
Overall result for the year:
352,640 VAT payable
(872,640) VAT recoverable
––––––––
(520,000) total VAT recoverable
1st quarter
4th quarter
Solution 3
(a)
OOO Lidia
Lidia will recognise 3,600 RR of VAT in 2nd quarter. The amount of actual payment
received from Elf does not have any impact on VAT recognised.
(b)
OOO Elf
Elf will recognise VAT on the difference between the amount received from
customer (15,000 RR) and the amount paid to Lidia (12,000 RR). The tax will
be calculated in 4th quarter as 18/118 of 3,000 RR (458 RR).
Solution 4
Costs of 2016
Output VAT is assessed on costs incurred in 2016 each quarter. It is available for
recovery in the same period when it is charged. In this case it will be charged in
December 2016 and could be recovered in the 4th quarter 2016.
Input VAT on materials and construction services from third parties is recovered under
general rules.
VAT in the 4th quarter 2016
mln RR
Self-supplied output VAT (W1)
Input VAT on materials (23.6 × 18/118)
Input VAT on construction services (14.16 × 18/118)
Recovery of self-supplied VAT
8.57
(3.6)
(2.16)
(8.57)
––––––
(5.76)
––––––
VAT recoverable
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0918
VALUE ADDED TAX – SPECIAL CASES, PAYMENT AND REPORTING
Costs of 2017
The dates of registration of the building do not influence VAT rules. Costs are split
equally for two tax periods.
VAT in 1st quarter of 2017
mln RR
Self-supplied output VAT (W2)
Input VAT on materials
Input VAT on construction services
Recovery of self-supplied VAT
31.68
(9.0)
(18.0)
(31.68)
––––––
(27.00)
––––––
VAT recoverable
VAT in the 2nd quarter of 2017
mln RR
st
VAT recoverable (as for 1 quarter)
(27.0)
––––––
WORKINGS
(1)
Output VAT 4th Quarter
Materials net of VAT (23.6 × 100/118)
Labour
Insurance contributions (30% × 12)
Services net of VAT (14.16 × 100/118)
Total cost
Self-supplied VAT assessed on total cost at 18%
(2)
20
12
3.6
12
––––––
47.6
––––––
8.57
Output VAT (1st and 2nd Quarters)
Materials net of VAT (118 ÷ 2 × 100/118)
Labour
Social insurance contributions (30% × 20)
Services net of VAT (236 ÷ 2 × 100/118)
Total cost
Self-supplied VAT assessed on total cost at 18%
Tutorial note: Insurance contributions (ICs) are covered in Session 10.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
0919
50
20
6
100
––––––
176
––––––
31.68
VALUE ADDED TAX – SPECIAL CASES, PAYMENT AND REPORTING
Solution 5
(a)
Prodinvest will recognise output VAT of 54,915 RR (360,000 × 18/118) in the 1st
quarter according to report submitted by Lanstore, regardless of the period
when the amount is paid to the commissioner.
Input VAT on commission service 6,712 RR (44,000 × 18/118) will be available
for recovery in the 1st quarter also upon the receipt of the VAT invoice from
Lanstore.
(b)
Lanstore should not register in its purchases book the VAT invoice received
from Prodinvest for commissioned goods.
Lanstore should issue VAT invoice on goods sold to the customer. Two copies
should be issued: one copy should be given to the customer; the second copy
should be attached to the register of issued VAT invoices, but should not be
registered in the sales book of Lanstore;
Lanstore should issue a separate VAT invoice addressed to Prodinvest for the
amount of commission. This invoice should be registered in the sales book of
Lanstore.
Solution 6
(a)
Amount available for offset is 32,000 + 3,000 + 8,000 = 43,000 RR
Penalties assessed and not yet confirmed by the court (56,000 RR) are not
available for offset.
The remaining portion of 77,000 RR (120,000 – 43,000) is available for recovery.
(b)
The amount of 120,000 RR is first of all applied for payment of any
outstanding tax liability (including customs duties), late tax interest and
assessed tax penalties to the same budget. Penalties assessed but not yet
confirmed by the court are not counted for the above-mentioned purposes (i.e.
the amount for offset is 32,000 + 3,000 + 8,000 = 43,000). The tax inspectorate
makes the above-mentioned offset without the taxpayer’s involvement. The
time period for offset is three calendar months following the submission of
VAT declaration and documents confirming export. If all or a portion of the
excess amount is not utilised within three calendar months it can be carried
forward and utilised in the future or can be refunded to the taxpayer upon its
written request.
Where the deadlines for the refund are missed interest at the CBR rate is
accrued on the amount.
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0920
INSURANCE CONTRIBUTIONS
OVERVIEW
Objective

To explain the calculation of insurance contributions made by employers and
individual entrepreneurs.
INSURANCE
CONTRIBUTIONS
IC BASE FOR
EMPLOYERS
ADMINISTRATION
FOR EMPLOYERS










Scope
SIC payers
IC object
IC base
Calculation and reporting periods
IC rates
Exempt items
Calculation
Copyright agreements
INDIVIDUAL
ENTREPRENEURS
Reporting rules
Payment rules
Specific reporting and
payment rules for branches
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

1001
INSURANCE CONTRIBUTIONS
1
INSURANCE CONTRIBUTIONS
1.1
Scope


Federal Law #212-FZ originally introduced social insurance contributions.
Since then the administration of insurance contributions has been transferred
to the tax authorities and the statutory provisions have been incorporated into
the Russian Tax Code within the new Chapter 34, Section XI
Insurance contributions (ICs) are not strictly taxes; they are instead
compulsory payments for obligatory insurance, including:




pension insurance to the RF Pension Fund (PF);
social insurance to the RF Social Insurance Fund (SIF);
medical insurance to the Federal and territorial Obligatory Medical
Insurance Funds (FFOMI).
ICs are estimated based on wages and salaries and on some other payments to
individuals. Thus, it is an additional financial burden for employers unlike
the personal income tax (PIT), which is taken out of employees’ salaries.
1.2
IC payers (art. 419)

There are two principal groups of IC payers:



employers, including organisations and individual entrepreneurs
who pay ICs in respect of private persons/employees; and
individual entrepreneurs (who do not pay to private persons/employees).
An IC payer, who simultaneously belongs to both groups mentioned above
(e.g. an individual entrepreneur who employs workers) is liable to ICs on
both on his own IC liability and on the payments to persons he employs.
2
IC BASE FOR EMPLOYERS
2.1
IC object (art.420)

The IC object for organisations and individual entrepreneurs who pay to
private persons/employees is payments according to:



2.2




labour agreements (“trudovyie dogovora”); and
civil law agreements (“grazhdansko – pravoviye dogovora”) for
rendering works, providing services; and
copyright, licence agreements (see section 2.4).
IC base (art.421)
The IC base is the sum of all payments to the private persons/employees
which are IC objects reduced by exempt amounts.
ICs are estimated on the gross accrued amounts (i.e. before PIT withholding).
The IC base is calculated cumulatively for calculation period for each person
separately. It is based on the total amount up to the maximum thresholds (if
applicable) for each person for the calculation period.
A lower rate for Pension Fund contributions is applied for remuneration over the threshold.
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1002
INSURANCE CONTRIBUTIONS
2.3

Calculation and reporting periods (art.423)
The calculation period is a calendar year, such that it is calculated on a
cumulative basis starting at the beginning of the year.

The reporting period is each calendar quarter.
2.4
IC rates (art.425)
The Federal Law establishes rates for each insurance category (provided in the
examination):
Fund
Remuneration
per annum
Rate
Pension Fund (PF)
Up to 876,000 RR
Over 876,000 RR
22%
10%
Social Insurance Fund (SIF)
Up to 755,000 RR
Over 755,000 RR
2.9%
0%
Federal Fund of Obligatory Medical Insurance (FFOMI)
(no upper threshold)
5.1%

The simplified tax system, available to companies and self-employed individual
entrepreneurs below certain scale thresholds, is described in Session 1.
Illustration 1
Irina’s annual salary equals 100,000 RR.
PIT rate is 13%; IC rate for employers is 30% (22% + 2.9% + 5.1%). ICs equal
100,000 × 30% = 30,000 RR
This amount is paid by the company-employer to the related funds. The company
withholds 13% of PIT and also pays it to budget. Irina gets in cash 87,000 RR net of
PIT.
The company’s total expense is 130,000 RR (100,000 RR of gross salary + 30,000 IC
assessed on the salary).
Illustration 2
Company AZ accrued salary for its employees (labour agreements) for June:
Name of
employee
Ivanov
Petrov
Sidorov
Salary for June
RR
60,000
150,000
180,000
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Salary for January – June
RR
360,000
900,000
1,080,000
1003
INSURANCE CONTRIBUTIONS
Illustration 2(continued)
Calculation of the IC base for June is as follows:
Employee
IC base (RR)
Ivanov
60,000
Petrov
PF
SF
60,000
60,000
60,000
13,200
126,000
24,000
5,000
145,000
150,000
27,720
2,400
180,000
180,000
180,000
18,000
FFOMI
@ 22%
@ 2.9%
3,060 @ 5.1%
1,740
150,000
Sidorov
@ 22%
@ 10%
@ 2.9%
@ 0%
7,650 @ 5.1%
145
0
180,000
0
_________
Total
@ 10%
@ 0%
9,180 @ 5.1%
_________
61,320
1,885
_________
_________
_________
19,890
__________
AZ should accrue and pay ICs for June totaling 83,095 RR.
2.5
Exempt items (art. 422)
Insurance contributions are not applied to the following payments:


Government support payments (“posobija”), including sick leave payments
and payments in case of unemployment.
All kinds of compensations made under the Russian laws (Federal and
regional) within the limits established by these laws, including:




Payments relating to the dismissal of employees (limited to three
months average earnings, amounts above this are not exempt,
neither is compensation for unused vacation);
Reimbursement of expenses relating to professional training,
education and raising employees’ skills;
Compensation by the organisation of expenses incurred by an
employee in connection with the fulfilment of the civil law
agreements (not labour) related to the organisation’s business.
Actual business travel expenses, confirmed with supporting documents, including
per diem allowances (without limits), transportation costs, taxi to/from the
airport/railway station, accommodation costs, etc. Accommodation costs are also
exempt but only within the statutory limit in the absence of supporting documents.
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1004
INSURANCE CONTRIBUTIONS

Extraordinary support payments (“materialnaja pomosch”) paid by the IC payers to:





Medical and life insurance contributions made by an employer for the benefit
of an employee or family member in the following cases:







Any employee up to 4,000 RR for the calculation period (a year);
Private persons in the event of acts of God (fire, flood, etc) in full amount;
An employee in the case of the death of a relative in full amount;
An employee in the case of child birth or adoption. The support payment is
IC exempt in amount up to 50,000 RR and must be made within one year
from the child being born or adopted.

insurance of employees as required by law; or
voluntary medical insurance according to the insurance agreements
concluded for a period not less than one year;
life insurance (payments in case of death or health hazard).
Contributions which are made by an IC payer under a “non-state pension
agreement” (“negosudarstvennogo pensionnogo obespechenija”) and
additional pension payments made by the company to the “cumulative” part
of an employee’s pension up to 12,000 RR per year per employee;
Cost of transportation expenses to the place of vacation and return for the persons
working or living in the Far North regions of Russia (although significant in Russia
the examiner has confirmed that this will not be specifically examined);
Payments for the main and additional professional training, including retraining.
Compensation to employees of interest paid on mortgage loans.
Payments according to the civil law in respect of contributions to the Social
Insurance Fund. (Thus the combined ICs rate is lower for employers who
pay individuals under civil contracts rather than under labour agreements.)
Illustration 3
Ruslan concluded a civil law agreement to render services to company LN for 200,000
RR gross. The agreement provides for the reimbursement of expenses connected with
fulfilling the contract. On the day of signing the act of acceptance for the services
Ruslan submitted supporting documents confirming his expenses of 20,000 RR.
Ruslan’s IC base is 200,000 RR; the expense reimbursement is exempt from IC.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
1005
INSURANCE CONTRIBUTIONS
Example 1
Irina, who works under an employment contract, received the following income and
benefits in-kind from her employer during the year:
RR
Salary
680,000
Performance bonus
200,000
Voluntary medical insurance contributions by employer (in the contract)
35,000
Travel allowance within the limit
30,000
Per-diem allowance exceeding statutory norms (for PIT)
68,000
Meal tickets for a free meal (provided in the contract)
8,000
Interest income imputed on a loan from employer
12,000
Voluntary pension insurance contributions by employer (in the contract)
10,000
Payment for study leave in respect of education in St. Petersburg
15,000
Reimbursement of professional education costs in university
7,000
Required:
(a)
(b)
2.6




Calculate the amount subject to IC and the IC thereon.
For items which are not subject to IC briefly explain the reason for exemption.
Calculation (art. 421)
As mentioned above, for employers ICs are assessed on all payments and
other remuneration accrued to employees within the limits, excluding IC
exempt amounts, under:



labour agreements;
civil law agreements for rendering works, providing services; and
copyright agreements.
All payments, including payments in-kind, are subject to IC only if they are paid in
accordance with the terms of agreement. For example, ICs are assessed on the cost of
meals for employees only if they are provided according to the contract.
ICs are assessed on the gross amounts of the above-mentioned payments (i.e.
on the amounts before PIT withholding).
For employers, the date of the IC charge is the date when income is accrued to employees.

ICs apply to both cash and in-kind payments.
2.6.1
Payments in-kind

The IC base for payments in-kind is their value as stated by the contracting
parties on the payment date (including VAT and excises, if applicable).
Where there is public regulation of the price for the goods used as payment
the IC base is the public retail price.
Illustration 4
In January a company accrued 10,000 RR as a salary for Vasily. In addition the
company gave him as salary some goods valued at 20,000 RR. Also a TV set valued at
7,000 was given to him as a birthday gift (as provided for by his labour agreement).
Vasily’s IC base is 37,000 RR (10,000 in cash + 27,000 in-kind).
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
1006
INSURANCE CONTRIBUTIONS
2.6.2

2.7


Discounts on products produced/sold by employer
Discounts on employer’s products available to employees are not subject to ICs as
the IC base is defined as “any payments (in cash or in-kind) in favour of an
employee/family members” and does not refer to any benefits such as discounts.
This differs from PIT rules under which such discounts are taxable.
Copyright, licence and civil law agreements
Payments made under copyright or licence agreements are subject to ICs
under the same rules which are used for PIT purposes.
The IC base is the gross payment amount less allowable deduction, which is either:


actual expenses (with documentary proof); or
a standard professional deduction as a percentage of income (20% – 40%
depending on the subject of agreement).
Illustration 5
A painter Popov has concluded an agreement to produce five paintings for a new
restaurant for 100,000 RR gross. Popov’s actual (and documentary proven) expenses
on this engagement were 50,000 RR. Standard professional deduction for this type of
activity is 40%.
Amount subject to ICs can be calculated as follows:
Option 1 (based on actual expenses) 100,000 – 50,000 = 50,000 RR
Option 2 (based on professional deduction) 100,000 – (100,000 × 40%) = 60,000 RR.
Option 2 is less beneficial than Option 1.


These deductions are given to IC payers at their written requests submitted to the
organisation/individual entrepreneur who makes the payment under the agreement.
In the absence of such requests, ICs are assessed on the gross contract amount.
Note that payments made under civil law agreements, copyright and licence
agreements are assessed at a lower overall IC rate as no Social Insurance
Fund contribution is made.
Example 2
During the year Polina concluded an agreement with a recording company for a CD
recording. For this recording, she has received 156,600 RR net of personal income tax.
The standard professional deduction on recording income is 20%.
Required:
Calculate the amount of IC paid by the CD company on Polina’s income.
Solution
RR
Gross income
Less: PIT
__________
Net income received
__________
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1007
INSURANCE CONTRIBUTIONS
3
ADMINISTRATION FOR EMPLOYERS
3.1
Reporting rules (art. 431)



During the calculation period (the calendar year), IC payers accrue ICs
cumulatively on a monthly basis (e.g. at the end of March, ICs are charged on the
IC base/payments to employers accrued in January, February and March with the
deduction of IC charged for January – February).
As ICs are not taxes but obligatory payments reports are called “calculations”.
IC payers submit reports for each IC separately on a quarterly basis:
Insurance type
Pension insurance
Deadline
Authority
1st day of the second month
following the reporting period
Pension Fund RF
(territorial authority)
15th day of the month following
the reporting period
RF Social Insurance Fund
Medical insurance
Social insurance
3.2

Payment rules (art. 431)
Employers are required to make monthly obligatory payments of ICs to each
Fund separately based on the IC base calculated from the beginning of the
year and up to the last calendar month. Monthly payments are made not later
than 15th of the month following the reporting month.
Illustration 6
A company had the following IC liabilities (on a cumulative basis):
January: 300,000 RR
January – February: 650,000 RR
January – March: 900,000 RR
First obligatory payment of 300,000 RR must be made not later than on 15 February.
Second advance payment of 350,000 RR (650,000 – 300,000) must be made not later
than on 15 March.
Third payment of 250,000 RR (900,000 – 650,000) must be made not later than on 15
April.
The calculations (reports) are to be submitted not later than 15 April (social insurance)
and not later than the 1 May (pension and medical insurance).

In practice an employer will usually be responsible for making payments to
its employees of sick pay and maternity benefits covered by the Social
Insurance Fund. The amount of these payments can be deducted from the
contributions payable to the SIF. Where the amount available for offset
actually exceeds the contributions payable the balance can be recovered by
carry forward against future contributions or, on application, by repayment.
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1008
INSURANCE CONTRIBUTIONS
3.3


4


Specific reporting and payment rules for branches
Sub-divisions located on RF territory, which have individual balances, bank
accounts and accruing payments to the persons/employees pay ICs and
submit corresponding reporting at the place of their location.
The IC base is determined for each subdivision separately. The ICs payable at the
location of the head office is the difference between the ICs due for the whole
company and ICs payable at the locations of branches.
RULES FOR INDIVIDUAL ENTREPRENEURS
The calculation of ICs for individual entrepreneurs who do not pay to other
private persons is not examinable.
If they are employers the same rules apply as for companies.
FOCUS
You should now be able to:



describe the scope of insurance contributions;
recognise and apply the major types of income exempt from insurance
contributions (art. 422);
prepare a basic IC computation with the split by relevant funds in respect of employees
under labour agreements, under civil law agreements and copyright agreements;

prepare a basic IC computation for an individual entrepreneur;

explain how employers and individual entrepreneurs report and pay IC; and

explain the collection, refund and offset procedure.
EXAMPLE SOLUTIONS
Solution 1 – IC on income and payments in-kind
(a)
Items subject to IC
RR
680,000
200,000
8,000
15,000
–––––––
903,000
–––––––
Salary
Performance bonus
Meal tickets for a free meal
Study leave
Total
ICs thereon:
Pension Fund
Social Insurance Fund
FFOMI (Medical)
876,000 × 22%
27,000 × 10%
755,000 × 2.9%
903,000 × 5.1%
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1009
192,720
2,700
21,895
46,053
–––––––
263,368
–––––––
INSURANCE CONTRIBUTIONS
An alternative calculation to find total ICs is as follows:
On first 755,000
Up to 876,000
755,000 × 30%
(876,000 – 755,000) × 27.1%
226,500
32,791
–––––––
259,291*
4,077
–––––––
263,368
–––––––
On excess over 876,000 (903,000 – 876,000) × 15.1%
Exam advice
It may save time in the exam to be able to remember the sub-total (*). See
Illustration 1 in Session 00.
(b)
Items not subject to IC
Medical insurance (non-mandatory) contributions by employer
Travel allowance up to the limit
Per-diem allowance in excess of statutory norms
Interest income imputed on a loan from employer
Deductible pension insurance
Professional education
35,000 (1)
30,000 (2)
68,000 (3)
12,000 (4)
10,000 (1)
7,000 (2)
(1)
Payments made under voluntary insurance agreements concluded for not less than one
year and contributions under non-state pension agreements are specifically exempt
from IC.
(2)
Reimbursements of employees’ expenses within the norms are IC exempt.
(3)
Per diem allowance is IC exempt in full.
(4)
Imputed interest income is not subject to IC.
Solution 2 – Professional deduction
RR
Let Polina’s gross income be
Less: PIT
x
(x – 0.2x) × 0.13
–––––––
156,600
–––––––
Net income received
Solving: x – (0.8x × 0.13) = 156,600
Gives: x = 174,777 RR
Income subject to IC = 174,777 RR less 20% professional deduction = 139,822 RR
IC is applied at reduced rates (there are no contributions to social insurance fund):
IC = 139,822 × 27.1% (22% PF + 5.1% FFOMI) = 37,892 RR
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1010
CORPORATE PROPERTY TAX
OVERVIEW
Objectives

To explain and compute the property tax liability of Russian legal entities.
OTHER
TAXES
CORPORATE
PROPERTY TAX







Taxpayers
Scope
Average property value
Tax and reporting period
Calculation
Reporting and payment deadlines
Simplified tax system
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1101
CORPORATE PROPERTY TAX
1
CORPORATE PROPERTY TAX
1.1
Taxpayers (art. 373)

Corporate property tax is payable by:





enterprises, organisations with legal entity status;
foreign legal entities having property in Russia. (This is not examinable.)
Individual entrepreneurs and physical persons are not subject to corporate property tax.
If a legal entity has a branch (separate sub-division) with a separate balance sheet,
it must pay property tax to the tax inspectorate of this branch. Tax is calculated by
applying the rate, established at the branch location, to the average value of the
property subject to property tax at the location of the branch (art. 384).
If a legal entity has an item of taxable property (immovable only) in a location other
than the place of its tax registration (or branch registration), tax is paid at the rate
established at that place (art. 385).
Illustration 1
“Sigma Ltd” is registered in Moscow. The company has a branch in St. Petersburg and
owns a building in Samara. Sigma does not have any employees in Samara.
Sigma pays property tax to the budgets of Moscow, St. Petersburg and Samara. The
average value of property in all these locations is calculated. Tax is assessed at local
rates.
Commentary
Knowledge of entities which are relieved from property tax is not examinable.
1.2
Scope
1.2.1
Tax object (art. 374)

1.2.2

Tax object for property tax is immovable property which is accounted for as a
tangible fixed asset (except for land and other natural resources).
Tax base (art. 375, art.378.2)
The tax base for certain types of property is now its cadastral (rateable) value.
Assets subject to cadastral assessment include:


Business centres, shopping centres or other non-residential
premises used as offices, shops or for provision of catering services.
(A whole property may be so designated even if only 20% of its
total space is used for offices, shops etc);
Property owned by foreign entities unless used within an allocated
permanent establishment (not examinable).
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1102
CORPORATE PROPERTY TAX

The tax base of other taxable property (mainly now industrial facilities) is an annual
average value of property based on accounting net book value (NBV), i.e:



fixed assets (account “Fixed assets”);
less depreciation (account “Accumulated depreciation”).
Accounting depreciation is used for property tax purposes. This means that
no adjustment to depreciation recorded in the financial accounting books is
necessary when calculating the taxable property amount.
Commentary
Knowledge of property excluded from property tax is not examinable.
Example 1
Identify which of the following items of property will be subject to property tax:












building;
exclusive trademark licence;
cash in bank;
industrial plant and equipment;
promissory note from customer (“veksel”);
materials;
work-in-progress;
land;
accounts receivable;
prepaid expense;
finished products;
products shipped to customer (title has not passed yet).
1.3
Average property value (art. 376)

In order to calculate the property tax base, the average property value is
determined by dividing the total amount (which is sum of the NBV as at the
1st date of each month of the reporting period and the 1st date of the month
following the reporting period) by the number of months in the reporting
period increased by one.
Average value in 1st quarter

Sum of taxable property NBVs as at 1 January, 1 February, 1 March, 1 April
divided by 4
Average value for the first half year

Sum of taxable property NBVs as at 1 January, 1 February, 1 March, 1 April,
1 May, 1 June, 1 July divided by 7
Average value for the period January – September

Sum of taxable property NBVs as at 1 January, 1 February, 1 March, 1 April,
1 May, 1 June, 1 July, 1 August, 1 September, 1 October divided by 10
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1103
CORPORATE PROPERTY TAX
Average value for the year

Sum of taxable property NBVs as at 1 January, 1 February, 1 March, 1 April,
1 May, 1 June, 1 July, 1 August, 1 September, 1 October, 1 November, 1
December, 31 December divided by 13. For this calculation the last NBV is
specified to be as at the last date of the tax period (art. 376).
1.4
Tax and reporting period

Tax period for corporate property tax is a calendar year.

