налоговые льготы
Телефон
Saint-Petersburg

The tax manoeuvre: content and essence of the changes

The tax manoeuvre: content and essence of the changes

MEDIA, PUBLICATIONS \ 15.02.2021

Starting from January 1, 2021, Federal Law No. 265-FZ dated July 31, 2020 entered into force, which has amended the Tax Code of the Russian Federation (the “Tax Code”) and has established new taxation rules for companies operating in the field of information technologies. 

Acsour’s specialists answer how the new taxation rules differ from the previous ones, what conditions should be met in order to follow them, and how the new provisions of the Tax Code will affect the activities of companies.

WHAT IS THE ESSENCE OF THE UPCOMING CHANGES?

The amendments relate to the conduct of what is called the “tax manoeuvre”, namely, the changes of VAT taxation conditions and the grant of tax benefits at a reduced profits tax rate, and also reduced tariffs of insurance contributions for an indefinite period. This will allow companies to reduce the tax burden, optimize expenses and, as a result, work more effectively in their field. How tax rates have changed is shown in the table below.

Profits tax 

BudgetsStandard companyIT company until the end of 2020*IT company starting from 2021
Federal3%3%3%
Regional17%12.5%0%
Total20%15.5%3%

Insurance premiums

InsuranceStandard companyIT company until the end of 2020IT company starting from 2021
Pension22%8%6%
Health5.1%4%0.1%
Social2.9%2%1.5%
Total30%14%7.6%

* – article 11-9-3 of Law No. 81-11 of St. Petersburg “On tax benefits” (applicable if the company makes use of a regional profits tax benefit).

WHICH COMPANIES HAVE THE RIGHT TO APPLY TAX BENEFITS?

Russian organizations that carry out activities in the field of information technologies (IT companies) can apply tax benefits, specifically organizations that:

  • develop and implement software, databases developed by them on a physical storage device or in the form of an electronic document via communication channels (regardless of the type of agreement);
  • provide services (perform works) for the development, adaptation, or modification of software, databases (software and information products of computing technology);
  • install, test and support software and databases.

In other words, with regard to the activities of IT companies, everything remains as before. But starting from January 1, those Russian companies that carry out activities for the design and development of electronic component base (“ECB”) products and electronic (radio – electronic) products can also apply for the benefit.

CONDITIONS FOR APPLYING TAX BENEFITS

Being an IT company or a developer of ECB products does not mean that the right to apply tax benefits is automatically assigned. In addition, there are other conditions that should be met to obtain benefits. The set of the conditions depends on the type of the company’s activity.

The set of conditions depending on the type of activity performed

An IT companyA company that designs and develops ECB products
– obtaining a document confirming state accreditation of organizations conducting activities in the field of information technologies;

the proportion of income from activities in the field of information technologies is at least 90% of the organization’s total income;

the average number of employees is at least 7 people.
the presence of organizations providing services (performing works) for the design and development of ECB products and electronic (radio-electronic) products in the Register;

the proportion of income from the sale of services (works) for the design and development of ECB products and electronic (radio-electronic) products is at least 90 % of the total income of the organization;

the average number of employees is at least 7 people.

If the organization plans to apply the benefits starting from January 1, 2021, then the figures for the proportion of income and the average number of employees should be determined:

  • according to data for the first 9 months of the year preceding the year of the transition to reduced tariffs of insurance premiums. Subsequently, such figures should be checked at the end of each reporting period;
  • based on the results of the reporting (tax) period, if the organization switches to paying profits tax at a reduced rate.

When calculating the proportion of income from the IT sphere, income from the following will be taken into account:

  1. the sale of the software and databases developed by the organization.
  2. the transfer of exclusive rights to the software and databases developed by the company.
  3. the granting of rights under licensing agreements, including through remote access.
  4. the provision of updates and additional functionality to software.

Previously, the above-mentioned income could be taken into account regardless of whether the software was independently developed by the organization or was a product of a third-party developer. Starting from this year, this possibility is excluded and only income from the sale of software that the company has developed on its own will be taken into account.

The same applies to income from resale or granting of rights to use software developed by third parties under a sub-license agreement (Letter No. 03-07-07/111669 of the Ministry of Finance of the Russian Federation dated December 18, 2020) – such income will not be taken into account in the calculation.

  1. the provision of services for the development, adaptation and modification of software or databases (software and information products of computing technology). In this case, adaptation is the configuration of a program for the needs of the user, and modification is the installation of updates of the corresponding software for the user.

The opposite situation applies to this point: income from such services will be taken into account in the calculation, regardless of whether the software was developed by the organization itself or by other persons (Letter No. 03-15-06/90482 of the Ministry of Finance dated October 16, 2020).

  1. the provision of services for the installation, testing and supporting of the specified software, databases.

Income from the following will not be taken into account when calculating the figure:

1. Granting rights to use software and databases (including by providing remote access to them via the Internet), the purpose of which is associated with: 

  • the distribution of advertising information on the Internet and obtaining access to such information;
  • the placement of offers for the purchase (sale) of goods (works, services) or property rights on the Internet;
  • the implementation of a search for information about potential buyers (sellers), and the conclusion of transactions.

2. Income in the form of exchange differences determined in accordance with clause 2 and clause 11 of article 250 of the Tax Code.

3. Income from the assignment of rights of claim arising from the recognition of income specified in paragraph 4 of clause 1.15 of article 284 of the Tax Code.

WHEN DOES A COMPANY LOSE THE RIGHT TO APPLY BENEFITS?

