Tax flash reports

Tax legislation amendments

Reasonable payment upon termination of an employment contract may be deducted for tax purposes

In 2017, the courts have examined several disputes on deduction of severance payments made in case of mutual agreement of the parties. The disputes concerned periods before 2015, i.e. prior to the adoption of new legislation on this issue. Please note that the court practice has changed significantly. The Supreme Court has confirmed that these payments are deductible provided the amount of payment is comparable to standard severance payment upon staffing reduction or company liquidation.

Income on Russian bonds may become exempt from Personal Income Tax

On 15 February 2017, the State Duma passed in the first reading a draft of the Federal Law “On Amending Chapter 23 of the Russian Tax Code”, in particular the section on determining the tax base on interest income earned on the marketable bonds of Russian organisations. Draft Law No. 46023-7 was introduced by the Russian Government. According to the proposed amendments, income in the form of interest (coupons) received on marketable bonds of Russian organisations that were issued in 2017-2020 and denominated in roubles would become exempt from personal income tax (the “PIT”) starting from 2018, provided that the amount of the interest (coupon) payment does not exceed the amount of interest assessed under the current refinancing rate of +5%. If the bond yields exceed the threshold, the excess will be taxable for Russian tax residents at 35%. Additionally, the draft proposes to exempt income received in the form of discounts upon redeeming such bonds.

The bill on three-tier transfer pricing documentation and automatic exchange of information is amended

On 6 March 2017, the Russian Ministry of Finance (the “MinFin”) published an amended bill adding new provisions to Part I of the Russian Tax Code (the “RTC”) for implementing the international automatic exchange of financial account information and new standards of the transfer pricing documentation for multinational corporations (“MNCs”). The publication is available at the federal portal for bills and regulations.

Procedure for entering into advance pricing arrangement for a cross-border transaction

The Russian Ministry of Finance has posted a draft order on the procedure for entering into an advance pricing arrangement (the “APA”) involving the competent authorities of foreign governments. The adoption of this procedure is prescribed by Article 105.20.2 of the Russian Tax Code (the “RTC”). To date, large taxpayers have been able to approach Russian Federal Tax Service (the “Russian FTS”) for conclusion of APAs where the Russian FTS is a party (so called “domestic APA”). The procedure for entering into a similar arrangement with involvement of foreign competent authorities (so called bilateral or multilateral APA) has yet to be adopted, though the respective right of large taxpayers and general principles are stipulated in the RTC.

The Supreme Court expressed its position on some aspects of applying transfer pricing and thin capitalisation rules

The Russian Supreme Court has published an overview of court practice on the most controversial aspects of applying transfer pricing (“TP”) and thin capitalisation rules. The overview was approved by the SC Presidium on 16 February 2017. The Supreme Court states this overview will ensure the uniform approaches in the resolution of tax disputes. We recommend you to review this document, and we expect that it will become a guideline for the courts and tax authorities.

Controlled Foreign Companies Guidelines from the Russian Ministry of Finance

The Russian Ministry of Finance (the “MinFin”) has issued clarifications on applying taxation rules to controlled foreign companies (the “CFC rules”). Taxpayers have long been waiting for a document that would address their many questions on applying CFC rules in practice. Given that the first reporting date is just a few weeks away, it is important to look into the MinFin’s position without delay, specifically on the supporting documents for filing CFC notifications and tax returns (for more detail, please see paragraphs 25 and 26 of the clarifications). CFC notifications must be filed by 20 March; Corporate income tax returns must be filed by 28 March, and personal income tax returns (the 3-NDFL form) by 2 May.

Contact us

David John
Partner, CEE Tax and Legal Leader
Tel: +7 (495) 967-6235

Ekaterina Lazorina
Partner, CIS Tax and Legal Leader
Tel: +7 (495) 967-6365

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