Reporting period is the calendar quarter (3 months, 6 months, 9 months).
1.5
Calculation (art. 380, 382)




The legislative body of the region establishes a rate for a given region.
Relevant rates will be provided in the examination.
The maximum property tax rate (for non-cadastrally assessed assets) is 2.2%.
The maximum rate for office and shopping premises is usually 1.3% (as per
exam rates and allowances sheet).
Property tax is calculated each quarter. These amounts of tax are called “advance
payments” while payment for the year is considered to be a “final payment”.
Reporting periods

Advance payments for reporting period (3, 6 and 9 months) =
Average property value for the reporting period × ¼ × tax rate
Final payment


Final payment =
(average property value for the year × tax rate) – advance payments
The tax is included in “other” (“prochie”) deductible expenses for the CPT
purposes of the legal entity.
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1104
CORPORATE PROPERTY TAX
Illustration 2
The following data, in 000 RR has been extracted from the accounts of a company:
Description / Date
Industrial fixed assets (immovable)
Intangible assets
Materials
Depreciation as per accounting books
Depreciation as per tax books
Amortisation as per accounting books
Amortisation as per tax books
01.01
1,200
650
250
400
300
100
60
01.02
1,600
700
400
450
320
110
65
01.03
1,950
750
320
500
340
120
70
01.04
2,000
800
400
600
400
150
90
The property tax rate is 2.2%.
In calculating average property value only the accounting book value of the fixed
assets is relevant:
((1,200 + 1,600 + 1,950 + 2,000) – (400 + 450 + 500 + 600))/4 = 1,200 RR (000)
Property tax for Quarter 1 = 1,200 × ¼ × 2.2% = 6.6 RR (000)
Example 2
You have been provided with the following data extracted from ABC company’s
accounts in respect of an industrial facility owned by the company:
In 000 RR
Date:
Immovable fixed assets
Depreciation
1 January 1 February 1 March
1 April
(01) 850,000
900,000 1,200,000 1,500,000
(02) (350,000) (400,000) (500,000) (750,000)
Required:
(a)
Calculate the average property values for property tax purposes for the first
quarter.
(b)
Calculate the property tax for this period assuming a rate of 2.2%.
1.6
Reporting (art. 386) and payment deadlines (art. 383)

Property tax returns are submitted according to the following deadlines:



for quarterly reports on advance payments of property tax – by the
30th of the month following the reporting period;
annual report – by 30th March of the year following the tax period.
The regional authorities establish payment deadlines.
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1105
CORPORATE PROPERTY TAX
1.7

Simplified tax system
Previously taxpayers using the simplified tax system had no further liability
to corporate property tax. Now, however, such taxpayers are also required to
pay property tax at the normal prescribed rate (usually 1.3%) on those assets
which are subject to assessment on cadastral values (i.e. offices, business and
shopping centres).
FOCUS
You should now be able to:






describe the scope of corporate property tax;
define the tax base in respect of both head office property and the property of
separate subdivisions of Russian legal entities:
state the maximum tax rate and tax period;
describe the method of property valuation used to determine the corporate
property tax base, including the relevant tax base for non-residential property,
office premises and shopping centres mentioned in Article 378.2;
compute the corporate property tax base for both a head office and its
separate sub-divisions;
state the deadlines for:
–
–
filing the annual tax return and advance tax calculations (art. 386);
property tax payments and advance tax payments (art. 383).
EXAMPLE SOLUTIONS
Solution 1
Only the buildings (immovable) are definitely taxable. Land is exempt (nondepreciable). Fixed plant and equipment would also be taxable. (However, if it is
deemed moveable then it would be exempt from property tax.)
Solution 2
In 000 RR
(a)
Average annual value for the first quarter
((850,000 – 350,000) + (900,000 – 400,000) + (1,200,000 – 500,000) + (1,500,000 –
750,000))/4 = (500,000 + 500,000 + 700,000 + 750,000)/4 = 2,450,000/4 = 612,500
(b)
Property tax for the first quarter
612,500 × 2.2% × ¼ = 3,369 RR (000)
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1106
TAX ADMINISTRATION & CONTROL
OVERVIEW
Objectives

To describe the procedures relating to tax audit, appeals and disputes.

To explain the sanctions for tax violations, tax penalties and interest on late tax
payments.

To explain tax control in the form of tax monitoring.
TAXPAYERS AND
TAX AGENTS




Definition
Registration of taxpayers
Registration deadlines
Penalties for late/nonregistration
TAX AUDITS
TAX
ADMINISTRATION
& CONTROL
TAX PAYMENTS
AND
COLLECTIONS












Tax control bodies
Tax audits
Presumption of innocence
Penalties for non-compliance
TAX
MONITORING
TAX RETURNS


General
Mandatory collection
Execution of tax payments
Late payment interest
Suspending bank
transactions
Offset and refund of taxes
Penalties for non-payment
Tax penalties


General
Amendments and
additions
Penalties
Accounting
violations
TAX APPEALS


Right to appeal
Lodging an appeal
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1201





Key features
Eligibility
Information exchange
Reasoned Opinion
Further tax control
TAX ADMINISTRATION & CONTROL
1
TAXPAYERS AND TAX AGENTS
1.1
Definition (art. 19, 24)





1.2

Taxpayer and contributions payer are companies and individuals obliged to pay
taxes and contributions according to the RF Tax Code.
Tax agents are bodies obliged to calculate taxes, withhold them from taxpayer
and pay them to the budget.
Tax agents have the same rights as tax payers.
Taxpayer is liable for calculation and is obliged to pay tax in correct amount, and
make correct tax declarations if required.
Tax agents’ obligations are limited. They should calculate, withhold and pay tax (or
inform the tax authority if this is impossible) and account for the operations and submit
related documents. If an agent has not carried out its withholding duty, it is not obliged to
pay the tax to the budget, but is liable to a fine of 20% of the tax.
Registration of taxpayers (art. 83, 84)
All Russian corporate taxpayers (companies and individuals) should register with a local
state tax inspectorate. Upon the registration, each taxpayer is assigned a taxpayer
identification number (TIN), which must be shown on every invoice and payment
document of the taxpayer. A TIN is a tracking device, which allows the tax authorities to
review the payment history and activity of the taxpayer.

Rules for foreign companies’ registration are not examinable.
1.3
Registration deadlines





Data on the registration of newly-established organisations, their official (i.e. as
specified in the organisational charter) branches and representative offices and
individual entrepreneurs is entered in the Unified State Register of Legal Entities.
Corporate taxpayers should register at the places where the organisation and its subdivisions are located. Individual entrepreneurs should register at their place of residence.
Registration at the location of taxable real estate property and transport vehicles is
performed by the tax authority based on the information received from the
authorities responsible for the official registration of the property.
Registration of a corporate taxpayer at the location of a subdivision which is not specified in
the organisational charter is performed by the tax authority on application.
Deadlines for filing tax registration applications are as follows:
Location of tax registration body
Deadline for tax registration application
For a corporate taxpayer – at the place where its
branches and subdivisions are located.
Within one month following the
establishment of the branch (subdivision).
A corporate taxpayer should inform the tax authority
at the place where its branches and subdivisions are
located in the event of termination of their activities.
Within 3 days following the date of
termination.
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1202
TAX ADMINISTRATION & CONTROL


The tax body must perform the taxpayer’s registration within five days from the
date of filing the required documents.
Individual entrepreneurs must notify the tax inspectorate of any change in the
place of their residence within 10 days from the date of this change.
Illustration 1
A television company “TV10” located in Moscow has a reporter (employee) in Samara
and a piece of equipment (transmittal station) in St Petersburg. The company must
register with the tax authorities in Samara if the reporter has a permanent working
place there for a period exceeding 30 days. No tax registration in St Petersburg is
required.
1.4

Penalties for late/non-registration (art. 116)
Penalties on taxpayers for failure to comply with registration requirements are as
follows:
Failure of a taxpayer to meet the deadline for filing
an application for registration with a tax authority.
No business activity is conducted (art. 116 point 1).
A 10,000 RR fine.
Conducting business activities without tax
registration (art. 116 point 2)
A fine of 10% of income earned during
this period from the business activities,
but not less than 40,000 RR.
Example 1
An individual entrepreneur has conducted trade activities without tax registration for 80
days. His gross income earned for that period was 50,000 RR.
Required:
Calculate the amount of tax penalty.
Solution
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1203
TAX ADMINISTRATION & CONTROL
2
TAX AUDITS AND RELATED ISSUES
2.1
Tax control bodies and their powers (art. 30, 31)


The state tax service of the Russian Federation is comprised of the Federal Tax Service (FTS)
with the headquarters located in Moscow, its regional departments and local (“territorial”)
state tax inspectorates. This united centralised control system is the main executive body
responsible for collecting taxes.
Tax officers (“state tax inspectors”) may:
–
–
–
–
–

conduct on-site tax audits (see below);
suspend bank account operations;
seize property;
charge interest for late payment (non-payment) of taxes;
file claims with courts for imposition of tax penalties, annulment of licenses to
perform licensed activities, liquidation of corporate taxpayers, etc.
The other major tax collector is the customs service headed by the State Customs Committee.
Customs collects VAT paid on import/export duties, customs excises, customs clearance and
other fees. The extra-budget Social Funds (Pension Fund, Social Insurance Fund, Federal and
territorial Obligatory Medical Insurance funds) are in charge of collecting and spending
obligatory contributions payable to them by both corporate and individual taxpayers in the form
of the social insurance and pension contributions.
2.2
Tax audits (art. 87- 89, 100)
2.2.1
Types

There are two types of tax audits:



2.2.2


cameral (in-office) audit (“kameralnaja proverka”) which can be conducted
within 3 months from the date of tax declaration submission (also called “desk”
audit); and
field (on-site) audit (“viezdnaja proverka”) with access to taxpayers’ books and
premises used for carrying out taxable activities. The audit can be conducted
based on the decision of the tax authority’s director.
The details relating to each type of audit are not examinable. However you should
be aware of the limitations imposed on tax audits by the Tax Code.
Limitations
A tax audit cannot cover more than the three calendar years prior to the year of the
decision to undertake the audit.
A tax audit on the same tax for the same period can be conducted only once. This
limitation does not apply if:



the taxpayer submits corrected tax declaration for the audited period showing a
reduction in tax
the taxpayer undergoes a reorganisation or liquidation; or
a superior tax authority carries out a tax audit to control the tax body that
performed the first tax audit.
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1204
TAX ADMINISTRATION & CONTROL






A maximum of two on-site audits of one taxpayer (i.e. head office) can be conducted
during one calendar year (this limitation does not relate to branches).
The timeframe during which a tax audit can be performed is usually limited to two
months. However, it can be increased up to four months (six months in
exceptional cases).
The tax audit can be suspended for carrying out additional procedures but not
longer than 6 months in total.
If a taxpayer has branches (representative offices), the maximum common audit
timeframe is one month for each branch (representative office). This term cannot
be increased.
Documents (or verified copies) which have already been submitted to the tax
authority cannot be required again (except in case of acts of God).
However, in the case of a refiling of a tax return two years after the expiry of the
relevant deadline and either:


the taxable profit has decreased; or
the tax loss amount has decreased,
the tax authority has a right to require initial and other documents, confirming the
above changes (and also analytical registers of tax accounting confirming the data
before and after the changes).
2.2.3
Actions

Actions that may be undertaken by the tax authorities during tax audits:








witnesses may be summoned (the taxpayer’s auditor and legal adviser
cannot be questioned as witnesses);
tax officials should be given access to the relevant grounds or premises;
inspections of premises, objects, etc may be held;
provision of documents may be requested;
documents and other objects may be seized;
conclusions of experts may be sought;
specialists may be recruited to perform part of the tax control actions;
interpreters may be used.
Commentary
Again the details will not be examined but a summary of possible actions may be called for.


For VAT desk audits, submission by the taxpayer of supporting documents must be
made electronically. Replies to audit requests may no longer be made with
supporting documents in paper form.
If during the course of a VAT desk audit information is found which is inconsistent
with data received from other sources, the tax authorities will be able to visit the
taxpayer’s premises for an inspection. (Note that a VAT inspection visit can always
be made if the taxpayer submits a return showing a VAT refund.)
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1205
TAX ADMINISTRATION & CONTROL
2.2.4

“Spravka”
After the tax audit is completed, a special document called “spravka” is prepared. Within
two months after the completion of the audit, the audit act is drawn up and presented to the
taxpayer. The tax inspectorate will consider any objections that the taxpayer may have and
will prepare a decision on the audit. A payment request (“platezhnoie trebovanie”) is sent to
a taxpayer. The whole process is summarised in the table below:
Action
Timeframe
Note
Audit act
Not later than two months after
“spravka” is issued
Written objections to the
act by a taxpayer
One month after the act is
received by the taxpayer or his
authorised representatives
May apply to the Act as a whole, or
to its separate parts
Consideration of taxpayer’s written objections
No later than 10 days after the
deadline for filing objections
Is signed by the chief of tax body (or
deputy-chief)
First tax decision on audit
No later than 10 days after the
deadline for filing objections
(can be extended for 1 month)
The decision may provide for:


imposition of penalties;
no penalties or sanctions.
Payment request
Payment request is issued within
20 days after the decision on
audit is effective.
The request is issued in relation to
underpaid tax, penalties and late
payment interest.
Appeal to the superior
tax authority.
(1) Before the first tax decision
is effective (10 days).
Performance of the first tax decision
is suspended until the date of
Superior authority’s decision.
(2) Within 1 year from the first
tax decision (if effective).
Taxes and fines should be paid in this
case
Superior authority’s
decision.
One month from the appeal
receipt.
Decision on tax audit comes into
effect on the date of the Superior
authority’s approval.
Appeal to court
Only after appeal to the superior
authority.
See section 5.

Non-compliance with the above procedure can serve as basis for the annulment of the
decision of the tax body by the superior tax body or by the court.
2.3
Presumption of innocence (art. 108 and 109)

The Tax Code introduces presumption of innocence with respect to taxpayers and tax agents.


The burden of proving tax offences and the taxpayer’s guilt lies with the tax
authorities. Any irremovable doubt concerning the guilt of taxpayers, in
committing tax offences, is resolved in the taxpayer’s favour.
Persons cannot be brought to account for tax offences, if more than three years
have elapsed (statute of limitation) since:
–
–
the day when the offence was committed; or
the first day following the tax period, when the offence was committed.
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2.4

Penalties for non-compliance with tax audit rules (art.126)
The following main penalties apply to taxpayers for a failure to comply with tax
control requirements:
Non-submission of documents and/or other
information envisaged by the Tax Code (and other
legislative acts on taxes and levies) by a taxpayer
or a tax agent to the tax bodies within the
established period of time (art. 126.1).
A fine equal to 200 RR for each nonsubmitted document.
Non-provision of information about a taxpayer to
the tax authority in the form of refusal of an
organisation to turn over the documents envisaged
by the Tax Code containing information on the
taxpayer at the request of a tax authority, or
provision of documents containing false
information (art. 126.2).
A fine of 10,000 RR.
3
TAX PAYMENTS AND COLLECTIONS
3.1
General (art. 44, 45)

A tax obligation is considered to be fulfilled from the moment that:





a payment order is submitted to the bank, provided the bank account
balance allows the payment;
the relevant cash amount of tax payment is deposited with the bank (or the cashier
of the local government authority or a branch office of the Ministry of
Communications);
the tax authorities (or court) issues a decision to offset overpaid taxes
against the tax liability;
taxes are withheld by the tax agent.
A tax obligation is terminated in the following cases:




when the taxpayer pays the tax;
when circumstances which are equated with the termination of a tax
obligation under the tax legislation arise;
with the death of an individual taxpayer (with exception of property taxes);
with the liquidation of a corporate taxpayer.
3.2
Mandatory collection of taxes (art. 45 and 46)

In case of failure to pay, tax, late interest and fines are collected:
–
from organisations and individual entrepreneurs under mandatory procedure
without a court decision; and
–
from individuals – in accordance with a court decision.
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
A mandatory collection of tax from a taxpayer may not be effected without a court
decision if:
–
the additional tax liability arose due to the re-classification by the tax authorities
of the legal status of transactions or nature of business in which the taxpayer is
engaged; or
–
the decision for the mandatory collection is made later than 60 days after the
deadline established in the “demand” to pay tax (art. 46.3).
3.3
Methods for ensuring execution of tax payments (art. 72)

Methods for ensuring execution of tax payments are:





pledges of assets;
guarantees;
late payment interest;
suspending bank transactions;
seizure of property and assets.
Exam advice
These methods will not be examined in detail except for the late payment interest.
3.4


Late payment interest (art. 75)
Late payment interest is an additional amount of money which a taxpayer or a tax agent
should pay where taxes/levies are paid after the established deadline.
Late payment interest is not a tax penalty (which is a further additional payment
(fine) for tax violations) but interest for the use of budget money. Late payment
interest can be collected from:



legal entities and individual entrepreneurs along with the taxes overdue
without a court decision;
individuals (excluding individual entrepreneurs) only through court.
Late payment interest is accrued for each calendar day of arrears, beginning on the
day following the statutory deadline for the payment of taxes/levies.
Exam advice
For exam purposes this should be interpreted as running from the day following
the due date up to and including the day before payment is made.
The new penalty interest rate of 1/150 of the CBR key rate is not yet examinable.

The late payment interest rate equals 1/300 of the effective CBR rate. Late payment
interest should be paid simultaneously with the payment of tax liability or following such
a payment (i.e. before the tax penalties and fines are paid).
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Example 2
Tax payment deadline was 31 March 2017. Tax amount was 60,000 RR. Actual payment
was made on 5 July 2017.
Required:
Calculate the late interest amount using Central Bank refinancing rate given in Rates and
Allowances (see Session 00).
3.5
Suspending bank transactions (art. 76)

Suspending operations through bank accounts is used to ensure:










the execution of a decision to recover a tax or fee;
the receipt of a tax return (where submission is delayed more than 10 days);
a response to requests from the tax authorities for information, documents or
explanation; or
a response to a request to visit the tax office.
Suspension of operations means that the bank suspends all debit transactions, or
operations within the limits specified in the tax authority’s decision.
Suspension of a taxpaying organisation's transactions is effective when the bank
receives a decision of a tax authority until the reversal of this decision.
Suspension is reversed by the decision of a tax authority not later than one day
after the tax authority receives the documents (copies thereof) proving that tax has
been collected or tax return received.
A copy of a decision (to suspend or reverse) is sent to the bank the day after it is made.
If a tax authority breaches the term of cancelling a block on a taxpayer’s bank
account, interest accrues in favour of the taxpayer.
Such interest accrues on the suspended amount for each calendar day of arrears,
beginning on the day following the statutory deadline for the decision having been
taken or its submission to the bank.
Illustration 2
On 5 February 2017 two bank accounts of the Company GF totalling 500,000 RR were
blocked because it did not submit a tax return (the deadline was 20 January 2017).
The tax return was submitted to the tax authority on 8 February 2017. The tax authority
made a decision to unfreeze GF’s bank accounts and sent it to the bank on 11 February 2017
(instead of 9 February).
Interest accrues to GF for the two days delay:
500,000 × 15% × 2/365 = 411 RR
Commentary
This very practical issue is important in defending the rights of taxpayers.
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3.6
Offset and refund of taxes (art. 78, 79)

Overpaid taxes can be:






offset against future payments of the same tax;
offset against future payments of other taxes payable to the same budget;
refunded from the budget;
offset against tax arrears, late interest and penalties, provided that these amounts
are payable to the same budget to which the overpaid tax was remitted.
The taxpayer should make an application for a refund of the overpaid tax. The tax
should be refunded to the taxpayer within one month of the date the refund
application was received by the tax authority.
If the timeframe for a tax refund is violated, interest accrues at the Central Bank
refinancing rate.
Example 3
The tax inspectorate has collected on 10 March 2017 130,000 RR from a taxpayer through a
mandatory collection order (“inkasso”). The taxpayer complained to the court and won the
case. The tax inspectorate made a refund on 5 June 2017.
Required:
Calculate the refund amount.
3.7
Tax penalties for non-payment (art. 122, 123)
Failure to pay or failure to pay in full taxes
due as a result of understating the tax base or
incorrect calculation of taxes due based on
the results of a tax period, if discovered by
the tax authority during a field (on-site) audit.
A fine equal to 20% of the unpaid tax
liability.
The same actions committed intentionally.
A fine equal to 40% of the unpaid tax
liability.
Failure of a tax agent to fulfil the duty of
withholding and/or remitting taxes.
A fine equal to 20% of the amount that was
subject to withholding and remittance.

