Main changes to company taxation in 202013 December 2019
Over the past year, Parliament has adopted several laws amending the Tax Code regarding the taxation of legal entities. This article examines the most significant tax innovations expected in the corporate sector in 2020.
Corporate income tax
The Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting will take effect from 1 January 2020, after which Russian companies will make payments taxed at the source of income (eg, interest, dividends and royalties). As a result, a number of Russian taxpayers may encounter difficulties in applying the benefits established by the double tax avoidance agreements that Russia has concluded with several countries. The convention establishes a number of additional provisions that tighten the rules of the relevant bilateral agreements – in particular, with regard to permanent representation, the taxation of dividends and income derived from the sale of real property assets and the status of tax residents. The convention's effect will depend on how it has been ratified by other states.
Under the new rules, an investment deduction will be applied (ie, a system of tax incentives introduced in certain constituent entities of the Russian Federation and designed to stimulate the renewal of fixed assets and social infrastructure facilities). An investment deduction for long-life fixed assets (except buildings, structures and transmission devices) will be allowed. It will also be possible to include no more than 100% of expenses for the construction of transport and utility infrastructure facilities in investment deductions and no more than 80% of expenses for the construction of social infrastructure facilities. In general, it will be possible to take advantage of the investment deduction by the end of 2027.
The corporate income tax rate of 0% for organisations engaged in medical and educational activities will now be unlimited in duration. It was previously assumed that this rate would expire on 1 January 2020.
Significant changes have also been made to transfer pricing rules. From 1 January 2020, when conducting a functional analysis of prices, it will be necessary to pay attention to intangible asset transactions as well as their development, protection, maintenance and actual use. As part of transfer pricing reporting, taxpayers will have to evaluate the contribution of each party to the transaction with regard to the value of the relevant intangible asset.
Transport and land taxes
Companies will not need to file transport and land tax returns for 2020 (the deadline for submitting such returns for 2019 is the beginning of 2020). Instead, the tax authority will send taxpayers a notice of the amount of tax payable. If a company does not receive such a notice, it should notify the tax authority of its transport and landholdings. Copies of documents confirming vehicle registrations or titles to land must be attached. If a company intends to receive a tax benefit, this must also be stated.
Changes in tax administration rules
The rule under which an overpayment of taxes could be offset against arrears or future payments of federal or local taxes has been annulled. Instead, as of 1 October 2020, overpayments can be offset against any arrears and upcoming payments, regardless of the type of tax.
As of 1 April 2020, companies will no longer receive a demand for tax payments (meaning that it will not be possible to apply interim measures to for example the blocking of bank accounts) if they have tax arrears of up to Rb3,000. The tax authority will send a demand if such debt exceeds the specified amount or three years after the initial arrears have been accumulated.
Further, as of 1 April 2020, information on interim measures to prohibit the transfer of property by the tax authorities to relevant taxpayers will be published on the tax service's website.
Companies with more than 10 employees must submit reports on taxes and other payments levied on employees' salaries in electronic form.