THE GOVERNMENT OF RF APPROVES KEY TAX POLICY AREAS FOR THE RUSSIAN FEDERATION FOR THE PERIOD FROM 2013 THROUGH 2015

The Government of the Russian Federation on 02 May 2012 approved key areas of tax policy in the Russian Federation for the period from 2013 through 2015 (the Policy).

The Policy establishes the priorities for the Government’s tax policies for 2013–2015 with a view to create an efficient and strong tax system that would ensure the Treasury stability in the mid- and long term.

It also aims to ensure continuity for the principal tax policy objectives consisting of support for investment and promotion of innovation.

The Government sees its key priorities in 2013–2015 in lowering the tax burden on labour and capital while increasing that on consumption, including expensive realty, rental income derived from extraction of natural resources and shifting to a new real estate tax system.

The key amendments to the tax system are expected along the following lines:

• Levelling of the tax burden on the oil and gas sectors and “confiscation” of 80% of additional income derived by gas producers as a result of increase of wholesale gas prices on the domestic market;
• Exploring the possibility to introduce an “added income” tax and eliminating mineral resource extraction tax for new exploration projects;
• Developing proposals for introducing a mineral resource extraction tax rate linked to global prices for those minerals where over 50% of the quantity extracted is exported;
• Increasing excise rates for alcoholic, alcohol-containing and tobacco products in 2013–2015;
• Introducing a real estate tax;
• Taxing luxury consumption, ie increasing real estate tax rates for real property with an aggregate cadastral value of over RUB 100 m (or approx US$ 3 mln), introducing a maximum tax rate for such properties and increasing transport tax rates for cars with an engine capacity of more than 410 h.p. and other vehicles with powerful engines;
• Gradually cancelling tax benefits (eg property tax exemptions) enjoyed by natural monopolies;
• Introducing the mechanism for cost distribution agreements which would allow deductibility of allocation of costs between affiliated entities;
• Improving tax administration by extensive use of electronic document exchange and increasing access to banking data for the tax authorities; wider application of pre-trial tax dispute resolution procedures;
• Promoting convergence of the financial and tax accounting systems with a view to reduce administrative costs for taxpayers and determine the areas in which special procedures departing from accounting rules are not feasible;
• Establishing further conditions stimulating financial market development, in particular, introducing special regimes for taxation of depositary receipts and Eurobonds issued by Russian companies;
• Introducing a patent-based taxation scheme for small businesses;
• Improving the mechanisms for fighting tax evasion, in particular, introducing a tax on retained earnings of foreign companies at the level of their Russian-based shareholders/participants (CFC rules), and introduce into domestic law the legal concepts of tax residence and the beneficial owner of the income.

To enable practical implementation of these guidelines, additional draft laws will need to be developed which would introduce the relevant changes to the tax legislation.