In addition to these tax penalties the taxpayer should also pay late payment interest.
Example 4
The tax inspectorate has discovered an intentional understatement of taxable revenue for the
year to December 2016 amounting to 200,000 RR. The deadline for payment was 28 March
2017. Payment was made by the taxpayer on 30 June 2017. The applicable tax rate was
35%.
Required:
Calculate the amounts which have to be paid to the budget, including the sanctions (tax
penalties and interest on late tax payment).
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TAX ADMINISTRATION & CONTROL
3.8

Tax penalties for non-compliance with transfer pricing rules
Where the tax authorities recalculate tax due on transactions under the new
transfer pricing legislation (see Session 2), the taxpayer is required to pay:




the additional outstanding tax;
late payment interest, calculated in the normal way based on CBR; and
where a taxpayer has not provided requested transfer pricing documentation,
an additional penalty fine (5,000 RR for late or incorrect submission of
notification).
Transitional rules apply to the amount of the penalty fine:



in 2012 and 2013 no penalty fine was charged;
from 2014 to 2016 the penalty was 20% of the additional tax due;
from 2017 onwards the penalty is 40% of the additional tax due, but not less
than 30,000 RR.
4
TAX RETURNS
4.1
General (art. 80)









A tax return is a taxpayer’s written statement showing income generated and
expenditures incurred, sources of income, tax allowances and tax amounts
calculated and other data relating to the calculation and payment of a tax.
A tax return should be filed by each taxpayer for every tax due from such a
taxpayer unless the tax legislation provides otherwise.
A tax return should be filed in a prescribed form with the tax authority at the place of the
taxpayer’s registration. In cases established by the Tax Code, a tax return may be
submitted on a floppy disk or another device that can be computer processed.
A taxpayer may deliver his tax return to the tax authority in person or send it by mail.
The tax authority may not decline to accept the tax return and must, if the taxpayer so
requests, make a note on a tax return copy to acknowledge the acceptance and date of
submission; if a tax return is mailed the date of its submission is that of mailing the
registered letter with a list of contents attached.
A filed tax return bears the TIN that is used with respect to all taxes.
The tax authorities cannot require that a taxpayer includes in the tax return data
that is not related to the calculation and payment of taxes.
A tax return is filed within the statutory deadlines.
Instructions on how to complete a tax return for the payment of federal, regional and
local taxes are given by the Ministry of Finance of the Russian Federation.
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4.2






4.3

Amendments and additions to tax returns (art. 81)
On discovering that a tax return which has been filed does not reflect the true data,
or reflects incomplete data, resulting in the understatement of the amount of the
tax due, a taxpayer must make the necessary additions and amendments to the tax
return.
Where mistakes are discovered in the tax return which do not result in the
underpayment of tax, the taxpayer still has a right to amend the tax return.
Where it is impossible to establish the tax point in which a mistake arose, the
correction is made in the tax period in which the mistake is discovered (art.54).
Where the above statement on additions and amendments is made prior to the
expiration of the deadline for filing a tax return such a tax return is recognised as
having been filed on the date of the statement.
Where the statement on additions and changes is made following the expiration of
the deadline for filing a tax return but before the expiration of the deadline for
payment of the tax, the taxpayer is not held responsible if the statement has been
made prior to the date when the taxpayer learned about the discovery of these
circumstances by a tax body or about the appointment of a field tax audit.
Where a statement on additions and changes is made following the expiration of the
deadline for filing a tax return and also after the deadline for payment of the tax, the
taxpayer is still not held responsible if the above statement has been made by the
taxpayer prior to the date when the taxpayer learned about the discovery of these
circumstances by a tax body or about the appointment of a field tax audit. The taxpayer
is released from penalties (but not late payment interest) provided that before filing
such an application the taxpayer has paid the deficient amount of the tax and the
corresponding late payment interest.
Penalties for late/incorrect submission (art. 119)
The following main penalties apply to taxpayers for a failure to comply with tax
returns submission deadlines and forms:
Failure by a taxpayer or his legal
representative to meet the tax declaration
filing deadline.
A fine in the amount of 5% of any unpaid but
payable tax as per this declaration for each
complete or incomplete month from the submission
day, but not more than 30% of the tax amount and
not less than 1,000 RR
Violation of established method of tax return
submission (i.e. not electronically).
A fine equal to 200 RR.
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4.4
Violations in accounting rules (art. 120)

Serious violation of accounting rules is understood as:

–
the absence of source documents and/or VAT invoices and/or accounting
registers/journals;
–
systematic (more than twice per year) non-recording of transactions in
accounting.
The following main penalties apply to taxpayers for a failure to comply with
accounting rules for income/expenses and objects of taxation:
Serious violation of accounting rules which
did not result in any decrease of a tax base
A fine in the amount of 10,000 RR if
violation took place in one tax period, or
a fine of 30,000 RR if the violation took
place in several tax periods.
Serious violation of accounting rules which
resulted in the decrease of a tax base.
A fine in the amount of 20% of the tax
underpaid but not less than 40,000 RR.
5
TAX APPEALS
5.1
Right to appeal (art. 137)


Taxpayers and tax agents have the right to lodge an appeal against the acts,
actions, or inaction of the tax authorities.
Taxpayers (tax agents) have the right to appeal against the decisions of the tax
authorities:


with superior tax authorities;
in court of law (arbitration court).
Commentary
A taxpayer is obliged to appeal to superior tax authorities before filing an appeal
in court.


5.2

The procedure for a “tax appeal order in respect of the first tax decision” is set out in the
Tax Code (art. 101.2).
Appeals against the decisions of the tax authorities in court are made by bringing suit with
an arbitration court in conformity with the laws on arbitration procedure.
Lodging an appeal (art. 139)
Lodging an appeal with a superior tax authority does not suspend execution of the
act or action being appealed (except for cases where such acts are suspended by
the tax authority considering the appeal).
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Action
Deadline
Filing
3 months from the time when the
taxpayer discovered or should have
discovered that its rights were
violated.
Consideration
Up to one month from the date when
the appeal has been received.
Decision
Decision is taken within one month
and is made known to the taxpayer
within 3 days after the decision has
been adopted.





dismiss the appeal;
invalidate the tax authority’s act and order another audit;
overturn the decision and quash the case;
amend the decision or issue another ruling.
TAX MONITORING
6.1
Key features




Served in writing to the
person that lodged the
appeal.
After considering the appeal the tax authority is entitled to:
6

Consequences
The tax monitoring system was introduced in 2015 to provide a new form of
relationship between participating major taxpayer companies and the tax authorities.
The aim of the system is to reduce costs and increase certainty for both sides based
on the principles of transparency, co-operation and trust.
Taxpayers set up an information exchange system with the tax authorities.
The taxpayer’s internal controls underlying this information provision will be
taken into account by the tax authorities when establishing the terms of monitoring
(planning and execution of tax control measures).
Taxpayers are not subject to on-site or in-house tax audits during the period of the
arrangement.

Taxpayers can request and receive a “Reasoned Opinion” regarding their tax position.
6.2
Eligibility

Only large taxpayers are eligible to apply. For the year prior to the year of
application they must have:
(1)
Tax payable to the Federal Budget of at least 300 million RR (VAT,
profits tax, excise taxes and mineral extraction taxes);
(2)
Total annual income of at least 3 billion RR;
(3)
Total assets of at least 3 billion RR.
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


Members of a consolidated group of taxpayers are only able to participate from 2017.
Eligible taxpayers may apply to participate in the regime from the next reporting year
(i.e. an application accepted in 2016 would take effect from 2017).
The tax monitoring period is the calendar year, but procedures involved may run until
1st October of the following year.

If the tax authority does not accept the application it should provide a reasoned refusal.
6.3
Information exchange

The taxpayer’s application should:
(1)
Define the procedures:


(2)
Define the procedures relating to:


(3)




disclosure of items in statutory accounts, tax accounts and
analytical tax ledgers; and
the correct withholding and remittance of taxes;
Provide information on:


for providing documents in electronic form, and/or access to
the taxpayer’s IT systems; and
for the inspection of primary documents;
the taxpayer’s internal control systems;
procedures for minimising the risk of inaccurate or incomplete
information or tax payments; and
the method and timescale of reporting the application of
internal procedures to the tax authorities.
It is the assessment of the effectiveness of the taxpayer’s own internal control
environment which allows a reduced quantity of primary documentary submission and
a “lighter touch” approach to tax monitoring.
Failure to provide sufficient information in the prescribed form will allow the
application for tax monitoring to be denied.
Similarly, failure to comply with the agreed terms of information exchange may result
in early termination of tax monitoring.
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TAX ADMINISTRATION & CONTROL
6.4


Reasoned Opinion
This is a formal document sent by the tax inspectorate to a taxpayer within a
period of tax monitoring, which sets out the authority’s position on some aspect of
the taxpayer’s affairs.
Each Reasoned Opinion is signed by the head of the tax inspectorate and will
consist of:








6.5
an introduction;
a description; and
a conclusion.
The opinion may be initiated by the tax authorities, typically where they have
evidence of some tax irregularity by the taxpayer such that tax has been paid or
declared incorrectly, insufficiently, or on an untimely basis.
Alternatively, the opinion may be issued at the taxpayer’s request, for example to
ascertain the authority’s position in interpreting tax law and applying it to the
taxpayer’s situation, whether this corresponds with the taxpayer’s own view and, if
not, justifying the difference. The opinion should be issued within one month of
the taxpayer’s request.
A taxpayer disagreeing with a Reasoned Opinion may set out their arguments, which
are then escalated to a mutual agreement procedure under the Federal Tax Service.
Clearly this system can be very beneficial to the taxpayer as commercial
operations can be arranged with a much greater certainty of their tax treatment.
However, the benefit is partly restricted as a Reasoned Opinion cannot be issued
by a tax authority on transfer pricing issues.
Further tax control
Although tax monitoring will usually exempt the taxpayer from tax audits, these will still be
possible in the following circumstances:

Submission of a tax return later than 1 July in the year following;

Submission of a VAT (or excise tax) return claiming a repayment;


Submission of an amended tax return showing a reduction in tax payable, or an
increased tax loss;
Early termination of the tax monitoring regime (which would only arise in cases of
non-compliance by the taxpayer);

Non-performance by the taxpayer of the terms of a Reasoned Opinion;

A field tax audit by the Federal Tax Service central team.
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FOCUS
You should now be able to:

















