On 09.07.2010, the State Duma of the Russian Federation adopted in the first reading Draft Federal Law No. 391528-5 “On Amendment to Part II of the Tax Code of the Russian Federation due to Improvement of the Procedure for Application of a 0 Interest Tax Rate to the Value-Added Tax”.
This draft law revises regulations contained in articles 164 and 165 of the Tax Code of Russia covering application of a 0 interest rate to the VAT in cases of works (services) relating to manufacturing and sale of goods exported in the export customs regime as well as goods placed under the customs regime of the free customs zone.
The list of works (services) enumerated in subparagraph 2 of paragraph 1 of article 164 of the Tax Code of Russia was specified as follows:
- services of international transportation of goods;
- works (services) performed (rendered) by entities involved in pipeline transportation of oil and oil products;
- services of organizing pipeline transportation of natural gas exported from the territory of Russia;
- services provided by an entity managing the Unified National Power Grid in the area of electrical energy transportation via the Unified National Power Grid from the electrical power system of Russia to the electrical power systems of foreign states;
- works (services) performed (rendered) by Russian entities in sea and river ports relating to transshipment (including loading, unloading, reshipping, and storing) of goods moved across the customs border of Russia with specification in the shipping documents of the departure point and (or) destination point outside the territory of Russia;
- works (services) of processing of goods placed under the customs regime of processing in the customs territory.
However, this specification is not clear and classifies specific types of works (services) into big groups; therefore, it will not help avoid disputes with the tax authorities when referring a specific work (service) to the relevant group.
The draft law introduces a new definition, “international transportation of goods”, which means transportation of goods by sea and river ships, mixed navigation (river-sea) ships, aircraft and land vehicles, when the departure point or the destination point are located outside the territory of Russia.
This definition of international transportation specifies no possibility to use 0 % rate in case of railway transportation. In other words, the current contradiction (subparagraphs 2 and 9 of paragraph 1 of article 164 of the Tax Code of Russia) consisting in simultaneous ban on a permit of rendering the relevant services to Russian carriers using railway transport and applying the 0% VAT rate has not been removed.
The Tax Code of Russia as amended contains direct specification of the terms of applying the 0% rate, namely, goods to which works (services) are directly related must be exported in the export customs regime or placed under the customs regime of the free customs zone.
The draft law clauses covering works (services) performed (rendered) by entities involved in pipeline transportation of oil and oil products include no such specification. Moreover, the draft law specifies that the 0% rate is applicable “regardless of the date of their placement under the relevant tax regime” and provides no details about the mentioned tax regime.
At the same time, the list of documents to be submitted to the tax authority necessary for approval of the right to be indemnified requires submission of the customs declaration (its copy) with notes of the Russian customs body, and also copies of transport, shipping, and (or) other documents which evidence export of goods outside the customs territory.
Such wording leads to ambiguity and may result in an array of disputes with the tax authorities.
The draft law also introduces persons who perform (render) such works (services) and are entitled to the 0% VAT application. These persons are:
- a foreign or Russian person who signed a foreign economic deal relating to sale of oil and (or) oil products being transported outside the RF territory and is a person on behalf of which the aforementioned foreign economic deal was signed;
- an agent (commissioner) of the foreign or Russian person who signed a foreign economic deal relating to sale of oil and (or) oil products being transported outside the territory of Russia and is a person on behalf of which the aforementioned foreign economic deal was signed.
Therefore, the following conclusion can be drawn: if an oil extracting or oil processing company has a pipeline it will use to transport oil (oil products) outside the RF territory under the export regime, this company will not be entitled to indemnity in case of application of the 0% VAT rate in respect to works (services) related to transportation of such oil (oil products).
As regards all of the types of works (services) specified in the draft law, it will be possible to submit a copy of the bank statement evidencing entry of revenue from the buyer of services to the taxpayer’s account opened with a Russian bank. Despite the fact that at present the tax authorities in most cases require no original statement and accept a copy thereof, this specification will help taxpayers avoid, from the legal perspective, possible conflicts when submitting a copy instead of an original.
At the same time, as regards works (services) specifically emphasized in the draft law, provisions regulating the procedure for evidencing the entry of revenue from the buyer in cases of settlement with cash were removed. This amendment may lead to a number of controversial situations, namely:
- it is unclear whether it is possible to perform settlement with cash, pay it to the settlement account, and evidence the fact of entering revenue to the settlement account using a bank statement; the tax authority may request to present evidence that cash entered to the settlement account was in fact received from the buyer;
- in each specific case, the tax authority may request the taxpayer to present documents evidencing the fact of receiving revenue in cash, but randomly and not in accordance with the comprehensive and legally approved list.
Due to the restricted number of performers (providers) of works (services) performed (provided) by entities involved in pipeline transportation of oil and oil products which are subject to the 0% VAT rate, the draft law specifies that the customs declaration must include a reference to a person (its agent, commissioner) under the agreement (contract) with which the work (service) was performed (rendered), as well as information about the foreign economic deal to sell products outside the territory of Russia signed by the said person.
Pursuant to the effective Tax Code of Russia as amended from time to time, in the event of exporting goods under the export customs regime by power transmission lines, copies of transport, shipping, and (or) other documents evidencing export of goods outside the Russian customs territory may not be submitted to the tax authorities.
The draft law enforces taxpayers to present copies of certificates of rendering services of electric energy transmission and (or) other documents evidencing the fact of electric energy transmission which is supplied from the Russian electrical power system to the electrical power systems of foreign countries.
- the draft law is a failed attempt to improve the effective Tax Code of Russia;
- its adoption will result in replacing old gaps with new ones;
- approval of the list of works (services) related to production and sale of exported goods as specified in the draft law may lead to limited interpretation of it.