Daniel Klein’s Legal Line
Can you briefly let me know how the tax code has changed this year?
Corporate tax rates and deductibility
As I mentioned in my April column corporate profi t taxes have dropped from 24% to 20% and can actually be lower in certain regions down to as low as 15.5%. I don’t have the opportunity to go into too much detail, but there have been changes to the methods used to calculate: interest rates, board member expenses, and the deductibility of subsoil license payments. As a general matter there have been rather sweeping changes to the rules and methods on depreciation. For the most part these changes are generally businessfriendly and should lead to a reduced tax burden especially for those companies that rely heavily on depreciation calculations and interest when calculating profi ts tax.
Several years prior to the crisis, in the days of ballooning government surpluses, there had been a lot of discussion within the Russian government concerning reducing VAT. However, as profit taxes and customs duties have both dropped there is not much hope of a drop in VAT at least in the next year or two. In terms of profit taxes not only have rates dropped but company profi ts have plummeted if they are even lucky enough to be in the black at all. Customs duties have suffered a double whammy due to lower consumption by businesses and consumers as well as a devaluation which discourages imports. No surprise that in January 2009 profi ts taxes and customs duties represented 22% of tax income receipts as compared with 36% in January 2008. In the short term, this has led the government to become increasingly reliant on its VAT income.
One significant change in VAT law requires taxpayers to pay VAT monthly instead of quarterly. For those taxpayers that previously used VAT debts as a way to fi nance cyclical cash-fl ow shortages this may prove to be more difficult. It is also worth noting that as of this year, the tax office now needs to segregate the disputed amount of VAT from the non-disputed amount. In the past tax offices would just disallow on a wholesale level the full VAT amount even if only part of it was in dispute. Other changes relating to VAT on barter transactions and VAT on prepayments have been implemented as well.
In terms of getting VAT refunds it is well-known that the tax office has a policy not to do so even if such a decision fl ies directly in the face of the written law. In that regard, taxpayers are often left to no choice except to attack the tax office through the courts. While that may seem like a bad policy decision, these types of attacks are frequently successful and may have the impact of teaching the local tax inspector that the taxpayer will stand up for his or her legally-deserved refunds.
Daniel Klein is a partner at Hellevig, Klein & Usov. His column is intended as commentary and not as legal advice.