state the limitations related to tax audits conducted by tax authorities;
state the conditions under which the consequent tax audit can be carried out;
explain the procedure for a tax appeal order in respect of first tax decision received (art. 101.2);
state the rules for the execution of tax audit results (Article 100);
state the circumstances when the tax authorities have the right to request documents
during a desk tax audit;
state the rules applicable for sending documents to tax authorities in electronic layouts in
the case of desk tax audits;
explain and calculate the administrative tax sanctions for non-compliance (including
electronic documents exchange);
explain the procedure by which the tax authorities collect penalties from taxpayers;
explain the difference between interest on late tax payments and tax penalties;
compute interest on late tax payments;
explain the procedure of interest accrued in favour of a taxpayer in the case where the tax
authorities breach the term of cancellation of the decision on blocking the accounts in the
taxpayer’s bank;
explain the refund procedure and deadlines for individual income tax and corporate profits tax;
state the amounts of penalties for tax underpayments or non-payments;
state the amounts of penalties for non-filing or late filing of tax returns;
state the amounts of penalties for non-compliance with transfer pricing rules;
explain the conditions for a company applying for participation in tax monitoring, the
procedure for application, the terms of such monitoring, the procedure of making a decision to
apply for tax monitoring or the decision to refuse the application for tax monitoring and the
procedure for early termination of tax monitoring; and
explain the procedure for conducting tax monitoring, “reasoned opinions” issued by the tax
authority and the mutual agreement procedure.
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EXAMPLE SOLUTIONS
Solution 1
The fine is the greater of:
10% of gross income earned (i.e. 5,000 RR); or
40,000 RR.
Therefore, the fine is 40,000 RR.
Solution 2
Central Bank refinancing rates (notional):
1 January – 30 April 2017: – 15%
1 May – 30 September 2017: – 7%
The late interest is calculated as follows:
60,000 RR × 30 days × 1/300 × 15%
60,000 RR × 65 days (31 + 30 + 4) × 1/300 × 7%
Total late interest
RR
900
910
––––––
1,810
––––––
Solution 3
The refund will be made along with interest, calculated using Central Bank rate:
RR
130,000
2,725
898
–––––––
133,623
–––––––
130,000
130,000 × 15% × (21 + 30)/365 days
130,000 × 7% × (31 + 5)/365 days
Solution 4
RR
Amount of underpaid tax (200,000 × 35%)
70,000
Intentional violation at 40% penalty
28,000
Interest on late tax payment (70,000 RR × 33 days × 1/300 × 15%) 1,155
(70,000 RR × 60 days × 1/300 × 7%)
980
–––––––
Total amount
100,135
–––––––
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1218
GLOSSARY
Words highlighted by italics within an entry indicate other entries under which further explanation or
information can be found.
A
Accounting depreciation – depreciation used for accounting purposes only. May be different from
depreciation calculated for tax purposes.
Accrual – a liability to pay for goods received/services supplied that has not been paid, invoiced or
formally agreed with the supplier, including amounts due to employees (e.g. holiday pay).
Accruals method of income recognition – under this method income/expenses are recognised for tax
purposes when they were accrued rather than paid. Generally income is accrued when the title to
goods (works, services) is transferred from seller to buyer.
Accumulated depreciation – total of depreciation charges for a certain period of time.
Advance Pricing Agreement – a voluntary agreement with the tax authorities for three to five years
which guarantees against adjustments on transfer prices and additional tax assessments thereon.
Allocation – see Expense allocation.
Allowances –decrease in taxable income of the individual or a legal entity (e.g. standard child
deduction for individuals).
Allowed expenses – see Tax deductible expenses.
Amortisation – the systematic allocation of depreciable amount of an intangible asset over its useful life.
APA – Advance Pricing Agreement.
Asset – a resource controlled as a result of past events and from which future economic benefits are
expected to flow.
Asset cost – amount that includes: acquisition cost; own cost if produced/installed with own labour
(include appropriate direct cost and overhead).
Audit – the objective of an audit of financial statements is to enable the auditor to express an opinion
whether the financial statements are prepared, in all material respects, in accordance with an
identified financial reporting framework.
Avoidance – reduction of tax burden using legitimate techniques.
B
Bad debt – a debt that is considered non-collectible.
Bad debt write-off – removing debt from accounting records. Tax consequences depend on the
specific circumstances of the write-off.
Basic VAT rate – 18%, it applies to most goods and services.
Benefits in kind – benefits provided to employees in a non-cash form.
Branch – organisational component of a company. It is not a separate legal entity. See also Separate
subdivision.
Business – see Enterprise.
Business income – type of income for personal income tax purposes, includes income of individual
entrepreneurs.
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1301
GLOSSARY
C
Cadastral value – a rateable value according to an official register or property values.
Cameral audit – an audit conducted at the authority’s location based on the IC payer’s reporting
(calculations) documents submitted.
Cash method of income recognition – one of the two allowable methods of income/expense
recognition, under which income/expense is recognised when actually received/paid.
Capitalisation – recognising an amount as part of the cost of an asset.
Charter capital contribution – a transfer of assets to the charter capital of a legal entity.
Contributions can be monetary, ie for cash or non-monetary, ie for consideration other than cash.
Children allowance (deduction) – reduction of individual’s taxable income subject to 13% rate.
Apply up to (not including) the month when gross income exceeds 350,000 RR.
Confirmed export – export which is proved by required documents for VAT purposes .
Controlled transactions – different types of related party transactions identified under transfer
pricing legislation.
Copyright – applies to literary, scientific, and artistic works that are the result of creative activities by
their authors.
CPT – corporate profits tax.
Corporate profits tax – type of income tax levied on entities.
Customs declaration – a statement which must be filled in every time goods are imported or exported
to indicate the customs regime used and customs value of items.
Customs duty – duties levied on import of goods.
Customs regime – a regime used for importation or exportation of goods. VAT and customs duty are
then payable according to the type of the regime.
Customs value – value of the goods imported to the Russia. Usually it is the invoiced amount plus
any directly related expenses such as transportation, licence fee, etc.
D
Declarative procedure of VAT recovery – The procedures by which certain taxpayers can obtain a
refund of input VAT before their tax declaration is checked by the tax authority.
Deductions from tax – (a) qualified expenses of individuals, decreasing their PIT liabilities (e.g.
social and property deductions); (b) expenses of a legal entity, deductible for CPT purposes.
Depreciable property – property, capital improvements, objects of intellectual rights, etc used for
income-generating activities with a useful life of more than one year and an original value more than
100,000 RR.
Depreciation – the systematic allocation of depreciable amount of an asset over its useful life.
Desk audit – see Cameral audit.
Direct taxes – taxes where the taxpayer is known (e.g. income taxes, property taxes).
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1302
GLOSSARY
Direct expenses – expenses that directly relate to the cost of goods (works, services) manufactured or
bought for resale (i.e. direct materials, wages and salaries of main production workers). Direct
expenses must be prorated between cost of goods sold and ending stocks.
Disallowed expenses – non-tax deductible expenses.
Disposal of an asset – sale, liquidation or donation of an asset.
Dividends – distributions of profits to equity investors in proportion to shareholdings.
Donations – free transfer of assets to legal entities or physical persons.
Double taxation – occurs when the same income is subject to the same type of tax more than once.
DTT – double tax treaty.
Double tax treaty – convention for the avoidance of double taxation designed to ensure that a
taxpayer, whether corporate or individual, will not suffer double taxation on the same income, if that
income is taxable in more than one country or “contracting state” at the same time.
E
Educational deduction – one of several social deductions granted to an individual taxpayer. Income
taxed at 13% rate can be decrease by the amount of documentary confirmed expenses of a taxpayer
on his own education and education of his children.
Employment income – type of income for personal income tax purposes, includes salary and wages.
Enterprise – aggregate of the tangible, personal and intangible components of business activities.
Excise duty – duty levied on hydrocarbon fuels and lubricants, spirits, wine, beer, tobacco and some
other goods.
Exclusions – income, which is not subject to CPT (i.e. excluded from taxation).
Exempt supplies – supplies which are not subject to VAT. Input VAT on such supplies is either
capitalised or deducted for CPT purposes.
Expenses – decreases in economic benefits in the form of outflows (or depletions) of assets or
incidences of liabilities that result in decreases in equity (other than distributions to equity
participants).
Expense allocation – see proration of expenses under accruals method.
Export of goods – customs regime under which goods are leaving the RF territory with no return
obligation.
Export of services – in a VAT sense can refer to services that were related to exported goods.
F
Fair market value – selling/purchase price in an active market defined according with article 40 of the
Tax Code.
Field audit – an audit conducted at the IC payer’s location under a decision made by the Head of the
authority.
Financial lease – under such an agreement the lessor provides an asset to the lessee which is
accounted for on the lessee’s balance sheet.
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1303
GLOSSARY
Financial statements – the balance sheets, income statements (or profit and loss accounts), the cash
flow statement, notes and other statements and explanatory material which are identified as being part
of the financial statements.
First-in, first-out (FIFO) – assumes that items, which were bought first is sold first therefore periodend inventory is that most recently purchased/produced.
Fixed assets for CPT purposes – assets with an estimated useful life exceeding one year and the
original cost exceeding 100,000 RR.
G
Gifts – see Donations.
H
Housing incentive – a tax incentive granted to individual taxpayers, acquiring residential property or
plots of land for individual residential house construction in the form of reduction of taxable income
subject to 13% by the acquisition amount. The incentive is limited to 2,000,000 RR plus interest.
Any unused incentive amount can be carried forward until it is completely utilised in subsequent
years.
I
IC – see Insurance contributions.
Individual entrepreneur – an individual, carrying out business activities, registered with tax
inspectorate.
In-office audit – tax audit conducted in a tax office based on the returns submitted by a taxpayer and
additional documents, requested by a tax body. Also called “in-house”, “desk” or cameral audit.
Insurance contributions – compulsory payments for obligatory social (Social Security Fund, Pension
Fund, Medical Fund).
Immovable assets – real estate (i.e. buildings, constructions, land, etc).
Imputed interest income on loans – taxable income, which is assessed on zero-rate/low interest loans.
This interest is calculated for tax purposes only.
Income – increases in economic benefits in the form of inflows (or enhancements) of assets or
decreases of liabilities that result in increases in equity (other than those relating to contributions from
equity participant).
Income tax – tax levied on individual’s income (personal income tax).
Indirect taxes – taxes where the taxpayer is not known and the tax is withheld by the tax collector
(e.g. value added tax, excise duty).
Indirect expenses – expenses, which decrease taxable base for CPT in the period when they arise.
These expenses are not allocated (prorated) between cost of goods sold and ending stocks.
Inheritance –assets, etc received from the estate of a person who has died (e.g. a relative) as a
beneficiary of a will or by operation of law (e.g. where there is no will).
Input VAT – VAT imposed on purchases.
Intangible asset – an identifiable non-monetary asset without physical substance (held for use in
producing/supplying goods/services, for rental to other, or for administrative purposes.
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1304
GLOSSARY
Investment deduction – a deduction available to an individual taxpayer, within certain prescribed
limits, either in respect of sums invested into a personal investment account or, subject to certain
holding requirements, against income arising from the sale of securities.
J
Joint-activities agreement – an agreement between two or more parties to join their efforts in a
specific area. See also Simple partnership.
Joint stock company – company whose capital is divided into shares of a specific nominal value. The
company is liable for a breach of its obligations with its entire property.
L
Last-in, first-out (LIFO) – assumes that inventory items bought last are sold first therefore period-end
inventory is that most lately purchased/produced.
Late payment interest – compensation to the budget for late payment of tax (levy). This is not a tax
penalty and may be collected from a taxpayer through a mandatory collection procedure.
Liability – a present obligation arising from past events, the settlement of which is expected to result
in an outflow of resources embodying economic benefits.
Limited liability company – legal entity whose registered capital is made up of contributions agreed
in advance by its members.
Linear depreciation method – depreciation is calculated monthly for each fixed asset as
the original tax cost (after deduction of any initial write-off) multiplied by the
depreciation rate determined for the specific fixed asset.
Losses – see Net operating losses.
M
Medical deduction – one of several social deductions granted to an individual taxpayer. Under this
deduction income taxed at 13% rate can be decrease by the amount of documentary confirmed own
medical expenses of a taxpayer and medical treatment of his/her closed relatives (parents and children
under 18 years of age).
Movable assets – assets other than real estate.
N
NBV – Net book value.
Net book value – the difference between the original cost of assets (adjusted for any allowable
revaluations) less related accumulated depreciation.
Net business assets – business property reduced by liabilities incurred in connection with business
activity.
Net operating losses – losses from operational activities. Can be carried forward and utilised over 10
years following the year of loss.
Non-linear depreciation method – depreciation is calculated for each depreciation group (subgroup)
based on its total net balance value.
Non-operational income/expenses – income not included in sales/cost of sales, i.e. interest
received/paid, rental income/expense, commercial penalties received/paid.
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1305
GLOSSARY
Non-recoverable VAT – input VAT which cannot be recovered and is either capitalised/deducted or
charged out of after-tax-profits.
Non-profit organisations – entities which are established without a purpose of a profit making
business activity.
Non-resident – see Tax non-resident.
Non-tax deductible expenses – expense, which is not allowed for tax purposes and is ignored for tax
accounting.
O
On-site audit – tax audit conducted in the office of taxpayer.
Operating lease – under such an agreement the lessor provides an asset to the lessee but it is still
accounted for on the lessor’s books.
Operational income/expenses – income/expenses arising from sales of goods (works, services), sales
of fixed and other assets.
Output VAT – VAT imposed on sales.
Offset – see tax offset.
Original asset cost – purchase price of an asset plus all related expenses, which were capitalised at
the moment of purchase according to CPT rules.
P
Pension deduction – one of several social deductions granted to an individual taxpayer. Under this
deduction income taxed at 13% rate can be decreased by the amount of documentary confirmed
personal taxpayer’s expenses on non-state pension security and/or voluntary pension insurance for the
benefit of taxpayer or his spouse, parents and/or children.
Permanent working place – a working place created for the period exceeding one month.
Person liable to tax – tax subject, can be either a taxpayer or a tax agent.
Personal income tax – type of income tax levied on individuals.
Personal investment account – investments by individuals that are managed by a broker or securities
management operation.
PIA – Personal Investment Account
PIT – Personal income tax.
Proration of expenses under accruals method – procedure used if a company uses accruals method
for CPT purposes. The direct operational expenses are prorated. Non-operation expenses are not
prorated.
Proration of input VAT – input VAT incurred on resources used for both VATable and exempt
supplies is partially recovered and partially capitalised (included in the cost of related resources). The
proration is performed based on exempt/total sales ratio.
Property deductions – deductions available to individuals on sales of personal property. The amount
of deduction depends on the type of property and the period of property ownership by a taxpayer.
Provision – a liability of uncertain timing or amount. For tax purposes only certain provisions can be
lead to tax deductible expenses.
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1306
GLOSSARY
Property tax – tax on property of legal or physical persons.
Q
Qualified property–property that is taken into account for tax purposes in various given
circumstances.
R
Recovery – see VAT recovery.
Recurring supply – a taxable supply within agreed time limits, so that under the contract the supply is
rendered in the form of the same kind of goods or services, or transfer and use of rights (e.g.
electricity supply).
Reduced VAT rate – 10%, it applies mostly to food stuff and some children’s goods.
Repair – as opposed to technical appreciation, repair is a current year expenses, which does not have
to be capitalised.
Research – original and planned investigation undertaken to gain new scientific/ technical
knowledge/understanding.
Reserves – see Provision.
Resident – see Tax resident.
Residual value – see Net book value.
Revaluation – change (increase or decrease) of fixed asset’s original cost. Can be mandatory or optional.
Revenue – see Income.
Russian source income – includes income from activities carried in Russia (including income from
employment in the Russia), income from services provided in Russia, income from the sale of real
estate situated in Russia, copyright, dividends, interest payments received from Russian persons, etc.
Non-residents are taxed on Russian source income only.
S
Securities – shares, bonds, bills of exchange, cheques, participation certificates, etc.
Self-employed – see Individual entrepreneur.
Separate subdivision – any subdivision with permanent working places in a location other than the
location of the head office.
Share – a security to which are attached shareholder’s rights to participate in the management of the
company, its profit and also liquidation share, if the company’s is dissolved.
Simple partnership – not a legal entity created under joint activity agreement. The income of a
simple partnership is allocated to its participants and taxed either by CPT or by PIT.
Social deductions – see Educational, Medical and Pension deductions.
Standard VAT declaration – VAT declaration, which is filed by all VAT payers.
Straight line depreciation – method of depreciation under which an asset is depreciated evenly over
its useful working life. See Linear method.
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1307
GLOSSARY
T
Tangible asset – asset with physical substance.
Tax accounting – accounting system maintained according to the rules of the Tax Code Chapter 25.
Tax accounting policy – a document in which an organisation selects and ratifies the methods and
variants of tax accounting.
Tax audit – an examination conducted by tax officers in order to verify the tax data submitted by a
taxpayer. See also In-office audit and On-site audit.
Tax assessment – see Tax decision.
TC – Tax Code of Russian Federation.
Tax agent – a person with a duty to calculate and withhold tax from payments to taxpayers and to
remit these amounts to budget.
Tax cost – of depreciable property – for a fixed asset purchased from third parties this includes
purchase price and all costs required for transportation, installation and testing of the asset.
Tax decision – document issued as a result of a tax audit. Any additional tax liabilities and penalties
can be imposed only on the basis of an official tax decision.
Tax deductible expenses – expenses, which are allowed for tax purposes.
Tax depreciation – the method (Linear/Straight-line or Non-linear) is chosen by the taxpayer and
defined in tax accounting policy.
Tax non-resident – an individual staying in Russian for less than 183 days.
Tax offset – application of tax receivable to future tax liabilities on this tax or to current liabilities on
other taxes. No money is given back to taxpayer as in case of a tax refund.
Tax point – date when a taxable supply was made. Important to determine, as it is a day when output
VAT is due.
Tax rate – rate of tax applicable to a tax base.
Tax recapture – arising of a tax liability, which was previously not recognised.
Tax receivable – amount due to a taxpayer from budget generally as a result of a tax overpayment.
Tax recovery – cancellation of a tax receivable either through a tax offset or a tax refund.
Tax refund – payment of a tax receivable back to a taxpayer.
Tax resident – an individual who spends 183 or more days in Russia in a calendar year and is liable to
tax on his/her world-wide income.
Tax return – a document disclosing the taxpayer’s tax liability.
Tax year – year for which a tax liability is calculated, in Russia it is always a calendar year.
Taxable income – for CPT purposes means taxable revenue less deductible expenses; for PIT
purposes means gross taxable income less all available deductions and housing incentive.
Taxpayer – a person who is liable to tax.
TIN – tax identification number, all taxpayer are given this number when they register with a tax
inspectorate.
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1308
GLOSSARY
Thin capitalisation rules – special set of interest deductibility rules relating to loans received from
foreign legal entities, which directly or indirectly control the Russian company – loan recipient.
Total net balance value – for each depreciation group (subgroup) this is the sum of all values of fixed
assets included in this group (subgroup) less accumulated depreciation of the group (subgroup).
Transfer pricing methods – acceptable methods of setting prices for controlled transactions include
comparable uncontrolled price (preferred), resale minus, cost plus, comparable profitability and profit
split (as last resort).
U
Unconfirmed export – export that is not proved by required documents for VAT purposes within 180
days starting from the export date.
Useful life of an asset – expected term of the asset’s service life.
V
VAT – see Value added tax.
Value added tax – tax levied on taxable supplies in Russia, import of goods.
VATable supply – delivery of goods, provision of services and transfer of rights which are subject to
VAT.
VAT declarations – see Zero-rate VAT declaration and Standard VAT declaration.
VAT tax base – amount subject to VAT, which is calculated in accordance with the Tax Code art. 153.
Z
Zero-rated – supplies are zero rated when there is no output VAT but at the same time full recovery of
input VAT is allowed. Generally relates to export of goods.
Zero-rate VAT declaration – VAT declaration filed by taxpayers carrying out operations that are
VATable at zero-rate. Such declaration is filed within the same time limits as a standard VAT
declaration.
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1309
GLOSSARY
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1310
INDEX
D
A
Accounting policy
Accruals method of income recognition
Advance payments
Advance Pricing Agreement
Advertising expenses
Allocation of direct expenses
Allocation principles
Allowances for receivables
Amended VAT invoice
Amendments to tax returns
Amortisation of intangible assets
Assets for no consideration
Average property value
Declarative procedure
Depreciable property
Depreciation expense
Depreciation groups
Destruction of property
Direct expenses
Direct tax
Discounted goods
Disposal of materials
Dividend income
Dividends
Dividends paid
Dividends received
Domestic transactions
420
207
808
223
305
210
812
407
912
1212
322
402
1103
906
314, 419
322
315
608
207
107
1007
328
609
203
411
410
221
B
Blocking bank accounts
Branches
Branches of Russian legal entities
Business activities
Business entertainment
Business training expenses
Business travel expenses
Business trips
E
1209
1009
115
115
306
308
304, 606
607
Education expenses
Elements of taxation
Execution of tax payments
Exempt activities
Exempt income
Expense classification
Export confirmation
Export sales
511
106
1208
806
506
205
903
808, 902
C
F
Capital improvements
324
Capitalised VAT
908
Cash method of income recognition
218
Charity contributions
511
Child deductions
510
Classification of depreciation expense
322
Clawback of input VAT
811
Collection of taxes
1207
Commercial contracts
406
Commercial debt factoring
405
Commission income
217, 909
Commission operations
913
Consolidated tax reporting
108
Controlled transactions
221
Copyright agreements
1007
Corporate profits tax
201
Corporate property tax
110, 1102
Court system
106
CPT allocation to separate subdivisions
416
CPT exclusions
205
CPT quarterly payment system
422
CPT reporting and payment procedures
420
CPT tax and reporting periods
202
CPT tax liability computation
204
CPT tax rates
203
CPT taxpayers
202
Cross-border transactions
221
Currency difference
215, 807
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Factoring operations
Federal Tax Service
Federal taxes
Filing requirements
Financial lease
Fines and penalties
Fixed assets
Foreign currency
Foreign diplomatic missions
Foreign exchange gains/losses
Future export
909
1204
107
704
323
406
314
807
902
403
907
G
General profits tax
Gifts
Government spending
Gross income
203
506, 605
102
504
H
Housing incentive
1401
516, 705
INDEX
P
I
Immovable property
Imputed interest
Income classification
Income receipt
Income recognition
Indirect expenses
Indirect tax
Individual entrepreneurs
In-kind payments
Input VAT recovery
Insurance contributions
Insurance expenses
Insurance income
Intellectual property
Interest
Interest expense
Interest on bank deposits
Interest reimbursement
International tax legislation
Investment deductions
Investment income
Partial exemption
Partially deductible expenses
Payment deadlines
Payments based on actual profits
Payments based on estimated profits
Payments in-kind
Penalties for non-compliance
Penalties for non-payment
Pension deduction
Pension insurance
Personal income tax
Personal income tax calculation
Personal income tax reporting
Personal investment account
Presumption of innocence
Production company
Production expenses
Production operations
Professional deductions
Profits and losses of previous years
Profits tax
Property damage
Property deductions
Property disposals
Property insurance
Property sales income
Property tax
811
603
204
504
505
207
107
703
1006
809
110, 507, 1002
308
607
322, 519
808
302
602
310
105
514, 612
609
L
Late payment interest
Late registration penalties
Late submission penalties
Leased assets
Life insurance
Local taxes
Lodging an appeal
Loss carry forward
1208
1203
1212
323
608
107
1213
409
R
Reasoned Opinion
Recovering VAT
Refund of taxes
Regional taxes
Registration deadlines
Registration of taxpayers
Related parties
Research and development
Right to appeal
Rights of taxpayers
M
Medical expenses
512
N
Net balance value
No consideration
Non-current assets
Non-deductible expenses
Non-linear method
Non-operational expenses
Non-operational income
Non-state pension security
Notional units
319
402
314
206
318
216
214, 402
608
403
O
Object of taxation
Obligations of taxpayers
Offset of taxes
Operating lease
Optimisation instrument
Output VAT
805
112
1210
323
420
805
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812
302
704
422
420
1006
1207
1210
513
608
109
705
704
613
1206
413
209
211
518
403
108
608
515
326
608
507
1101
1402
1216
914
1210
107
1202
1202
221
322
1213
111
INDEX
U
S
Sale of property
Sale of securities
Sales income
Securities
Self-supplied construction
Shipment date
Simple partnerships
Simplified tax system
Social deductions
Special depreciation coefficients
Sports prizes
Spravka
State Customs Committee
Straight-line method
Unconfirmed export
515
610
208
610
910
207
217
110
511
321
605
1206
1204
317
V
Value added tax
VAT declaration forms
VAT due dates
VAT exempt supplies
VAT invoice
VAT journal
VAT payers
VAT rates
VAT tax base
Violations in accounting rules
109
914
914
806
911
913
803
804
807
1213
W
T
Withholding tax
Tax accounting
418
Tax accounting register
419
Tax agents
113, 702, 1202
Tax appeals
1213
Tax audits
1204
Tax avoidance
113
Tax base
106, 202
Tax Code
102
Tax cost of depreciable property
314
Tax declaration
704
Tax depreciation
316
Tax evasion
113
Tax exemptions
506
Tax laws
103
Tax legislation
105
Tax monitoring
1214
Tax object
106, 202, 804
Tax officers
1204
Tax payments
1207
Tax period
106, 804
Tax point
806
Tax rate
106
Tax returns
1211
Tax secrecy
112
Tax withholding
502
Taxable supply
805
Taxpayer identification number
1202
Taxpayer obligations
703
Taxpayers
111, 1202
Thin capitalisation rules
311
Time-limits
104
Trading company
415
Trading operations
210
Transfer pricing
220, 1211
Transitional rules
1211
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902
614
Z
Zero rate VAT
1403
902
INDEX
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1404
ACCA
F6 TAXATION
(RUSSIA)
STUDY QUESTION BANK
For Examinations in June and December 2017
®
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(i)
No responsibility for loss occasioned to any person acting or refraining from action as a result of any
material in this publication can be accepted by the author, editor or publisher.
This training material has been published and prepared by Becker Professional Development
International Limited: www.becker.com/acca
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Acknowledgement
Past ACCA examination questions are the copyright of the Association of Chartered Certified
Accountants and have been reproduced by kind permission.
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(ii)
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
CONTENTS
Page
Supplementary data
Answer
Marks Date worked
(iv)
CORPORATE PROFITS TAX – INCOME RECOGNITION
1
2
3
OOO Mix
OOO Polus
OOO Pelmen
1
2
2
1001
1001
1002
6
4
20
3
4
4
4
5
1004
1005
1005
1007
1007
7
3
7
3
10
5
1009
6
6
1009
15
6
1011
17
CORPORATE PROFITS TAX – DEDUCTIBLE EXPENSES
4
5
6
7
8
OOO Ulei
OOO Festival
OOO Videomir
OOO Trimpex
OOO Simpex
CORPORATE PROFITS TAX – OTHER INCOME AND EXPENSES
9
OOO Begemot
VALUE ADDED TAX
10
OOO Metalurg
CORPORATE PROFITS TAX & VAT – CASE STUDY
11
OOO Complex
PERSONAL INCOME TAX – SCOPE, COMPUTATION AND DEDUCTIONS
12
13
14
15
16
17
18
19
20
Dmitriy
Lora
Roman
Vera
Alla
Larisa
Maxim
Stanislav
Irina
8
9
9
9
10
10
11
11
12
1014
1015
1016
1017
1018
1019
1020
1021
1022
7
12
4
9
6
6
14
4
13
12
13
13
14
1023
1024
1024
1025
8
6
8
10
PERSONAL INCOME TAX – SPECIAL RATES AND RULES
21
22
23
24
Jana
Zhanna
Matvei
Denis and Andrei
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(iii)
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
CONTENTS
Page
Answer
Marks Date worked
14
16
17
17
19
1026
1028
1029
1030
1032
14
14
8
15
21
20
1034
3
PERSONAL INCOME TAX – CASE STUDIES
25
26
27
28
29
Igor
Roman Veliky
Marina
Anton
Izabella
CORPORATE PROPERTY TAX
30
OOO Krug
SUPPLEMENTARY DATA
Depreciation groups and rates for the non-linear method
Depreciation group
Term of fixed asset useful life
Depreciation rate (per month)
1
from 1 year up to 2 years
14.3
2
more than 2 years up to 3 years
8.8
3
more than 3 years up to 5 years
5.6
4
more than 5 years up to 7 years
3.8
5
more than 7 years up to 10 years
2.7
6
more than 10 years up to 15 years
1.8
7
more than 15 years up to 20 years
1.3
8
more than 20 years up to 25 years
1.0
9
more than 25 years up to 30 years
0.8
10
more than 30 years
0.7
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(iv)
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Question 1 OOO MIX
OOO Mix (“Mix”) purchases milk from different farms. It re-sells 20% of the milk to other companies
and processes 80% into ice cream. Mix uses the accruals method of income recognition.
Mix had the following types of income/expenses:



























income from rent of a piece of equipment to another company;
dividends paid to the parent company;
a non-current asset given free of charge to an unrelated company;
sold ice-cream to employees below market prices;
interest on bank loan accrued;
depreciation on ice-cream production line;
free meals to employees (not provided for in their labour contracts);
advances received from customer;
purchased milk from farmers;
penalties received from one customer for the breach of contract terms;
tax penalties paid to budget;
received a non-current asset from a parent company, which owns 60% of Mix’s capital;
donated a non-current asset to a school;
advance payment made to a supplier of milk;
recognised foreign currency exchange loss on a bank loan received in foreign currency;
sold truck used in business for two years;
recognised expenses on truck sale;
recognised positive currency differences on collection from customer;
provided financial aid to employees (“materialnia pomosch”);
bad debt written-off against an allowance for receivables;
sold ice-cream;
made a contribution to a charter capital of a legal entity;
a bank loan received;
sold unprocessed milk;
incurred some expenses in excess of statutory norms;
made some gifts in cash and in kind to employees;
incurred some expenses, which are not justifiable and/or documentary proved.
Required:
Assign to each of the above income/expense types its corresponding “basket”:
Income “baskets” I1 –
I2 –
I3 –
I4 –
Basket 1 – income from sales of goods produced by a taxpayer;
Basket 2 – income from sales of merchandise inventory;
Basket 3 – income from sales of non-current assets;
Basket 4 – non-operational income.
Expense “baskets” E1 –
E2 –
E3 –
E4 –
Basket 1 – expenses on production and sales of goods;
Basket 2 – expenses incurred on sales of merchandise inventory;
Basket 3 – expenses incurred on sales of non-current assets;
Basket 4 – non-operational expenses.
Indicate excluded income/expense as EXL.
(6 marks)
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STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Question 2 OOO POLUS
Production company OOO Polus has the following types of expenses:
















