Extended Powers for Russian Regions to Grant Investment Tax Loans

The Federal Law No. 19-FZ of 30 March 2012 has now come into force. It amends Article 67 of the Russian Tax Code relating to investment tax loans.

An investment tax loan provides a taxpayer with an opportunity (under certain conditions) of having its tax payments temporarily reduced, with subsequent repayment of the effective “loan” and payment of interest by installments.

In accordance with the previous version of Article 67 of the Russian Tax Code, the regions (ie the Russian constituent entities) used to have the right to grant investment tax loans only in respect of:

• the portion of the corporate profit tax that was payable into the regional treasury - and only for the purposes and on the terms as stipulated by the Russian Tax Code;

• the regional taxes - both for the purposes and on the terms provided for by the Russian Tax Code and those provided for by the regional laws (ie the laws of the Russian constituent entity).

This new amendment allows the laws of the Russian constituent entities to introduce other purposes (reasons) and terms (in addition to those established by the Russian Tax Code) for granting investment tax loans, including the period and the interest rate applicable to such investment tax loans. Also, the amendment relates not only to regional taxes but also to the corporate profit tax portion payable into the regional treasury.

I expect that granting the regions the right to establish additional reasons for and terms for providing investment tax loans in respect of the corporate profit tax portion payable into their treasury will expand the use of this investment support instrument and may make investment tax loans more widely used in practice.