depreciation of production non-current assets;
depreciation of other non-current assets;
10% (30%) write-off of the cost of production assets;
amortisation of intangible assets;
repair expenses;
medical insurance of production workers;
cost of materials used in production;
wages and salaries of production workers;
property insurance;
business training expenses;
insurance contributions on salaries of administrative personnel;
advertising expenses;
wages and salaries of administrative personnel;
bad debt expense;
insurance contributions on salaries of production workers;
foreign exchange loss.
Required:
Classify each of the above expense into direct operational (D), indirect operational (I) or nonoperational (N) categories for CPT purposes.
(4 marks)
Question 3 OOO PELMEN
In January Mr Hohlov registered OOO Pelmen (“Pelmen”). Projected income and expenses for the first
quarter are outlined below.
Materials for 141,600 RR (including VAT at 18%) will be purchased each month. It is expected that
10% of the materials purchased each month will not be used in production (i.e. will be closing
inventory at the end of each month and constantly growing).
Non-current asset worth 118,000 RR (including VAT at 18%) will be purchased in January, put in use
in the same month, but will be paid only in March. Depreciation on this asset is 7,000 RR per month.
The company does not use its right for 10% (30%) write-off.
In January Pelmen will make a 12,000 RR prepayment for insurance of its assets for the whole year
(insurance is not subject to VAT).
Pelmen will rent a building and will pay rent of 14,160 RR (including VAT at 18%) for the first six
months of the year. This rental payment will be made in March.
Pelmen will take a loan from Mr Hohlov. 9,000 RR of interest on the loan accrued for January – March
will be paid in March.
Planned monthly sales of Pelmen will be 177,000 RR, including VAT at 18%; 60% collected in the
same month, 30% in the next, 10% in the third month.
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STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Required:
Prepare, for inclusion in a letter to Mr Hohlov, the following:
(a)
a comparison between accruals and cash method for CPT purposes based on planned
data for each month (i.e. January – March);
(11 marks)
(b)
the limitations on the usage of the cash method for CPT purposes;
(c)
a comparison between monthly and quarterly reporting options for OOO Pelmen.
(6 marks)
(3 marks)
(20 marks)
Question 4 OOO ULEI
The following data is available for OOO Ulei (“Ulei”), an accruals basis taxpayer reporting CPT on a
monthly basis, as at 28 February 2017:
Share capital – 250,000 RR
Assets – 4,200,000 RR
Liabilities – 3,950,000 RR (including loans from Funny Bee and Vinny Puh)
Two foreign companies jointly own Ulei – Funny Bee (20% ownership) and Vinny Puh (80%).
On 1 January 2017 Funny Bee gave Ulei 10,000 US dollars as a loan at 14% per annum. The loan term
is a year. Interest is paid on a monthly basis on the last day of each month.
On 1 February 2017 Vinny Puh gave Ulei 30,000 US dollars as a loan at 12% per annum. The loan
term is three months. Interest and principle are paid back on 1 May 2017.
The following notional USD/RR exchange rates are to be used:
1 February
28 February
31
31.2
Required:
For each of the loans calculate:
(a)
tax-deductible interest and tax on deemed dividends (if any) for OOO Ulei for
February 2017 (not on cumulative basis); and
(6 marks)
(b)
foreign exchange losses on the principal for February 2017.
(1 mark)
(7 marks)
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STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Question 5 OOO FESTIVAL
OOO Festival (“Festival”) runs different cultural events and incurs significant business entertainment
expenses. The following entertainment expenses have been properly documented and confirmed as
being for business purposes:
RR mln
Cost of official receptions
28.32 (including VAT)
Transportation costs
5
(no VAT)
Cost of cultural events held as a part of business:
Entertainment
56
(including VAT)
Cost of external translators
2
(no VAT)
Labour costs of Festival for the year are 187.5 million RR, related insurance contributions are 55
million RR.
Required:
Calculate:
(a)
(b)
(c)
total business entertainment expenses potentially qualifying for CPT deduction;
the amount of business entertainment deduction for the year; and
recoverable VAT.
(1 mark)
(1 mark)
(1 mark)
(3 marks)
Question 6 OOO VIDEOMIR
OOO Videomir (“Videomir”) purchased two new items of equipment. Item A was purchased and put
into use in December 2016 and item B in September 2016. Item A cost 400,000 RR and item B cost
600,000 RR. The estimated useful life of item A is three years (36 months) and of item B is three and a
half years (42 months).
In January 2017 Videomir also received a passenger car (non-current asset C) as a gift from a parent
company, which owns 51% in Videomir. The net book value of this car on the balance sheet of the
donor is 320,000 RR and the market price of the car is 300,000 RR. The original cost of the car is
330,000 RR. The car was used for two months; its total term of service life is five years.
Videomir decided to apply the non-linear method of depreciation starting 1 January 2017.
Required:
Calculate depreciation expense of OOO Videomir for the first quarter 2017. Ignore VAT.
Assume that OOO Videomir will take advantage of immediate 10% and 30% write-off.
(7 marks)
Question 7 OOO TRIMPEX
OOO Trimpex (“Trimpex”) had a 360 million RR tax loss in 2015.
In 2016 Trimpex had 130 million RR of taxable profits before loss carry-forward.
In 2017 Trimpex had 200 million RR of taxable profits before loss carry-forward.
Required:
Calculate taxable profits for 2016 and 2017 after loss carry-forward. Explain the carry-forward
rules for the tax loss and show the amounts of losses utilised in each year and amounts to be
carried forward.
(3 marks)
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STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Question 8 OOO SIMPEX
OOO Simpex was granted a loan from its parent company OOO Beta, which is a Russian bank, in
amount of 1 mln euro on 01 April 2017, at 8% per annum. The loan was repaid on 9 May 2017.
EURIBOR rate effective at the date of loan receipt (notional): 0.526%.
EUR/RR exchange rates (notional):
01 April 2015:
30 April 2015:
09 May 2015:
61.3
61.5
60.9
Required:
(a)
Calculate the amount of interest expense deductible for tax purposes and state whether
this amount would change if OOO Simpex had instead taken a loan from another,
unrelated, bank.
(3 marks)
(b)
Briefly explain the term related parties and outline the differences between the main
types of controlled transactions.
(3 marks)
(c)
Describe FOUR accepted methods of transfer pricing.
(4 marks)
(10 marks)
Question 9 OOO BEGEMOT
OOO Begemot (“Begemot”) started its operations in April 2016. The tax accounting policy of
Begemot for the years 2016 and 2017 provides that the company creates a receivables allowance in
accordance with the provisions of the Tax Code. The following data (in RR) is available in respect of
Begemot’s operations in 2016 and 2017 (the company uses an accrual method for the calculation of its
liabilities):
30 June 30 September 31 December 31 March
2016
2016
2016
2017
1. Sales revenue for the period
from the beginning of the year
to the date (including VAT at 18%) 708,000
944,000
1,416,000
590,000
2. Debt aged more than 90 days
as at the date (including VAT)
–
40,000
60,000
80,000
3. Debts aged 45 to 90 days
as at the date (including VAT)
60,000
100,000
140,000
116,000
4. Debts aged less than 45 days
as at the date (including VAT)
40,000
26,000
28,000
34,000
In October 2016 Begemot made a decision to write off one bad debt in the amount of 28,000 RR
(including VAT at 18%) due to the liquidation of the debtor, and this debt was written-off from the bad
debt tax accounting register of the company.
Required:
Calculate bad debt expense/(credit) for tax purposes in each of the last three quarters of 2016 and
the first quarter of 2017.
(6 marks)
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STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Question 10 OOO METALURG
In December 2016 OOO “Metalurg” signed a contract with a French company for export of steel worth
100,000 USD. On 20 December 2016 it received a 100% prepayment from the French company. The
shipment and customs clearance date was 25 January 2017. Input VAT incurred in relation to this
shipment was 362,572 RR.
The following notional USD/RR exchange rates are to be used:
20/12/16
30.40
25/01
30.25
10/03
30.60
31/03
31.62
24/07
31.75
25/07
31.76
31/07
31.80
25/08
32.10
31/08
32.20
30/09
32.30
Required:
(a)
Calculate the VAT liability/recoverable VAT of OOO Metalurg assuming that the
export confirmation package was presented to tax authorities on 10 March 2017.
(2 marks)
Explain what will be shown in VAT declarations and when. State the deadlines for VAT
declarations submission and for VAT payments.
(1 mark)
(b)
As for (a) assuming that the export confirmation package was presented on 25 August
2017.
(7 marks)
(c)
Calculate late interest on the unconfirmed export up to the moment of its confirmation
(see (b)).
(3 marks)
(d)
State the contents of a standard package of documents to be submitted to the tax
inspectorate as a confirmation of zero-rate VAT on export.
(2 marks)
(15 marks)
Question 11 OOO COMPLEX
OOO Complex (“Complex”) is a production company and uses the accruals method for tax purposes.
The following data for 2017 is available (all amounts in million RR):
1.
Accrual sales and prepayments
Accrual sales for the year
Cash collections in the year:
From 2016 debtors
From 2017 debtors
1,239 (including VAT)
590 (including VAT)
1,180 (including VAT)
Prepayments received from customers as at 31 December 2017
2.
141.6 (including VAT)
Production materials
As at 1 January 2017 Complex had 40 worth of materials (net of VAT) in opening inventory.
In 2017 Complex bought new materials for 708 (including VAT). Only 75% of these
materials were paid for in 2017. Suppliers submitted VAT invoices for only 70% of materials
purchases. Also 160 worth of materials (net of VAT) were not used in production during the
year (i.e. accumulated in closing inventory). All materials were used for production purposes.
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STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
3.
Third parties’ services
During 2017 Complex received 106.2 worth of services from third parties (including VAT).
20% of this amount was still unpaid as at 31 December 2017. VAT invoices were provided
for 90% of the services. All services were used for production purposes in 2017. Moreover,
according to agreement contract Complex prepaid 36 million RR (including VAT) in
November 2017 to a supplier for services which should be rendered in the first quarter of
2018. VAT invoice was submitted by the supplier before the end of the 2017.
4.
Wages and salaries
Total salaries accrued amounted to 122 including:
wages and salaries of production workers
wages and salaries of administrative personnel
5.
90
32
Depreciation of non-current assets
Production non-current assets
Other non-current assets
140
40
All these depreciation expenses are allowed for CPT purposes.
6.
Bank interest expense
On 31 January 2017 Complex took a 165 bank loan at 25% per annum. Loan term is one
year. Interest was paid on a quarterly basis starting 1 May 2017. The loan agreement does
not have a provision regarding possible changes in the interest rate.
7.
Business entertainment expenses
Total annual business entertainment expenses were 11.8 (including VAT of 0.8). Only 50%
of these were paid for in 2017.
8.
Advertising expense
Total annual advertising expenses were 35.4 (including VAT). 50% of these expenses were
related to prizes used during mass advertising campaigns.
9.
Cost of production vs cost of goods sold
20% of goods produced in 2017 were not sold in this year. There is no work in progress and
there was no opening inventory of finished goods.
10.
Bad debt write-off
During nine months of 2017 Complex created an allowance for receivables of 54 in total for
the nine months. Actual write-offs of prior-year bad debts amounting to 27 (including 4.5
VAT) were made due to the official liquidation of the customers. The company made an
evaluation of its trade receivables as at 31 December 2017. According to this evaluation the
amount of allowance as at 31 December 2017 should be 36.
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STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
11.
Taxes
Complex pays insurance contributions on employees’ salaries at the rate of 30% (no salary
exceeds 755,000 RR); VAT at 18% and CPT at 20%. All materials, services and expenses
purchased by Complex are subject to 18% VAT rate unless stated otherwise.
Required:
(a)
Calculate taxable profits and profits tax of OOO Complex for 2017. Show separately all
elements of taxable income items and deductible expenses.
(11 marks)
(b)
Calculate VAT liabilities of OOO Complex for 2017. Show separately all elements of
output/input VAT payable to budget/recoverable from budget.
(6 marks)
(17 marks)
Question 12 DMITRIY
Dmitriy’s gross salary in the year was 1,000,000 RR. In addition to the salary Dmitriy received an
advertising prize of 300,000 RR (gross). Dmitriy has incurred the following personal expenses in the
year:
(1)
Charity payment in the amount of 280,000 RR;
(2)
Payment of 5,000 RR to non-state pension security fund for his mother’s pension insurance;
(3)
Payment of 35,000 for his own second education in the Financial Academy of the Russian
Federation;
(4)
Payment of 35,000 RR for his daughter’s education in the secondary school (another 25,000
RR were paid by his wife and she claimed the whole amount as a deduction in her personal
income tax declaration);
(5)
Payment of his mother’s treatment including: 50,000 RR for expensive surgery in state clinic
(included in the list of expensive treatment approved by the Government).
(6)
Payment for his mother’s prescribed medication in the amount of 15,000 RR.
(7)
Additional payments to “nakopitelnay” part of Dmitriy’s labour pension – 15,000 RR.
Required:
Calculate the social deductions potentially available to Dmitriy in the given circumstances.
Explain how these deductions should be claimed.
(7 marks)
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STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Question 13 LORA
Lora incurred the following medical expenses in the year:
43,500 RR paid to “Lose weight now” medical centre;
12,000 RR for her cosmetic surgery;
38,000 RR for the treatment of her son’s appendicitis in Moscow city clinic # 35;
25,000 RR to insurance company under voluntary medical insurance agreement;
2,000 RR for prescribed medicine for a stomach disorder.
She also spent 62,000 RR on her son’s daytime education in lyceum, and 60,000 RR on her evening
language courses.
In the year Lora donated 72,000 RR in cash to a children’s sport centre in Moscow. She also purchased
12,000 RR worth of books for her regional children’s library.
In the year Lora’s gross income before deductions taxed at 13% was 290,000 RR.
Required:
(a)
Calculate the maximum possible amounts of Lora’s social deductions. Assume that all
educational institutions are licensed.
(5 marks)
(b)
List all limitations applicable to each type of social deduction.
(7 marks)
(12 marks)
Question 14 ROMAN
Roman is a popular writer specialising in detective novels. This year he published his new novel and
received 240,000 RR net as a copyright fee from the publishing company.
Required:
Calculate personal income tax and insurance contributions on this income assuming professional
deduction of 20%.
(4 marks)
Question 15 VERA
Vera is a single mother with a one-year-old son. She is 20 years of age. In the year she paid 72,500 RR
for her education in a licensed university where she attends evening classes (“ochnoe” education).
Vera earned 40,000 RR net of personal income tax over the summer period working in a health club as
an instructor. Out of this amount 8,000 RR was received in June, 11,000 RR in July and 21,000 RR in
August. This was her only income in the tax year. When calculating her taxable income the health club
gave her the full available monthly children allowance.
Vera used 35,000 RR of this money to pay for her education. Her father paid 33,000 RR and her
grandmother covered the remaining 4,500 RR out of her savings.
Required:
(7 marks)
(a)
Calculate Vera’s taxable income and personal income tax for the year.
(b)
Explain how Vera, Vera’s father and grandmother can obtain tax benefits with regard
to their spending on Vera’s education.
(2 marks)
(9 marks)
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STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Question 16 ALLA
Alla works in a sales department of a Moscow based cosmetic firm. She often travels in Russia and
abroad for business purposes.
In January she made several business trips by airplane as follows:



to St Petersburg on 10 January where she spent some days until travelling;
to Paris on 13 January where she stayed until 15 January;
back to Moscow on January 15 when her business trip was completed.
On 20 January she submitted an expense report with the following data:
St Petersburg
Plane tickets to St Petersburg – 1,400 RR;
Taxi bill to get to the hotel – 200 RR;
St Petersburg hotel bill – 5,200 RR;
Restaurant bills in St Petersburg – 6,400 RR;
Tickets to Mariinsky theatre (where she went with a client) – 800 RR;
Hotel telephone bills for business calls – 600 RR;
Taxi bill to the airport – 250 RR.
Paris
Plane tickets – 20,700 RR;
Taxi bill to get to and from the airport – 40 EUR;
Paris hotel bill – 280 EUR;
Restaurant bills – 300 EUR.
The expense report was approved on the same day and Alla received full reimbursement for all of these
expenses.
Assume the EUR/RR exchange rate on the date of expense report submission to be 42.00.
Required:
Calculate the amount to be included in Alla’s taxable income for January.
(6 marks)
Question 17 LARISA
Larisa does not work. She has several apartments in Moscow. She rents out some of them and lives on
the rent payments received. She is not registered as an individual entrepreneur.
Larisa has received the following income in 2017:
Income from apartment № 1 – 25,000 RR per month (in January–May); 32,000 RR per month (in June
– December);
Apartment № 2 – 15,800 RR per month for the period January – April.
In April she sold apartment № 2 for 1,900,000 RR. She purchased this apartment in October 2015 for
700,000 RR.
In August she bought a 50% share in a new apartment for 1,700,000 RR.
Required:
(a)
Calculate Larisa’s taxable income and personal income tax for 2017. Assume that
Larisa has never previously claimed a housing incentive.
(4 marks)
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STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
(b)
Explain how she gets tax benefit from the apartment purchase. State any amount of
incentive that she can carry forward to future years.
(2 marks)
(6 marks)
Question 18 MAXIM
Maxim registered as an individual entrepreneur in January 2017. He rented a small kiosk where he
sells newspapers, magazines and some miscellaneous items. He pays 2,900 RR of rent each month
starting January.
In January 2017 he also bought a small car to use in business. The car purchase price was 358,000 RR.
Annual depreciation rate applicable to the car was 14%, calculated monthly on a straight-line basis.
Maxim also employs an assistant to help him in business. The gross salary of the assistant is 14,000 RR
per month. Maxim paid 9,000 RR in respect of insurance contributions for himself in December 2017.
Maxim’s monthly revenue for 2017 was 56,250 RR. The monthly cost of items sold was 20,415 RR.
Required:
(a)
Calculate Maxim’s taxable income and personal income tax for 2017. Ignore VAT.
(5 marks)
(b)
Explain Maxim’s personal income tax reporting and payment requirements.
(c)
Calculate Maxim’s obligations for insurance contributions as an employer.
(8 marks)
(1 mark)
(14 marks)
Question 19 STANISLAV
Stanislav is an individual entrepreneur. He runs a small cafe, where he employs a cook, a waiter and a
cleaner. The following information is available for the year:
RR
1. Gross business revenue
1,600,000
2. Cost of goods sold
560,000
3. Rental payments
220,000
4. Employees’ salaries total comprised of:
630,000
cook’s salary
520,000
waiter’s salary
80,000
cleaner’s salary
30,000
5. Proceeds from sale of a truck used in the business
380,000
(Original cost was 520,000 RR, accumulated depreciation 480,000)
6. Total allowable social deductions
35,000
7. Insurance contributions Stanislav paid for himself
5,000
VAT is ignored for calculation purposes.
Required:
(a)
Calculate Stanislav’s insurance contribution obligations.
(b)
Calculate the personal income tax of Stanislav for the year.
(1 mark)
(3 marks)
(4 marks)
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STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Question 20 IRINA
Irina is a freelance journalist writing articles for different newspapers. She is registered as an individual
entrepreneur. Her annual gross income on these activities in 2017 was 1,950,000 RR.
In 2017 Irina spent 270,000 RR (including VAT at 18%) on business-related expenses; however she has
lost the primary supporting documents related to these purchases. Irina rents a small office and pays
rent of 19,200 RR per month (including VAT at 18%). In April 2017 Irina also purchased a new item
of equipment for 192,000 RR (including VAT at 18%). The useful life of the equipment is four years,
which is in line with the useful economic life of similar equipment as determined by the Russian
Federation Government. Irina calculates depreciation expense for the equipment on a straight-line
basis. In December 2017 she paid insurance contributions of 15,000 RR
In January 2017 Irina received a proposal from one of the largest newspapers to take a position as the
Head of News department for a gross salary of 105,000 RR per month.
Irina obtained the status of a non-VAT payer from the start of her business.
Required:
(a)
Calculate Irina’s tax liabilities for 2017 in her capacity as a freelance journalist based on
actual expenses. Ignore children allowance and 10% (30%) write-off on non-current
assets.
(3 marks)
(b)
The same as in (a) based on professional deduction.
(c)
Compare Irina’s 2017 income after taxes in her capacity as an individual entrepreneur
(under both options (a) and (b)) to that offered as an employee of the newspaper.
(3 marks)
(d)
Explain the personal income tax reporting and payment obligations of an individual
entrepreneur.
(5 marks)
(2 marks)
(13 marks)
Question 21 JANA
Jana works as an assistant manager in a supermarket. She earns 22,000 RR gross salary per month. In
addition to her salary Jana received the following benefits from her employer during 2017:








a performance bonus for 2017 results. She received 21,750 RR net of tax in January 2018 and
the same amount was received in February 2018. The bonus was accrued in December 2017;
free meals valued at 1,200 RR per month (provided for in Jana’s labour contract);
paid vacation in Cyprus with a value of 35,000 RR*;
special discounts of 20% on all purchases in the supermarket (discounts for the year totalled
6,500 RR);
a kitchen processor valued at 8,700 RR as an International Women’s Day gift*;
a microwave oven valued at 8,000 RR as a birthday gift*;
medical insurance contributions paid for Jana’s benefit totalled 10,000 RR (the term of
agreement is three years);
support payments (“materialnaja pomosch”) of 10,000 RR.
* These items were paid for out of the company’s after-tax profits.
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STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Required:
(a)
Calculate Jana’s taxable income and personal income tax for 2017.
(5 marks)
(b)
Calculate the insurance contributions on Jana’s income.
(3 marks)
(8 marks)
Question 22 ZHANNA
Zhanna works in an advertising agency. Her monthly gross salary is set at 32,000 RR.
On 9 August 2017 she obtained a loan from her employer to buy a car in the amount of 500,000 RR at
2% per annum. Loan term is two years. Interest is paid annually. First payment is due on 31
December 2017.
On 10 July 2017 Zhanna opened a 100,000 RR bank deposit for two years. First time interest was
credited to her bank account on 10 December 2017. No other interest payments were made in 2017 by
the bank. The deposit rate was 30%.
Required:
Calculate personal income tax accrued on Zhanna’s income for 2017.
(6 marks)
Question 23 MATVEI
Matvei works at a candy factory and earns 34,500 RR gross salary per month.
In May Matvei received from the factory a TV set with a fair market value of 10,000 as a birthday gift.
The gift was made out of after-tax profits.
In December Matvei bought 20 boxes of candy at their cost of RR 80 per box. Their normal price to
customers was 150 RR per box. Matvei gave the boxes to his family and friends as New Year gifts.
Matvei is married and has a seven year old child.
Required:
(a)
(b)
(c)
Calculate Matvei’s taxable income and personal income tax.
(5 marks)
Explain the calculation of insurance contributions on Matvei’s income.
(2 marks)
Explain the employer’s obligations with regard to the candy boxes and the TV set.
(1 mark)
(8 marks)
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STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Question 24 DENIS AND ANDREI
(a)
Denis has gross employment income of 600,000 RR per annum. On 1 February 2015, Denis
opened a Personal Investment Account (PIA) and contributed 400,000 RR to it. Each
consecutive year (2016 and 2017) he contributed a further 400,000 RR. During this period,
Denis made several transactions within his account, buying and selling securities at a profit.
On 1 March 2018, he had 1,900,000 RR in his PIA.
Required:
(b)
(i)
State the two types of deductions that Denis may claim regarding his PIA and
the difference between them.
(2 marks)
(ii)
Calculate the tax consequences of each of the two options, which Denis could
take.
(2 marks)
(iii)
Explain how and when these deductions may be obtained.
(2 marks)
On 22 March 2014, Denis purchased listed shares of OOO Ace for 20,000,000 RR. Denis
sold the shares on 25 April 2018 for 33,000,000 RR.
Required:
Calculate the investment deduction available to Denis and the amount of PIT payable on
the sale of securities.
(1 mark)
(c)
Andrei is a private investor. In 2020, Andrei decided to sell securities that he had owned for
different terms:
Listed shares in OOO Alfa, which he owned for three years, for a profit of 3 mln RR;
Listed shares in OOO Beta, which he owned for four years, for a profit of 5 mln RR; and
Listed shares in OOO Gamma, which he owned for five years, for a profit of 6 mln RR.
Required:
Calculate the investment deduction available to Andrei and the amount of PIT payable
on the sale of securities.
(3 marks)
(10 marks)
Question 25 IGOR
Igor worked as a salesman in a small bike shop until May 2017 when he won a cash prize in an
advertising contest and decided to start his own business. In late May he quit his job, registered as an
individual entrepreneur and opened his own bike shop. Igor is married and has a five year old son.
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STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
The data on Igor’s income and expenses for 2017 follows:
1.
Employment income (in RR)
Gross salary
Free meals*
One time support payment**
Leaving gift***
January
4,000
500
February
6,000
500
March
8,000
500
April
10,000
500
6,000
May
7,000
500
Total
35,000
2,500
6,000
4,800
4,800
*
**
***
the bike shop provided free lunches to its employees.
in April the company made a one-time support payment (“materialnaja pomosch”) of 6,000 RR gross.
the company gave Igor a video with a fair market value of 4,800 RR as a leaving gift.
2.
Business income and expenses (in RR)
Business revenue
Cost of goods sold
Depreciation
Rent expense
Employee’s salary (net of insurance contributions)
Insurance contributions for Igor as entrepreneur5,000
1,770,000 (including VAT)
590,000 (including VAT)
120,000
354,000 (including VAT)
210,000
All expenses are deductible for personal income tax purposes. Igor has one employee.
3.
Cash prize
Cash was received in a contest held for advertising purposes. The net amount of the prize was
488,725 RR.
4.
Sale of personal property
In October 2017 Igor sold his car, which he was given as a gift in 2015 by his aunt. The car was not
used in the business. Selling price was 140,000 RR.
5.
Medical expenses
Igor paid 8,000 RR for medical treatment of his wife in a Moscow clinic. He also paid 30,000 RR for
his own treatment in a Moscow dental clinic. No deduction for these has been claimed through his
employment.
Required:
Assuming that all the expenses mentioned above are confirmed with proper supporting
documents and all medical expenses qualify for deduction, calculate:
(a)
personal income tax for 2017 withheld by the bike shop in 2017;
(4 marks)
(b)
personal income tax on his business income;
(3 marks)
(c)
personal income tax withheld by the advertising contest organizers;
(2 marks)
(d)
final settlement of Igor’s personal income tax liability (additional payment or refund)
upon his 2017 personal income tax declaration. Assume that he has made a 20,000 RR
prepayment of tax on his business income.
(5 marks)
(14 marks)
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15
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Question 26 ROMAN VELIKY
Roman Veliky works at an automotive exhibition centre as a senior consultant. His monthly net salary
is 15,000 RR. He is single and has no children.
During the year 2017 he received the following from his employer:
(1)
Free meals valued at 3,000 RR per month, which were provided to Roman in compliance with
his labour agreement.
(2)
On 20 March he received a photo camera, which had a fair market value of 20,060 RR
(including VAT), as a birthday gift. The company paid for this gift out of its after-tax profits.
(3)
On 1 April he received in his bank account a performance bonus for the year 2016 of 25,000
RR. The bonus was accrued in December 2016.
(4)
On 15 April as a result of the significant sales volume he produced in the preceding year,
Roman was awarded by a special bonus trip to Thailand. The market value of the trip was
35,000 RR.
(5)
As Roman was one of its best consultants, his employer agreed to reimburse him 20% of the
value of a new car (see additional information).
(6)
For his overtime work during the summer weekends, Roman received additional overtime pay
in August of 10,000 RR. His employer treated the overtime pay as a deductible expense for
profits tax purposes.
(7)
In September Roman had four days’ sick leave due to a sore throat. He received sick leave
payments for the first two days of 800 RR per day and sick leave payments for the second two
days of 1,100 RR per day. The sick leave payments for the second two days were paid by his
employer, who treated them as a non-deductible expense for profits tax purposes.
(8)
In November Roman took paid vacation. In accordance with the applicable regulations his
vacation pay was 12,000 RR.
Additional information:
On 30 April Roman sold his old car, which he had purchased in March 2012, for 150,000 RR. On 30
May he purchased a new Hyundai passenger car, with a market value of 300,000 RR (including VAT).
Required:
(a)
Calculate the final settlement of Roman’s personal income tax liability (additional
payment or refund) based on his 2017 personal income tax return.
(9 marks)
(b)
Calculate the insurance contributions payable on Roman’s income for 2017.
(5 marks)
Note:
For both parts show separately the amounts relating to each item listed and clearly
indicate whether the amount is taxable or non-taxable.
(14 marks)
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STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Question 27 MARINA
Marina works as a sales manager of OOO Lady (“Lady”). Marina’s net monthly salary in the year 2017
is 165,300 RR. In December 2017 Lady accrued an annual bonus for 2017 results for each employee
amounting to two months’ salary. The bonus was paid in February 2018.
Marina received annual voluntary medical insurance with an insurance premium of 20,000 RR. Marina
paid 70,000 RR for her brother’s education. Her brother is 22 years old and studying physics in State
University (daytime). Lady is unaware of this payment.
At the end of 2016 Marina and her husband purchased jointly in equal shares a plot of land for further
residential building. The purchase price of the land was 5,000,000 RR. On 2 December 2016 Lady
provided her a 3,500,000 RR loan to finance the purchase for 10 years with interest at 5% per annum.
The first loan repayment of 350,000 RR and interest payment was made on the due date of 15
December 2017. Marina submitted to Lady the property allowance confirmation from the tax authority
in January 2017.
Required:
(a)
Calculate Marina’s personal income tax for the year 2017 withheld at source by OOO
Lady.
(6 marks)
(b)
Calculate the final settlement of Marina’s personal income tax liability for the year
2017.
(2 marks)
(8 marks)
Question 28 ANTON
Anton is single and has no children. He works for an IT company OOO Baranka, in Moscow. He
receives a gross monthly salary of 66,000 RR.
The following events occurred during the year:
(1)
Anton was sent to Geneva on a business trip on 20 October. He arrived in Geneva on the
same day (20 October) and stayed there until 23 October when he flew back to Moscow. The
purpose of this business trip was to receive training on SAP procedures. The per diem
allowance for business trips abroad based on statutory norm is 2,500 RR.
On his return to the office on 24 October, Anton submitted an expense claim to the
accounting department for the following expenses incurred. All necessary supporting
documents were attached to the claim:
Air tickets – 450 SFR
Hotel invoice – 600 SFR
Taxi receipt (taxi to the airport) – 50 SFR
Restaurant bills – 400 SFR
Museum tickets – 15 SFR
Anton received full reimbursement of the claimed business trip expenses (no other payment to
Anton relating to the business trip was made by Baranka). The museum tickets were treated
as a non-deductible expense by his employer.
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STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
(2)
In November, Anton’s personal car was damaged in an accident. The car was not insured, but
his employer decided to fully reimburse Anton for the repair costs of 15,000 RR. This
reimbursement was made out of the employer’s profits after tax.
(3)
On 9 November Anton received an i-pod as a birthday gift in kind from his employer. The ipod had a market value of 16,000 RR (including VAT).
(4)
Anton decided to undertake some further education at St Petersburg’s university. His
employer has approved his studies and reimbursed Anton with the cost of train tickets for
travel to his course of 1,000 RR and the cost of one week’s study leave in December of
12,000 RR.
(5)
In December Anton agreed to accept his employer’s offer to relocate permanently to work in
the Far North region of Russia. His actual relocation expenses of 20,000 RR were supported
with prime documents and were reimbursed in full by his employer.
Relevant SFR/RR exchange rates (notional) are:
20 October
23 October
24 October
21.00
20.59
20.56
Required:
(a)
Calculate Anton’s personal income tax liability for the year, clearly identifying those
items that are not subject to tax.
(8 marks)
(b)
Calculate the insurance contributions payable on the reimbursements and benefits
(other than salary) received by Anton, clearly identifying those items which are not
subject to insurance contributions.
(5 marks)
(c)
Explain the treatment of the December study leave, related train tickets and the
relocation expenses in OOO Baranka’s annual profits tax return. Calculations are not
required for this part.
(2 marks)
(15 marks)
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18
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Question 29 IZABELLA
Izabella is divorced. She has a seven year old son. She works as a hotel operator for a hotel chain
where she earns a monthly net salary of 10,875 RR. On 1 June 2017 Izabella received a non-interest
bearing loan from her employer of 50,000 RR for her current needs. No repayments were made during
the year 2017.
Starting from September 2017 the employer also provided her with financial aid of 3,000 RR per
month, which is accrued with her salary for the reporting month and paid out on the 10th day of the
month following the reporting month. The financial aid is paid out of the employer’s profit after tax.
On 1 September Izabella paid 55,000 RR for her son’s first year in the licensed Moscow school
specialising in the Italian and French languages. Izabella kept all relevant documents confirming her
actual expenses.
On 30 March 2017 Izabella purchased 500 shares at 2,000 RR each in a listed company AAR and 300
shares at 1,000 RR each in a listed company BASK. These acquisitions were not in the form of a
Personal Investment Account and therefore no investment deduction was claimed. On 1 April 2017 she
received 500 shares in a listed investment fund, IPC, valued at 1,500 RR each as a gift from a distant
relative.
The expenses incurred for these transactions included:
–
commission fees to brokers of 5% of the acquisition price for both AAR and BASK;
–
registration fees incurred in respect of the investment fund shares to get ownership rights of
5,000 RR; and
–
other stock exchange expenses which cannot be allocated directly to any of the acquired
shares of AAR and BASK totalling 20,000 RR.
Izabella made the decision to sell the shareholdings on 20 July 2017 as follows:
Shares
AAR
BASK
IPC
Quantity
500
300
500
Gross sales price RR/share
2,500
500
1,200
The shares of AAR and BASK were traded at only one stock exchange with the following quoted prices
(RR per share) as at 20 July:
Time
10.00 am
11.00 am
12.00 am
3.00 pm
4.00 pm
AAR
2,450
2,480
2,430
2,490
2,445
BASK
700
720
680
710
650
The weighted average price per share of the IPC investment fund was calculated by two stock
exchanges as follows:
NYC 1,095 RR
RTB 1,100 RR
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19
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
In September 2017 Izabella was sent on a business trip to Brussels in Belgium. She flew to Brussels on
15 September, stayed there until 18 September but arrived in Moscow on 18 September in the evening.
On 20 September she submitted the following expense report to the accounting department:
Return air tickets – 700 EUR
Taxi bill to get to the hotel from the airport – 30 EUR
Hotel bill – 1,000 EUR
Hotel telephone bills – 30 EUR (all her phone calls were for business purposes only)
Restaurant bills – 200 EUR
Museum tickets – 70 EUR
Izabella was reimbursed in full for all of these expenses and received her per diem allowance.
Regarding the restaurant bills and museum tickets her employer treated them as non-deductible for
profits tax purposes.
The following notional EUR/RR exchange rates are to be used:
15 September
18 September
20 September
35·7
35·9
36
Required:
(a)
Calculate Izabella’s aggregate personal income tax liability for the year 2017, using all
available deductions and allowances.
(18 marks)
(b)
(i)
Calculate the insurance contributions on Izabella’s income for the year 2017.
(ii)
Give reasons for the exclusion of any items referred to in the question from the
income base for insurance contributions.
(3 marks)
(21 marks)
Question 30 OOO KRUG
You have the following data on OOO Krug in 2017 (in million RR):
01 Non-current assets (immovable)
04 Intangible assets
10 Raw materials
43 Finished goods
45 Goods dispatched to customers (“Goods-in-transit”)
02 Depreciation of non-current assets
Depreciation of non-current assets for tax purposes
05 Amortisation of intangible assets
Amortisation of intangible assets for tax purposes
1 Jan
1,600
400
240
400
80
520
320
120
80
1 Feb
1,800
400
480
420
120
540
330
130
90
1 Mar
2,000
600
620
330
90
560
340
140
100
1 Apr
2,200
600
310
470
60
580
360
160
110
Required:
(a)
Calculate the average property values for property tax purposes for the first quarter of
2017.
(2 marks)
(b)
The immoveable non-current assets are production plant. Calculate property tax on
these for the first quarter of the year at a rate of 2.2%.
(1 mark)
(3 marks)
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20
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Answer 1 OOO MIX
I4 –
income from rent of a piece of equipment to another company;
EXL – dividends paid to the parent company;
EXL – a non-current asset given free of charge to an unrelated company
I1–
ice-cream sold to employees below market prices;
E4 –
interest on bank loan accrued;
E1 –
depreciation on ice-cream production line;
EXL – free meals to employees (not provided for in their labour contracts);
EXL – advances received from customer;
E1 (80%)
E2 (20%) – purchased milk from farmers;
I4 –
penalties received from one customer for the breach of contract terms;
EXL – tax penalties paid to budget;
EXL – received a non-current asset from a parent company, which owns 60% of Mix’s capital;
EXL – donated a non-current asset to a school;
EXL – advance payment made to a supplier of milk;
E4 –
recognised foreign currency exchange loss on a bank loan received in foreign currency;
I3 –
sold truck used in business for 2 years;
E3 –
recognised expenses on truck sale;
I4 –
recognised positive currency differences on collection from customer;
EXL – provided financial aid to employees (“materialnia pomosch”);
EXL – bad debt written-off against an allowance for receivables;
I1 –
sold ice-cream;
EXL – made a contribution to a charter capital of a legal entity;
EXL – a bank loan received;
I2
sold unprocessed milk;
EXL – incurred some expenses in excess of statutory norms;
EXL – made some gifts in cash and in kind to employees (not provided for in their labour contracts);
EXL – incurred some expenses, which are not justifiable and/or documentary proved.
¼ mark for each correct classification, max 6.
Answer 2 OOO POLUS
Depreciation of production non-current assets – D
Depreciation of other non-current assets – I
10% (30%) write-off of the cost of production assets - I;
Amortisation of intangible assets – I
Repair expenses – I
Medical insurance of production workers - I
Cost of materials used in production – D
Wages and salaries of production workers – D
Property insurance – I
Business training expenses – I
Insurance contributions on salaries of administrative personnel – I
Advertising expenses – I
Wages and salaries of administrative personnel – I
Bad debt expense – N
Insurance contributions on salaries of production workers – D
Foreign exchange loss – N
¼ mark for each correct classification, total 4.
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1001
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Answer 3 OOO PELMEN
(a)
Comparison between accruals and cash method
Tax consequences of the accruals method
Sales
VAT
Materials (120,000  0.9)
Depreciation
Insurance expense
Rent expense
Interest expense
Taxable profits
(cumulative)
January
177,000
(27,000)
(108,000)
–
(1,000)
(2,000)
(3,000)
______
February
177,000
(27,000)
(108,000)
(7,000)
(1,000)
(2,000)
(3,000)
______
March
177,000
(27,000)
(108,000)
(7,000)
(1,000)
(2,000)
(3,000)
______
36,000
36,000
29,000
65,000
29,000
94,000
(½)
(½)
(½)
(½)
(½)
(½)
(½)
(½)
Tax consequences of the cash method
Sales
VAT (accrual method
only)
Materials
Depreciation (see
Tutorial note)
Insurance expense
Rent expense
Interest expense
Taxable profits/(losses)
(cumulative)
January
106,200
February
159,300
March
177,000
(1½)
(177,000  60%)
((177,000  60%) +
(177,000  30%))
((177,000  60%) +
(177,000  30%) +
(177,000  10%))
(27,000)
(27,000)
(27,000)
(½)
(108,000)
–
(108,000)
–
(108,000)
(14,000)
(½)
(½)
(12,000)
–
–
______
–
–
–
______
–
(12,000)
(9,000)
______
(½)
(½)
(½)
(40,800)
______
(16,500)
______
(9,500)
______
Tutorial note: The Tax Code provides that only non-current assets, which were paid for can
be depreciated for CPT purposes under the cash method. However it is unclear how to treat
depreciation accrued before the payment date (in this example depreciation accrued for
February). If only 7,000 RR of depreciation expense is recognised, no marks would be lost
due to this uncertainty.
Under the accruals method recognised accumulated profits are more than profits recognised
under the cash method by 103,500 RR.
(½)
This difference is largely due to the fact that under the cash method income is recognised only
after cash is collected.
(½)
Expenses are recognised on the cash basis only when they are actually paid.
(½)
Moreover, material costs are recognised only when they are paid and consumed in production.
(½)
Depreciation is recognised only on those non-current assets, which are paid for.
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1002
(½)
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
(b)
Limitations on usage of cash method
A taxpayer can use the cash method for CPT purposes only if its average sales of goods,
works, services, etc (without VAT and sales tax) for the previous 4 quarters did not exceed
1 million RR per quarter.
(1)
If a taxpayer chooses the cash method but during the tax period the taxpayer’s average sales
of goods, works, services, etc (without VAT and sales tax) exceeded 1 million RR per quarter,
it must recalculate its sales on the accruals basis starting at the beginning of the tax period. (½)
(c)
Pelmen may choose between two monthly and one quarterly payment systems.
(½)
Once chosen a system should be applied consistently through the year.
(½)
Availability of quarterly payment system is restricted (as explained below).
(½)
Comparison of reporting options (max 6 marks)
(i)
Monthly payment system – based on actual profits
Under this system CPT payments are made based on the actual profits determined monthly on
a cumulative basis.
(½)
Monthly CPT reports are submitted not later than on the 28th day of the month following the
reporting one.
(½)
The reports are prepared on a cumulative basis.
The monthly payments are made by the 28th day of the month following the reporting one. (½)
The annual CPT declaration is submitted not later than 28 March of the year following the
reporting. Payment of any outstanding CPT liability for the reporting year is made by the
same deadlines.
(½)
(ii)
Monthly payment system – based on estimated profits
Under this payment system, there are monthly advance payments of CPT, which are made by
the 28th day of each month in the amount of 1/3 of the estimated total CPT liability for the
quarter.
(1)
On the 28th day following the end of each quarter so-called “quarterly” advance payment is
made. Its amount is calculated as the difference between actual profits tax for the reporting
period less advance payments made.
(1)
For example in July taxpayer must calculate actual profits for the six months of the year and
the amount of CPT. On 28 July it must pay the difference between total CPT liability for 6
months and the total advance payments of CPT already made. On the same date monthly
advance payment for July is also due.
The tax returns are submitted under the following deadlines:


within 28 days following the last day of the reporting quarter for quarterly returns
(in a simplified form);
(½)
by 28 March of the following year for annual return.
(½)
Final tax payment is due:

by 28 March of the following year for annual return.
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1003
(½)
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
(iii)
Quarterly payment system – based on estimated profits
Under the quarterly payment system CPT returns are submitted each quarter under the
following deadlines:


not later than on the 28th day after the reporting quarter end (for 1st quarter, half a
year and 9 months);
(½)
not later than on the 28 March of the next reporting year for the annual tax
declaration.
Quarterly and annual tax payments are made according to the reporting deadlines.
(½)
(1)
Quarterly CPT payment system is available to newly-created entities with sales not exceeding
1 million RR per month or 3 million per quarter. If a taxpayer’s monthly sales exceed the
limit it must switch to CPT monthly payment system starting the following month.
(1)
Answer 4 OOO ULEI
(1)
Loan from Funny Bee
Thin capitalisation rules do not apply to this loan, as the percentage of ownership is only
20%. Interest is deductible in full for tax purposes unless transfer pricing restrictions apply.
Tutorial note: Even though this is a loan from a related party, no information is given in the
question to allow any adjustment to be calculated, so it is assumed that the terms are “arm’s
length”.
(a)
Tax deductible interest for February
10,000 USD  14%  28/365  31.2
(b)
3,351 RR
Foreign exchange loss on loan
(10,000  (31 – 31.2))
(2)
(1)
2,000 RR
(½)
Loan from Vinny Puh
Step 1:
Define whether loan is controlled
First condition (i.e. FLE has more than 20%) is met as Vinny Puh owns 80%. (½)
Second condition (i.e. loan amount exceeds net assets of a RLE by 3 times) is also met:
(30,000  31.2) ÷ 250,000 = 936,000 ÷ 250,000 = 3.744
(1)
Thus, the loan is considered as controlled.
Step 2:
(½)
Calculate capitalisation coefficient
Amount of controlled loan ÷ (Net assets  % of FLE’s ownership)  3
= 936,000 ÷ (250,000  80%  3) = 936,000 ÷ 600,000 =
1.56
Step 3:
(1)
Maximum amount of interest
Maximum deductible amount of interest =
actual interest accrued on controlled loan/capitalisation coefficient =
((30,000 × 31.2)  12%  27/365) ÷ 1.56 = 8,309 ÷ 1.56 =
5,362 RR
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1004
(1)
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Step 4: Calculate tax on difference between accrued interest and maximum
deductible amount (“deemed dividends”)
(8,309 – 5,362)  15% = 2,983  15% =
(b)
447 RR
(1)
Foreign exchange loss on loan
(30,000  (31 – 31.2))
6,000 RR
(½)
Answer 5 OOO FESTIVAL
(a)
Total business entertainment expenses (net of VAT) qualifying for deduction
mln RR
24
5
2
___
Cost of official receptions (28.32 × 100/118)
Transportation costs
External translators
Total
(b)
31
___
(1)
Business entertainment deduction
Limit is calculated based on 4% of labour costs (ICs are ignored):
187.5 × 4% =
(c)
7.5
(1)
Recoverable VAT
VAT only in relation to entertainment expenses deductible for CPT purposes can be
recoverable, i.e.:
4.32 of total potentially deductible VAT  7.5/31 =
1.05
(1)
Answer 6 OOO VIDEOMIR
Tutorial note: As the taxpayer decided to apply non-linear starting 1 January 2017 it is necessary to
determine NBV at that date and depreciation groups and rates and combine different non-current
assets into groups. 30% write-off can be applied to non-current assets included into the 3rd – 7th
depreciation groups only.
Non-current asset A
Non-current asset A was purchased and put into use in December 2016 therefore depreciation starts
from January 2017. As the useful life equals exactly 3 years then depreciation group is determined as
the second (2) group. Depreciation rate is 8.8. Original tax cost taking into account 10% write-off =
400,000 RR – 10% = 360,000 RR.
(½)
Non-current asset B
Useful life 3½ years means this non-current asset should be included in No. 3 depreciation group.
Depreciation rate (non-linear method) = 5.6.
Original tax cost = 600,000 – (30% × 600,000) = 420,000.
Number of month of usage before 1 January 2017 is 3 months.
Depreciation in 2016 is based on linear method.
NBV = 420,000 – (3/42  420,000) = 390,000 RR
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1005
(½)
(½)
(½)
(½)
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Non-current asset C
The original cost of the car is the market value but not less than NBV of the donor and equals 320,000
in this case. No 30% write-off is applied as it is received free of charge.
(½)
The useful life is 5 years exactly which means that this non-current asset should be included in 3rd
depreciation group. Depreciation rate (non-linear method) = 5.6. Depreciation period starts 1 February
2017.
(½)
Therefore there are two groups of non-current assets:
(1)
(2)
Non-current asset A;
Non-current assets B and C.
Depreciation calculation for each group
Method 1 (all amounts in RR)
January:
Asset A
 8.8/100
NBV
Asset B (see working above)
 5.6/100
NBV
Group 2
NBV
Group 1
360,000
(31,680)
______
31,680
NBV
Asset C Addition

5.6
390,000
(21,840)
______
368,160
(28,892)
______
21,840
_____
(2)
(½)
53,520
_____
28,892
(½)
299,428
320,000
______
688,160
(38,537)
______
/100
NBV/depreciation
March:
Group 1 NBV × 8.8/100
Group 2 NBV × 5.6/100
(½)
(½)
328,320
NBV/depreciation
February:
Asset A NBV  8.8/100
Depreciation
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1006
38,537
______
(1)
649,623
67,429
_____
(36,379)
26,350
36,379
_____
(½)
(½)
62,729
_____
___
183,678
_____
(7)
(26,350)
Depreciation for 1st quarter
(1)
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Method 2 (all amounts in RR)
NBV of Group 1 (Asset A) at 1 April 2017 (360,000 × (1 – (0.01 × 8.8%))3
Depreciation of Group 1 (Asset A) for 1st quarter (360,000 – 273,078)
Depreciation of Group 2 (Asset B) for January:
NBV of asset B (see Method 1 above)
368,160
NBV of Group 2 (Assets B and C) at 1 April 2017:
(688,160 × (1 – (0.01 × 5.6%))2
613,244
Depreciation of Group 2 (Assets B and C) for February and March
(688,160 – 613,244)
Total depreciation for 1st quarter
273,078
______
86,922
21,840
74,916
______
183,678
______
Answer 7 OOO TRIMPEX
All amounts in million RR.
2015 loss can be carried forward and utilised up to 2024 (10 years) in the full amount of 360.
(½)
In 2016 – 130 of loss can be utilised (no limitation applies to loss amount).
(½)
Taxable profits after loss is 0.
(½)
In 2017 – 200 of loss can be utilised (no limitation applies to loss amount).
(½)
Taxable profits after loss is 0.
(½)
The remaining part of the 2015 loss in the amount 30 (360 – 130 – 200) can be carried forward and
utilised up to 2025.
(½)
Answer 8 OOO SIMPEX
(a)
Deductible interest
If the loan is taken from a bank and considered a controlled loan (as OOO Beta is a parent
company of OOO Simpex), then interest expense will be deductible if it falls within certain
limits that depend on the currency of the loan.
The limit for a Euro loan is EURIBOR + 7%. The deductible interest is therefore limited to
7.526%.
Deductible interest
Actual interest
€1,000,000 × (29+9)/365 × 7.526% × 60.9 = 477,169 RR.
€1,000,000 × (29+9)/365 × 8% × 60.9 = 507,222 RR
The remainder (30,053 RR) will be non-deductible for CPT purposes.
If the loan is taken from another bank, which is an unrelated party, the loan will not be
considered controlled and thus all of the interest expense will be deductible for CPT purposes.
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1007
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
(b)
Related parties (RP) & controlled transactions
Parties are likely to be related when relationships between them may influence conditions or
results of transactions, which include:



two companies where one holds directly or indirectly more than 25% of the other;
two companies with the same parent holding directly or indirectly more than 25% of
each;
companies with the same CEO or controlling directors.
There are two broad types of controlled transactions:
(c)
(1)
Cross-border transactions are considered as controlled if they occur between related
parties, between third parties selling certain types of minerals (60 mln RR limit) or
third party transactions in “blacklisted” offshore jurisdictions (60 mln RR limit).
(2)
Domestic transactions are considered as controlled if happen between related
parties, where one party is exempt from CPT or is a resident of a special economic
zone (60 mln RR limit), where one party pays unified tax (100 mln RR limit) or
other RP transactions (1 bln RR limit)
Accepted methods of transfer pricing
In a controlled transaction, parties are required to use one of the prescribed methods below to
establish a price range to be stipulated in the contract:
(1)
Comparable uncontrolled price (CUP). This method compares the price in a
controlled transaction to the price charged in a comparable uncontrolled transaction
in comparable circumstances.
(2)
Resale minus. This method can be applied where a product purchased in a
controlled transaction is onward sold to an independent unrelated party. The price
of the onward sale is then discounted to take account of incremental costs (storage,
marketing, etc) and also an appropriate margin and compared with the actual or
proposed controlled acquisition cost.
(3)
Cost plus. Costs incurred are marked up by appropriate profit margins to establish a
theoretical price, or range of pricing, which may then be compared to the price in
the controlled transaction.
(4)
Comparable profitability. This method is a more modern technique used to generate
a range of values for a controlled transaction based on an expected margin
appropriate to the trading organisation.
(5)
Profit split. This is another development from the three traditional techniques. It
moves away from one-sided methods to consider instead how profits or returns
could reasonably be allocated between two or more associated operations,
especially where these parties bring significant contributions (value) to the
transactions.
The first method is generally preferred; however, it requires a high degree of equivalence to
make an appropriate comparison. These methods can be used in combination or even other
methods may be used by the taxpayer if justified.
Tutorial note: Only four methods were asked for.
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1008
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Answer 9 OOO BEGEMOT
30 June
2016
(1) Receivables allowance as at the date
(Debt aged > 90 days)  100%
0
(Debt aged 45 – 90 days)  50%
30,000
–––––––
30,000
(½)
(2) Sales revenue limitation (10% of
sales revenue net of VAT)
(3) Prior period b/fwd allowance
Allowance c/fwd **
b/fwd write-off
Bad debt expense/(credit)
60,000
(½)
0
30,000
0
–––––––
30,000
(½)
30 September 31 December
2016
2016
31 March
2017
40,000
50,000
–––––––
90,000
(½)
60,000
70,000
–––––––
130,000
(½)
80,000
58,000
–––––––
138,000
(½)
80,000
(½)
120,000
(½)
50,000
(½)
(30,000)
80,000
0
–––––––
50,000
(½)
(80,000)
120,000
28,000
–––––––
68,000
(½)
(120,000)
50,000
0
–––––––
(70,000)
(½)
** Lower of (1) and (2)
Answer 10 OOO METALURG
(a)
VAT liability/recoverable VAT – confirmation 10 March 2017
December 2016
Metalurg will not pay VAT on advance payment received on 20 December 2016 because
export advances are not subject to VAT.
(½)
March 2017
Export will be confirmed on 31 March (last day of the quarter when export confirmation
package was presented).
(½)
Output VAT (100,000  31.62  0%)
Input VAT
RR
0
(362,572)
______
(½)
(½)
Total refund
(362,572)
______
(½)
This amount is shown in the VAT declaration for the 1st quarter 2017 to be submitted by 25
April.
(½)
This VAT is not immediately available for recovery (there are 3 months for verification of
this amount by the tax authorities).
(½)
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1009
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
(b)
VAT liability/recoverable VAT – confirmation 25 August 2017
December 2016
VAT treatment of advance payment is the same as in (a).
(½)
July 2017
On 25 July 2017 (the 181st day from the export date)
Metalurg will have to recognise an unconfirmed export amounting to
(100,000 × 30.25)
3,025,000 RR
(½)
The exchange rate is taken on the shipment date (i.e. on 25 January).
(½)
RR
544,500
(362,572)
181,928
Output VAT is (3,025,000 × 18/100)
Recovery of input VAT on goods
VAT payable to the budget
Amounts are shown in amended VAT declaration for 1st quarter of 2017.
(½)
(½)
(½)
(½)
(½)
VAT should be paid to the budget as soon as liability was defined and declared (i.e. 25 July
2017).
Tutorial note: The Tax Code requires revaluation of the unconfirmed export on the payment
receipt date. However this provision is not examinable to simplify the overall calculation.
August – September 2017
On 30 September (the last day of the quarter in which export documents were submitted)
Metalurg will recognise confirmed export subject to zero-rate VAT.
(½)
Zero-rate VAT base is 3,230,000 RR (100,000 × 32.3)
(½)
Output VAT
0
(½)
Reverse of VAT refund from the budget
(544,500)
(½)
(non-confirmed VAT earlier)
This amount is shown in VAT declaration for 3rd quarter (½) to be submitted by 20 October.
(½)
This VAT is not immediately available for recovery (there are 3 months for verification of
this amount by the tax authorities).
(½)
(c)
Late interest calculation
VAT is due for payment in three equal monthly instalments and late interest is calculated
starting 26 April (next day after 1st quarter VAT payment) and up to the date of actual
payment, which is 25 July (91 days in total). Changes in CBR rates are taken into
consideration:
(1)
RR
181,928  1/3  5 days  1/300  15%
152
(½)
181,928  1/3  20 days  1/300  7%
283
(½)
181,928  2/3  31 days  1/300  7%
877
(½)
1
181,928  (10 + 25) days  /300  7%
1,486
(½)
_____
2,798
_____
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1010
(2)
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
(d)
Documents to be presented as export confirmation




Contract (or its copy) between the Russian exporters and the foreign buyer for
exports of goods from the territory of Russia.
(½)
Commission agreement (or its copy) if export is through a commissioner.
(½)
Customs declaration (or its copy), stamped by the customs authorities at the Russian
state border.
(½)
Copies of transport documents confirming that the goods have been shipped outside
the territory of Russia, with a stamp of the customs authorities affixed at the state
border on these documents.
(½)
Tutorial note: A bank statement evidencing receipt of export proceeds is no longer required
as part of the standard package.
Answer 11 OOO COMPLEX
(a)
Profits tax liability
mln RR
Sales income (net of VAT) (1,239  100/118)
Prepayments as at 31 December 2016 (non-taxable)
mln RR
1,050
0
(½)
(½)
Direct expenses
Production materials (W1)
Production wages and salaries (W2)
Insurance contributions at 30%
Production depreciation (W4)
(384)
(72)
(21.6)
(112)
_____
(1½)
(½)
(½)
(½)
(589.6)
Indirect operational expenses
Third parties’ services (W3)
Administrative wages and salaries
Insurance contributions at 30%
Entertainment expense (W6 )
Advertising expense (W7)
Depreciation of non-production non-current assets
(90)
(32)
(9.6)
(4.88)
(25.5)
(40)
_____
(½)
(½)
(½)
(1)
(1½)
(½)
(201.98)
Indirect non-operational expenses
Bank interest expense (W5)
Bad debt expense (W8)
(37.75)
(63)
_____
(1)
(1)
(100.75)
_____
Taxable profits
157.67
_____
Tax rate
Tax amount
20%
31.53
_____
(½)
____
(11)
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1011
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
WORKINGS (RR mln)
(1)
Production materials
Opening inventory
Plus total materials purchased
Less: input VAT 708  18/118
Less: closing inventory
40
708
(108)
(160)
___
Materials consumed in production
Less: 20% of materials in goods not sold
480
(96)
___
Materials qualified for CPT deduction
384
___
(2)
(¼)
(½)
(¼)
(½)
__
(1½)
Wages and salaries and related insurance contributions
Tutorial note: Wages and salaries of production workers (and related ICs) are classified as
direct expenses and allocated between cost of goods sold and cost of finished goods. (Those
of administrative personnel (and related ICs) are deducted in full in the tax period.)
Wages and salaries of production personnel
Less: 20% in goods not sold
90
(18)
___
Deductible
72
___
(3)
(½)
Third parties’ services
Services purchased net of VAT (106.2  100/118)
90
___
Services are not classified as direct expenses by the Tax Code, thus no allocation to closing
inventory is required.
(4)
Depreciation
Tutorial note: Depreciation of production non-current assets is classified as direct expenses
and allocated between cost of goods sold and cost of finished goods. (Depreciation of other
non-current assets should be deducted in full in the tax period).
Depreciation of production non-current assets
Less: 20% in goods not sold
140
(28)
___
Deductible direct depreciation
112
(5)
(½)
Bank interest expense
Interest starts from 1 February 2017 (i.e. 365 – 31 = 334 days) and is deductible for CPT
purposes (there is no indication that transfer pricing rules apply):
165  334/365  25% = 37.75
Tutorial note: Interest expense is classified as “other” expense and is not allocated to the
cost of finished goods.
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1012
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
(6)
Business entertainment
Business entertainment expenses are limited for CPT purposes to a maximum of 4% of labour
costs for tax purposes not including insurance contributions (as ICs are not classified as
“labour” expense by the Tax Code).
Labour costs for tax purposes (direct + indirect): (90 + 32)
Deductible amount: (4%  122)
122
4.88
(½)
(½)
Tutorial notes: Business entertainment expenses are classified as “other” expense and are
not allocated to the cost of finished goods.
(7)
Advertising expense
Advertising expenses net of VAT (35.4  100/118)
Restriction on deductibility of advertising expenses related to prizes:
1% of sales revenue (1,050  1%)
No restrictions apply to other types of advertising expenses
30
(½)
10.5
15
___
(½)
(½)
25.5
___
(8)
Bad debt expense
Allowance made during 9 months
Actual write-offs
54
(27)
___
Balance of allowance for receivables
Allowance required c/fwd
27
36
___
Allowance made in December
9
___
Total bad debt expenses (54 + 9)
63
___
Tutorial note: The 63 expense can be thought of either as the 27 write-off + the allowance
created at the end of the year or as the 54 allowance made during the year + the additional
allowance (36 – 27) created at the end of the year.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
1013
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
(b)
VAT
mln RR
Output VAT
On 2017 sales
On prepayment
189
21.6
_____
Total output VAT
Calculation
1,239  18/118
141.6  18/118
(½)
(½)
210.6
_____
708  18/118 × 70% (supported by VAT
invoices)
(½)
Input VAT
On 2017 materials
(75.6)
On 2017 services
(14.58)
On business entertainment
(0.35)
On advertising
(4.59)
On prepayment
(5.49)
_____
Total input VAT
(100.61)
_____
___
109.99
(6)
VAT payable/(recoverable)
106.2  18/118 × 90%
(½)
(4.88 ÷ (11.8 – 0.8)) × 0.8, VAT is
recoverable in proportion to expense
deductible for CPT purposes
(1½)
(25.5 ÷ (35.4 – 5.4))  5.4, VAT is
recoverable in proportion to expense
deductible for CPT purposes
(1½)
36 × 18/118
(1)
Answer 12 DMITRIY
The following deductions are potentially available:
(1)
Charitable deduction limited to 25% of his gross income taxed at 13%
Advertising prize is taxable at 35% rate
(2)
Four deductions (educational, medical, pension deduction non-state and additional payments)
are considered all together within 120,000 RR limitation:
– payment to non-state pension security fund
– payment to “nakopitelnay” part of labour pension
– payment for own education
– payment for prescribed medication
Therefore Dmitriy can apply 70,000 RR for these social deductions.
(3)
250,000 (1)
(½)
5,000
15,000
35,000
15,000
(½)
(½)
(½)
(½)
(½)
In addition to the above social deductions Dmitriy can deduct 25,000 RR of the 35,000 RR
payments for his daughter’s education (not exceeding 50,000 RR per child for two parents,
and his wife claimed 25,000 RR in her PIT declaration)
(1)
and payment for expensive treatment of his mother in full amount of 50,000 RR.
(1)
All social deductions can be obtained by Dmitriy after the termination of tax period (year) and
submitting of PIT declaration to tax authorities.
(1)
Alternatively, Dmitriy could apply for some or all of these deductions to be given by his
employer. He would need to make application to the tax authorities together with proof of the
expense; if the tax authorities are satisfied they will issue a confirmation to Dmitriy, who
would then submit this to his employer with his request.
(1)
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1014
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
If the four social deductions had exceeded 120,000 RR Dmitriy would choose which
payments to include as deductions and in what amounts, within limited amount.
Answer 13 LORA
(a)
Social deductions
Medical deductions
“Lose weight”
Cosmetic surgery
Treatment of appendicitis
Medical insurance
Prescribed drugs
RR
0
0
38,000
25,000
2,000
______
(¼)
(¼)
(¼)
(½)
(¼)
Total before limitation
65,000
(½)
60,000
______
(½)
Total
Total after limitation
125,000
120,000
______
(½)
Her son’s education (limited to 50,000)
50,000
______
(½)
Educational deduction
Her own education (even evening classes qualify for a taxpayer herself)
Charitable contributions
Donation to the sports centre
Donation to the library (not in cash)
Total before limitation
Limitation (25% of gross income taxed at 13%) = 290,000  25%
Total after limitation
(b)
72,000
0
72,000
72,500
72,000
(½)
(1)
Limitations on social deductions
General limitations
All social deductions apply only to income taxed at 13%.
(½)
No carry-forward is available.
(½)
All deductions must be claimed by taxpayer himself upon tax declaration submission.
(½)
Maximum amount of social deductions (educational, medical, pension) is limited
to 120,000 RR (with some exceptions for educational and medical deductions).
(½)
Medical deduction
Deduction is granted in the amount of the expenses incurred by an individual:



on his own medical treatment in medical institutions of the Russian Federation; (½)
on medical treatment paid for the benefit of the individual’s parents and/or children
under 18 years (½) or spouse in medical institutions of the Russian Federation; (½)
on voluntary medical insurance contributions.
(½)
The total deduction is limited to 120,000 RR (aggregated with two other deductions) except
for certain types of expensive medical treatment (as per a special list approved by the Russian
Federation government) (½). In this last case the deduction is given in the amount of the
actual medical expenses (½).
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1015
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Qualifying types of medical treatment are defined in the list approved by the RF Government.
Cosmetic surgery and weight loss programmes are not on the list (½). Therefore, no social
deduction is granted in relation to them.
Educational deduction
Deduction is granted in the amount of the expenses incurred by an individual:


on his own education or his sister/brother (120,000 RR aggregated with two other
social deductions); and
on his child’s education (up to 50,000 RR).
(½)
The tax deduction on a child’s education may not exceed 50,000 for both parents per
child (½). A child must be under 24 years of age (as a sister/brother must be).
(½)
No deduction is granted for children (individual sister/brother) studying in “zaochniy”
(distant) education. Evening class deduction is available to the taxpayer himself.
(½)
Education should be provided by an educational institution confirmed by a relevant
licence or another document.
(½)
Charitable contributions
The following charity donations qualify for tax deduction purposes:


charity donations made in cash to cultural, scientific, health and social security
organisations wholly or partially financed from the budget;
(½)
charity donations made in cash to sports and educational organisations for sports
purposes only (no budget financing is required in this case).
(½)
The deduction is limited to 25% of the gross income taxed at 13% rate.
(½)
Answer 14 ROMAN
Calculation of insurance contributions and PIT
RR
Let Roman’s gross income be
Less: PIT
x
(x – 0.2x) × 0.13
(1)
__________
Net income received
240,000
__________
Solving: x – 0.8x × 0.13 = 240,000
(1)
Gives: x = 267,857 RR
(½)
PIT = 267,857  0.8  13% = 27,857
(½)
Income subject to IC = 267,857 RR minus professional deduction of 20%
Income subject to IC = 214,286 RR
(½)
ICs are payable to Pension Fund (22%) and FFOMI (5.1%). (No Social Insurance Fund
contributions for copyright agreements or other civil law contracts.)
ICs = 214,286 × 27.1% = 58,072 RR
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
(½)
1016
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Answer 15 VERA
(a)
Calculation of taxable income (in RR)
Gross salary
Less: tax
Net receipt
June
X
(X – 2,800) × 13%
8,000 (½)
July
Y
(Y – 2,800) × 13%
11,000 (½)
August
Z
(Z – 2,800) × 13%
21,000 (½)
Gross income for June is calculated taking into account a first child deduction for a single
parent of 2 × 1,400 RR:
X – (X – 2,800) × 0.13 = 8,000
0.87X = 7,636
X = 8,777
(1)
Gross income for July is also calculated taking into account the first child deduction as the
cumulative income for June-July does not exceed 350,000 RR:
Y – (Y – 2,800) × 0.13 = 11,000
0.87Y = 10,636
Y = 12,225
(1)
Gross income for August is calculated in the same way as:
Z – (Z – 2,800) × 0.13 = 21,000
0.87Z = 20,636
Z = 23,720
(1)
Total gross income at work (X + Y + Z)
Less: first child deduction (2 × 1,400 × 3)
44,722
(8,400)
______
Taxable income
36,322
______
Tax at 13%
Tax as per income tax declaration
4,722
(½)
(½)
(½)
RR
44,722
Total gross income:
Less:
First child deduction
Educational deduction
(8,400)
(35,000*)
______
Taxable income:
1,322
______
Tax at 13%
Tax available for refund: (4,722 – 172)
* As Vera has documents confirming payment 35,000 RR.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
(½)
1017
172
(½)
4,550
(½)
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
(b)
Procedure with regard to social deductions
Educational deductions will be granted to Vera at her written request upon submission of the
annual tax declaration.
(½)
Vera is eligible to get an educational deduction on the evening classes as it is her own
education.
(½)
Her father can claim also deduction in the amount of 33,000 RR for education as for children
up to 24 years old getting “ochnoe” education (limited to 50,000 RR per child for both
parents).
(½)
The grandmother does not qualify for the deduction as she is not a parent of the student. (½)
Answer 16 ALLA
Items subject to PIT
In Russia
RR
–
–
–
6,400
800
–
(2,100)
_____
Plane tickets
Taxi bills*
Hotel bill
Restaurant bill
Theatre tickets
Phone bills
Less: Per diem allowance (3  700 RR)
(½)
(½)
(½)
(½)
(½)
(½)
(½)
5,100
_____
* Documentary proved transportation costs to the hotel/airport/train station are not taxable
under PIT (item 3 of art. 217 of the Tax Code).
Abroad
Plane tickets
Taxi bills
Hotel bill
Restaurants (300 Euro × 42)
–
–
–
12,600
Less:
(5,000)
(700)
_____
Per diem (France) (2,500 RR × 2)
Per diem (Russia)
(½)
(½)
(½)
(½)
6,900
_____
Total taxable amount
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
12,000
1018
(½)
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Answer 17 LARISA
(a)
Taxable income and PIT
RR
349,000
63,200
900,000
_______
(1)
(½)
(1)
1,312,200
(1,312,200)
_______
(½)
(½)
Taxable income:
0
_______
(½)
Tax at 13%
0
_______
Taxable income from apartment № 1 (W1)
Taxable income from apartment № 2 (15,800  4)
Taxable gain on sale of apartment (W2)
Total taxable income:
Less: Housing incentive
WORKINGS
(1)
(Marks not to be double-counted.)
Apartment № 1
Taxable income
January – May
June – December
RR
125,000
224,000
______
Total taxable income
349,000
______
(2)
Sale of apartment
RR
1,900,000
(1,000,000)
________
Sales proceeds
Standard property deduction
Taxable gain on sale
(b)
(½)
(½)
(1)
900,000
_______
Tax benefit and housing incentive
If too much PIT on rental income was paid during the year it will be available for refund upon
submission of Larisa’s annual tax declaration by 30 April 2018.
(½)
The housing incentive will be claimed in Larisa’s declaration for 2017.
(½)
The amount of Larisa’s incentive is 1,700,000 RR. Part-ownership does not require the
incentive to be split or pro-rated. Should Larisa make further qualifying acquisitions in future
she would be able to claim a further housing incentive of up to 300,000 RR (i.e. to a
combined total of 2 million RR).
(½)
There is 387,800 RR unused portion of housing incentive to be carried forward to future years
(1,700,000 available less 1,312,200 utilised).
(½)
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
1019
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Answer 18 MAXIM
(a)
Calculation of taxable income and PIT
Item
Calculation
Revenue
Cost of sales
Depreciation expense
56,250 × 12
20,415 × 12
358,000 × 14% × 11/12
Rent expense
Salary expense
IC on assistant’s salary
2,900 × 12
14,000 × 12
168,000 × 30%
IC on business income
(b)
9,000
Amount
RR
675,000
(244,980)
(45,943)
(½)
(½)
(1)
(34,800)
(168,000)
(50,400)
______
(½)
(½)
(½)
130,877
(9,000)
______
(1)
Taxable business income
121,877
______
PIT at 13%
15,844
______
(½)
Reporting and payment requirements
Maxim will act in capacity of a tax agent with regard to salaries paid to his assistant
He is required to calculate the tax on a monthly basis cumulatively from the beginning of the
tax period in relation to income taxed at 13% and separately for each amount payable in
relation to income taxed at different rates. (½) The withholding is made from the amount
payable at the moment of payment. (½)
The tax withheld by Maxim should be paid to the budget not later than:



on the day of the actual receipt of cash in bank for payment purposes; or
(½)
the day of a wire transfer of income to the assistant’s bank account (or to a third
party’s account at his request);
(½)
the day following the day of the actual receipt of cash by the assistant in other cases. (½)
If the tax is withheld on income in-kind and on imputed income, this tax shall be paid on the
date following the date of actual tax withholding.
(½)
Payment of the tax out of a tax agent’s own funds is not permitted.
(½)
The data on cumulative income paid to the assistant is to be presented to tax authorities
by 1 April 2018.
(½)
Maxim will have to pay PIT on his own business income
He must make advance payments of the tax. (½) These payments are made based on
estimated income per a preliminary tax declaration. (½) Advance payments are made based
on payment orders issued by the tax inspectorate. (½)
The amounts and deadlines are as follows:



50% of the estimated annual tax liability by 15 July of the current year;
25% of the estimated annual tax liability by 15 October of the current year;
25% of the estimated annual tax liability by 15 January of the next year.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
1020
(½)
(½)
(½)
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
In case of significant increase/decrease (more than 50%) of actual income comparing to that
declared in the tax declaration on estimated income Maxim must submit a new declaration on
his estimated income.
(½)
Final tax declaration is submitted by 30 April 2018.
(½)
Any outstanding PIT liability must be paid by 15 July 2018.
(½)
If PIT is overpaid it is refunded within 1 month after the date when the refund request was
submitted.
(½)
___
max 8
___
(c)
Insurance contributions obligations
Maxim is liable to ICs both on his minimal income and on payments to his employee:
IC on assistant’s salary (168,000 × 30%)
IC on business income (as in Question)
50,400
9,000
______
Total insurance contributions
59,400
______
(½)
(½)
Answer 19 STANISLAV
(a)
Insurance contributions
Item
Cook
Waiter
Cleaner
Calculation
(520,000 × 30%)
(80,000 × 30%)
(30,000 × 30%)
Total ICs on employees’ salaries
(b)
Amount
RR
156,000
24,000
9,000
_______
189,000
_______
(1)
Personal income tax
Gross business revenue
Truck selling price
1,600,000
380,000
Less:
Cost of sales
Rental payments
Salaries
IC (on employees’ salaries + 5,000)
Truck net book value (520,000 – 480,000)
Social deductions
(560,000)
(220,000)
(630,000)
(194,000)
(40,000)
(35,000)
_______
(1)
(¼)
(¼)
(¼)
(¼)
(½)
Amount subject to PIT
304,200
_______
(½)
PIT at 13%
39,546
_______
(½)
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
1021
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Answer 20 IRINA
(a) & (b) Personal income tax
(a) Based on
actual expenses
(b) Based on
professional deduction
1,950,000
1,950,000
VAT on sales
0
0
Cost of sales (materials) (Note 1)
0
Sales
Depreciation (Note 2)
(390,000)
(1)
(31,949)
(1)
0
(230,400)
(½)
0
Insurance contributions
(15,000)
________
(½)
0
________
Taxable business income
1,672,651
________
(½)
1,560,000
________
(½)
217,445
(½)
202,800
(½)
Rent (19,200 RR  12) (Note 3)
Tax at 13%
Note 1
Cost of sales (materials)
Irina would not be able to claim a deduction for the cost of materials since she had lost the primary
documents relating to the purchase of these materials.
As an alternative Irina can claim a professional deduction of 20% of income in which case she would
not be required to have primary supporting documents for these purchases.
1,950,000  20% = 390,000 RR
Note 2
Depreciation
The monthly depreciation rate is 1/(4  12)  100% = 2.08%
The depreciation cost of equipment includes VAT since Irina is not a VAT payer.
2.08%  8 months  192,000 RR = 31,949 RR
Note 3
Rent
The rental cost includes VAT as Irina is not a VAT payer.
(c)
Comparison
Option (a)
(actual expenses)
Option (b)
(20% deduction)
Income
1,950,000
1,950,000
1,260,000
(½)
Confirmed expenses
(262,349)
(262,349)
0
(½)
Not confirmed expenses
(270,000)
(270,000)
0
(½)
Insurance contributions
(15,000)
(15,000)
0
(½)
PIT
(217,445)
(202,800)
(163,800)
(½)
Net income
1,185,206
1,199,851
1,096,200
(½)
Option (b) is the best.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
Option 3 (salary)
(½)
1022
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
(d)
Reporting and payment obligations
Irina must submit a tax declaration on her estimated business income. (½) This declaration
must be submitted within 1 month and 5 days after the day when such income was first
received. (½) (The tax inspectorate issues payment orders based on the preliminary
declaration taking into account all available deductions.)
Irina must make advance payments of the tax.(½) These payments are made based on
estimated income per a preliminary tax declaration. Advance payments are made based on
payment orders issued by the tax inspectorate. (½)
The amounts and deadlines are as follows:
50% of the estimated annual tax liability by 15 July of the current year;
25% of the estimated annual tax liability by 15 October of the current year;
25% of the estimated annual tax liability by 15 January of the next year.
(½)
(½)
(½)
The final PIT liability is paid by 15 July of the year following the reporting one.
(½)
In case of a considerable (by more than 50%) increase/decrease of income compared to the
amount estimated in the first preliminary tax declaration the taxpayer must submit a new
declaration on estimated income. (½) (The tax inspectorate will then recalculate the advance
tax payments.)
The tax declaration on actual income received must be submitted not later than 30 April of the
year following the reporting one.
(½)
___
max 5
___
Answer 21 JANA
Salary (22,000 × 12)
Performance bonus (21,750  2  0.87)
Free meals
Paid vacation
Discounts
Kitchen processor
Microwave oven
Less: gift exemption
Medical insurance
Support payment
Less: exemption
Taxable base
(a)
(b)
PIT at 13%
IC (30% up to 755,000 RR)
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
Subject to PIT
264,000 (½)
50,000 (1)
14,400 (½)
35,000 (½)
6,500 (½)
8,700 (¼)
8,000 (¼)
(4,000) (½)
–
10,000 (¼)
(4,000) (¼)
_______ __
Subject to IC
264,000 (¼)
50,000 (½)
14,400 (¼)
35,000 (¼)
–
(¼)
8,700 (¼)
8,000 (¼)
–
–
10,000 (¼)
(4,000) (¼)
_______ __
388,600 (4½)
_______
386,100 (2½)
_______
50,518 (½)
115,830 (½)
1023
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Answer 22 ZHANNA
PIT on Zhanna’s income
Salary (32,000 × 12)
RR
384,000
______
PIT at 13%
Imputed interest income on loan (W1)
Taxable % on deposit (W2)
(½)
49,920
(½)
(2)
(2)
PIT at 35%
3,697
_____
(½)
Total accrued PIT
53,617
_____
(½)
Total subject to 35%
2,630
7,934
_____
10,564
_____
WORKINGS
(1)
RR
(Marks not to be double-counted.)
Imputed interest on loan
Number of days in the period 10 August – 31 December: 144 days
Calculation of imputed interest on loan:
(500,000 × 144/365 × (5% × 2/3 – 2%))
(2)
(½)
2,630
(1½)
Taxable % on bank deposit
Number of days from 11 July – 30 September: 82 days
Number of days from 1 October – 10 December: 71 days
Taxable %:
100,000  (30% – (7% + 5%))  82/365
100,000  (30% – (5% + 5%))  71/365
(½)
(½)
4,044
3,890
_____
7,934
_____
(1)
Answer 23 MATVEI
(a)
Calculation of taxable income and PIT
Taxable income (in RR):
Gross salary (34,500  12)
Taxable benefit (candy) ((150 – 80)  20)
Gift
414,000
1,400
10,000
_______
Total taxable income:
Less:
Standard children allowance (9 × 1,400)
Gift exemption
425,400
(12,600)
(4,000)
______
(1)
(½)
Total deductions
(16,600)
_______
Taxable income
408,800
_______
Tax at 13%
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
(½)
(1)
(½)
53,144
1024
(½)
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Tutorial note: Standard children allowance is given for nine months as gross cumulative
income (including gift in May) exceeds 350,000 RR in October.
(b)
Insurance contributions
Gifts are subject to IC because there is no special stipulation concerning expenses accounting
for CPT purposes (deductible or non-deductible).
(½)
Discounts on company’s products are not subject to IC as taxable base is defined as any
payments (in cash or in kind) in favour of an employee/family member and does not refer to
any benefits such as discounts.
(½)
Such treatment is different from the Tax Code’s PIT provisions under which discounts on
employer’s products are taxable.
(½)
IC is assessed on 424,000 RR at the rate of 30% i.e. 127,200 RR.
(c)
(½)
Employer’s obligations
The candy factory must add all these benefits to Matvei’s employment income and calculate
and withhold tax out of cash payments made to Matvei.
(1)
Answer 24 DENIS AND ANDREI
(a)
Personal investment accounts
(i)
Two types of deductions
(1)
A deduction can be claimed in the amount of PIA contributions made during the
year, up to 400,000 RR (maximum amount of PIA contributions in each year); or
(2)
On contract termination after not less than three years, a deduction can be claimed
in the amount of total income received in the PIA (without limit).
(1) can be claimed each year when contributions to PIA are made, provided there is enough
taxable income at 13% rate to utilise the deduction. (2) is granted only once.
(ii)
Tax consequences
(1)
Denis can have 400,000 RR as a deduction against his taxable employment income.
Assuming that PIT was withheld at source, he can claim reimbursement from
budget 52,000 RR (400,000 × 0.13). The same reimbursement may be received in
the following two years. However, if the PIA contract is terminated or amounts
(even partially) withdrawn from it, amounts of reimbursement should be remitted
back to budget.
(2)
Total income from sale of investments 700,000 RR (1,900,000 – (400,000 × 3)) is
tax free. There is no limitation on the amount of tax-free profit received.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
1025
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
(b)
(iii)
Deduction claim procedure
(1)
Submit PIT declaration to tax authorities after tax period end, not later than 30 April
of the following year. Attach documents, confirming receipt of income taxable at
13% rate in the corresponding tax period, documents, confirming transfer of
contributions to PIA and a written request for tax refund.
(2)
On contract termination (not less than three years after PIA opening date) upon
submission to broker of confirmation from tax authorities that the first type of
deductions was not used. The broker acts as a tax agent and will reduce the
withholding of PIT from the payment to taxpayer accordingly.
Deduction and PIT of Denis (sale of listed securities)
Denis purchased the shares after 1 January 2014 and held them for four full years.
RR mln
13
(12)
–––
1
–––
Profit on sale (33mln – 20mln)
Investment deduction (4 years × 3mln)
Taxable gain
Therefore, PIT to be withheld is 130,000 RR (1 mln RR × 0.13).
(c)
Deduction and PIT of Andrei (sale of listed securities)
Total profit earned by Andrei is 14 mln RR (3 + 5 + 6).
Using the exam formula for the coefficient for maximum investment deduction:
Ks = ((3 mln × 3) + (5 mln × 4) + (6 mln × 5)) ÷ 14 mln = 4.2143
Maximum investment deduction, Ks × 3 mln RR = 4.2143 × 3 mln = 12,642,900 RR.
PIT payable: (14,000,000 – 12,642,900) × 0.13 = 176,423 RR.
Answer 25 IGOR
(a)
Personal income tax for 2017 withheld by the bike shop
Gross salary accrued
RR
35,000 (½)
Less: Children allowance (1,400 × 5 months)
Taxable benefits (free meals)
(7,000) (½)
2,500 (½)
Gift income
Less: gift exemption
Support payment
Less: exemption on support payment
4,800
(4,000)
6,000
(4,000)
_______
Income taxed at 13%
33,300
_______
Tax withheld
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
(½)
(½)
(½)
(½)
4,329 (½)
1026
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
(b)
Personal income tax on business income
RR
1,500,000 (½)
Income from business activities (1,770,000 × 100/118)
Less:
Business expenses
Cost of goods sold (590,000 × 100/118)
Depreciation
Rent expense (354,000 × 100/118)
Employee’s salary
IC on employee’s salary (at 30%)
IC for Igor
(500,000)
(120,000)
(300,000)
(210,000)
(63,000)
(5,000)
_______
Total business expenses
(1,198,000)
_______
Taxable business income
302,000
_______
Tax on business income at 13%
(c)
39,260
(½)
(½)
(½)
(½)
Tax withheld on cash prize
RR
X
(X – 4,000) × 35%
_______
Gross prize amount
Less tax:
Equals
(½)
488,725
_______
Solving:
X – 0.35 X + 1,400 = 488,725
0.65 X = 487,325
X = 749,731
(1)
Tax withheld (749,731 – 488,725)
(d)
(½)
261,006
(½)
Final settlement of Igor’s PIT liability
Income taxed at 13%
RR
33,300
302,000
140,000 (½)
Taxable employment income (per (a))
Taxable business income (per (b))
Income from car sale
Less:
Medical deduction (30,000 + 8,000)
Property deductions
(38,000) (½)
(140,000) (½)
______
Taxable income subject to 13%
297,300
______
Tax at 13%
38,649 (½)
______
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
1027
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Income taxed at 35%
Taxable contest income (749,731 – 4,000)
745,731 (½)
_______
Tax at 35%
261,006 (½)
_______
Total tax liability (38,649 + 261,006)
299,655 (½)
_______
Less:
(4,329) (¼)
(20,000) (½)
(261,006) (¼)
_______
Tax withheld on employment income (per (a))
Advance payment made
Tax withheld on prize
Total withheld/paid
285,335
_______
Additional tax payable
14,320
(½)
Answer 26 ROMAN VELIKY
(a)
Final personal income tax for the year 2017
Gross salary (15,000 × 100/87 × 12)
Free meals (3,000 × 12)
Photo camera (including VAT)
Gift exemption
Bonus for the year 2016 (included in the 2016 PIT base) (½)
Trip to Thailand
Part reimbursement for the car purchase (300,000 × 20%)
Overtime
Sick leave payments
Paid vacation
Taxable income at source
Tax 13% withheld at source
Sale of old car (held > 3 years, no taxable gain)
Total taxable base
Tax at 13%
Less tax withheld at source
RR
206,896
36,000
20,060
(4,000)
0
35,000
60,000
10,000
3,800
0
–––––––
367,756
–––––––
47,808
–––––––
(1)
(½)
(½)
(½)
(½)
(½)
(½)
(½)
(½)
(½)
(½)
(½)
0
(1)
367,756
47,808
(½)
(47,808)
(½)
––––––
Tax payable on the tax return
0
(½)
––––––
Tutorial note: Receiving vacation pay reduces the regular salary for the month in which the
vacation is taken. Since Roman received vacation pay in accordance with the applicable
regulations and his salary did not change in 2017, the vacation pay is already included in the
total gross salary.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
1028
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
(b)
Insurance contributions for the year 2017
RR
206,896
36,000
20,060
35,000
60,000
10,000
0
––––––––
367,956
––––––––
110,387
––––––––
Gross salary
Free meals
Photo camera (including VAT)
Trip to Thailand
Part reimbursement for the car purchase
Overtime
Paid vacation (see tutorial note in (a))
Total IC base
IC at 30%
(½)
(½)
(½)
(½)
(½)
(½)
(½)
(½)
Excluded from 2017 IC base:
Bonus for the year 2016 was included in IC base in 2016.
Sick leave payments made according to the law.
(½)
(½)
Answer 27 MARINA
(a)
Personal income tax liability for the year 2017 withheld at source by Lady
RR
2,280,000
(1)
380,000
(½)
Marina’s medical insurance paid by employer
0
(½)
Imputed interest income on the company’s loan (Note 1)
0
(1)*
(2,181,233)
–––––––––
478,767
–––––––––
(2)*
62,240
(½)
Gross salary accrued (165,300 ÷ 0.87 × 12)
Bonus accrued for the results of 2017 in the year 2017 (190,000 × 2)
Housing allowance from employer (Note 2)
Total employment income
Tax withheld at rate 13%
(½)
* Includes marks for Notes.
Note 1
Although Marina will make interest payment in December of the year 2017, imputed interest
on the loan used for purchasing a plot of land for further residential building is not taxable
(art. 212).
(1)
Note 2
As Marina submitted to Lady a tax authority’s confirmation of her entitlement to the property
allowance, the allowance should be granted by the employer.
(½)
Maximum property allowance for Marina is 2,000,000 RR plus interest on the loan for the
purchase of the property.
(½)
Interest paid on the company’s loan (from 3 December 2016 to 15 December 2017) is:
(3,500,000 × 5% × 378/365) = 181,233 RR
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
(1)
1029
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
(b)
Final settlement of Marina’s personal income tax liability for the year 2017
Taxable base from employer at 13% (per (a))
Social deduction for Marina’s brother
Taxable base
Tax due to the budget at 13%
Tax withheld by the employer
Tax to be refunded under personal tax return at 13% rate
RR
478,767
(70,000)
–––––––
408,767
–––––––
53,140
(62,240)
–––––––
(9,100)
–––––––
(½)
(½)
(½)
(½)
Tutorial note: As the interest was only paid in December 2017 it might, in practice, be
included in the final settlement rather than the withheld at source. Either way the same
amount of interest will be calculated. For exam purposes, including the interest in the
personal tax liability shows that the property allowance is inclusive of interest.
Answer 28 АNTON
(a)
Personal income tax liability
Gross salary (66,000 × 12)
Reimbursement received:
Air tickets – no limit
Accommodation expense – unlimited
Restaurant bills less per diem for three nights
(400 SFR) × 20.56 – 2,500 × 3
Per diem Russia (on return day)
Taxi receipt to the airport not taxable if documentary support
provided (art. 217)
Museum tickets (15 × 20.56)
Car repair costs
Gift in kind
Gift allowance
Train tickets for further education
Study leave
Relocation costs – specifically exempt from tax
Total tax base
PIT at 13%
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
1030
RR
792,000
(½)
0
0
(½)
(½)
724
(700)
(1)
(½)
0
308
15,000
16,000
(4,000)
1,000
12,000
0
–––––––
832,332
–––––––
108,203
–––––––
(½)
(½)
(½)
(½)
(½)
(½)
(½)
(½)
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
(b)
Insurance contributions liability
Gross salary (66,000 × 12)
Per diem allowances are IC exempt
Taxi expenses, air tickets, hotel expenses
with documentary support
Per diems above limits
Museum tickets
Repair costs, gift in kind
Train tickets for further education
Study leave
Relocation costs – not included since specifically exempt from tax
Total IC base
IC
(c)
on 755,000 RR @ 30%
on 81,308 (836,308 – 755,000) @ 27.1%
RR
792,000
no IC
no IC
no IC
308
31,000
1,000
12,000
0
–––––––
836,308
–––––––
226,500
22,034
–––––––
248,534
–––––––
(½)
(½)
(½)
(½)
(½)
(½)
(½)
(½)
(½)
(1)
Explanation of expenses
Under the provisions of the Tax Code (art. 255) study leave expenses (approved by the
employer) and related travel expenses to get to the place of study and back are treated as
deductible expenses for profits tax purposes.
(1)
The cost of relocation of an employee to a new place of work is deductible in full for the
employer’s profits tax purposes. The relocation must be documented in terms of a proper
directive and the relocation costs incurred should be supported with prime documents.
(1)
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
1031
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Answer 29 IZABELLA
(a)
Income subject to 13% rate
Salary (Note 1)
Financial aid (3,000  4)
Business trip expenses:
Flight tickets
Taxi bill
Hotel bill
Hotel telephone bills
Restaurant bills (200  36)
Museum tickets (70  36)
Per diem allowance (not taxable within limits)
(for 3 nights) 2,500  3 + 700 (for last night)
Gift (shares) from not close relative (500  1,500)
Total gain from sale of listed shares (Note 2)
Less:
Deduction on financial aid to employee
Children allowance for widow is doubled (2,800  12)
Educational deduction (for children)
maximum 50,000 out of 55,000
Total income subject to 13% rate
144,984
12,000
(1½)
(½)
0
0
0
0
7,200
2,520
(½)
(½)
(½)
(½)
(½)
(½)
0
750,000
528,700
(1)
(½)
(7½)
(4,000)
(33,600)
(½)
(1)
(50,000)
________
(1)
1,357,804
________
Tax at 13% rate
176,515
(½)
Income subject to 35% rate
Imputed interest on non-interest loan is subject to PIT at 35% rate. The date of income receipt
is the date of loan repayment. As no repayments were made during the year 2017, there was
no income subject to PIT at 35% rate.
(1)
Total tax liability
176,515
________
Note 1: Calculation of gross salary
X – (X – 2,800)  13% = 10,875
0.87X = 10,875 – 364 = 10,511
X = 12,082
Total gross salary for the year: 12  12,082 = 144,984
Note 2: Calculation of gain from sale of shares
Tutorial note: Since all shares are from listed companies or listed investment fund, the total
gain can be offset against total loss. The securities were not held long enough for an
investment deduction to be available in respect of their disposal.
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
1032
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Sales income:
From listed shares of AAR: (500  2,500) (actual price)
1,250,000
Weighted average quoted price is not applicable because
listed securities have been sold with a gain, not at a loss.
From listed shares of BASK: (300  554)
166,200
Weighted average price per share applies since sold with a loss:
(700 + 720 + 680 + 710 + 650) ÷ 5 = 692
Limit deviation of market price is 692 – 20% = 554 (actual price (500)
is not used as it is lower than calculated)
From listed shares of investment fund IPC: (500  1,200)
600,000
(weighted average quoted prices < actual, therefore use actual)
________
Total sales income
Incurred expenses on purchase (per type of share):
Purchase price of AAR (500  2,000)
Commission fee to brokers for AAR (5%  1,000,000)
Pro-rated other expenses for AAR (Note 3)
Purchase price of BASK (300  1,000)
Commission fee to brokers for BASK (5%  300,000)
Pro-rated other expenses for BASK (Note 3)
Gift from relative – tax paid on deemed value of
IPC shares received (500  1,500  13%)
Registration fee for IPC
No pro-rated expenses since it is a gift
Total expenses for listed shares
Total gain received for listed shares
(½)
(1½)
(½)
2,016,200
(1,000,000)
(50,000)
(15,385)
(300,000)
(15,000)
(4,615)
(½)
(½)
(½)
(½)
(½)
(½)
(97,500)
(5,000)
0
–––––––––
(1,487,500)
–––––––––
528,700
–––––––––
(1½)
(½)
Note 3: Pro-rated other expenses
20,000 RR should be pro-rated according to purchase prices as follows:
Total purchase price for all shares: (500  2,000) + (300  1,000) = 1,300,000
Expenses for ARR: (20,000  1,000,000 ÷ 1,300,000) = 15,385 RR
Expenses for BASK: (20,000 – 15,385) = 4,615 RR
(b)
Insurance contributions on Izabella’s income for the year 2017
Only her salary, financial aid in excess of 4,000 RR and reimbursed restaurant and museum
expenses are subject to IC: (144,984 + 8,000 + 9,720)  30% = 48,811 RR
(1½)
Business trip benefits (tickets, accommodation, calls, taxi to airport) are excluded from IC as
they do not represent remuneration for employee.
(½)
Imputed interest income should also be excluded from IC base since this item does not
constitute remuneration from employer.
(1)
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
1033
STUDY QUESTION BANK – TAXATION (RUSSIA) (F6)
Answer 30 OOO KRUG
(a)
Average taxable property (in mln RR)
¼ × (1,600 + 1,800 + 2,000 + 2,200 – 520 – 540 – 560 – 580)
(b)
1,350
(2)
Property tax
(1,350  2.2%  ¼)
©2017 DeVry/Becker Educational Development Corp. All rights reserved.
7.43
1034
(1)
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