An organization loses the right to apply tax benefits if it is deprived of state accreditation or does not meet at least one of the mandatory conditions (on the proportion of income or number of employees) based on the results of the reporting (tax) period or the results of the settlement (reporting) period.

Therefore, if an organization violates one of the conditions based on the results of its activities for the first quarter (the half year, or the first 9 months of a calendar year), it has to apply the generally established tariffs of insurance premiums to payments to employees from the beginning of the settlement period – a calendar year – and to make a review calculation of previous payments for insurance premiums based on these generally established tariffs.

The same should be done if the organization violates one of the criteria for applying the reduced profits tax rate – the tax should be recalculated from the beginning of the tax period (calendar year) at the generally established rate and submit an updated tax return to the local body of the Federal Tax Service.

WHAT BENEFITS HAVE BEEN CANCELLED?

The essence of any tax manoeuvre is that the reduction of some taxes is replaced by an increase in others: in other words, for some companies, the current amendments presuppose a significant reduction in the amount of tax payments, and for others, they threaten the application of such preferences.

In addition to reducing profits tax rates and insurance premium tariffs, the following changes have been made to the Tax Code as part of the tax manoeuvre:

  1. The expenses of IT companies associated with the acquisition of electronics and computer technologies will need to be accounted for through depreciation, and not at one time as part of material expenses as was previously possible.
  2. There will be a number of restrictions on the implementation of the VAT exemption in accordance with sub-clause 26 of clause 2 of article 149 of the Tax Code with respect to transactions involving the transfer of rights to use software and databases will be carried out. The list of restrictions is noted in the text below

WHAT CHANGES HAVE BEEN MADE TO THE PROCEDURE FOR A VAT EXEMPTION?

Russian IT companies will be able to apply a VAT exemption if they carry out operations involving the following in the Russian Federation:

  • the transfer of exclusive rights to software and databases included in the Unified register of Russian software and databases (the “Register”);
  • granting rights to use software included in the Register, including by remote access via the Internet;
  • submitting updates and additional functionality to the software included in the Register.

Operations involving the transfer of rights to software and databases that allow for the following to be exempt from VAT:

  • distributing advertising information on the Internet and/or obtaining access to such information;
  • placing offers for the purchase (sale) of goods (works, services), or property rights on the Internet;
  • searching for information about potential buyers (sellers) and/or concluding transactions.

It is known that software is an intellectual activity item or a means of individualization equated to such an item, which is subject to legal protection by a special branch of law, namely copyright. According to current legislation, copyright is divided into:

  • an exclusive right that the rights holder can dispose of at its own discretion, including renouncing it or transferring it in full to third parties;
  • personal non-property rights that cannot be disposed of by the author and always belong only to him.

The choice of contractual model depends on the scope of the transferred rights and on whether the software is a ready-made intellectual property item or is under development. The most common type of contract that gives companies the right to apply a VAT exemption is a licensing agreement.

On the basis of such a document, the licensee is granted a certain scope of rights to use the developed software, and the licensor retains the exclusive right to the program. The rights are granted for a period specified in the contract, at a certain price, in a certain territory. There are two types of licensing agreement:

  • granting a simple (non-exclusive) license (the licensor retains the right to issue licenses to third parties);
  • granting an exclusive license (the licensor does not have the right to issue software licenses to third parties for the period specified in the contract).

With the entry into force of the new amendments, an issued licensing agreement ceases to be the only basis on which companies can receive a VAT exemption. In other words, even in the presence of such a contract, but in the absence of software in the Register, the above operations should be subject to VAT under the general procedure.

However, the observance of all necessary conditions of sub-clause 26 of clause 2 of article 149 of the Tax Code, including the presence of the software in the Register, will not ensure an exemption from VAT if the subject matter of a licensing agreement does not meet legislative requirements (for example, the service rendered is not covered by the provisions of the Tax Code and of the Civil Code of the Russian Federation, or this is doubtful).

In practice, such cases occur, and the legislation of the Russian Federation does not prohibit entry into other types of contracts for the transfer of rights to software. But such actions entail certain risks: during inspections, the supervisory authorities may reclassify the contract or declare it invalid. For companies, this means an additional assessment of VAT and the imposition of a fine.

WHAT IS IT NECESSARY TO DO TO OBTAIN TAX BENEFITS?

In order for the company to be able to obtain the right to apply tax benefits and a VAT exemption without the threat of additional taxes and the payment of a fine, it is necessary to take certain actions.

At first glance, it may seem that such actions will increase the burden on the accounting department or will not lead to a result at all. But in fact, such a process has the opposite effect. After analyzing the necessary figures, it is possible to find out whether the company will have the right to apply benefits, whether it will lose this right, and whether it will be able to find options for reducing the tax burden for the current outcome.

An alternative solution in this situation is accounting outsourcing. By ordering such a service, you can focus on performing other tasks, and your provider will perform all the necessary work aimed at the result. During the work, specialists will be able to conduct a detailed analysis and determine:

  • whether the company carries out an appropriate type of activity that is the point of departure for obtaining benefits;
  • whether the company provides services that fall under a benefit and whether they do not contradict the essence of the contract that has been concluded;
  • whether the company meets all the necessary conditions for obtaining benefits;
  • whether the company is listed in the relevant Register or has an accreditation document.

Acsour is a team of professionals who have all the necessary competences in the maintenance of accounting and drawing up of reporting. Our specialists will provide you with tax consulting, analyze all the necessary figures and identify potential risks (if any). Obtaining tax benefits depends not only on the correct calculation of figures, but also on the legal side of the issue. If necessary, the Legal Department will conduct an appropriate analysis of the contract and help to identify discrepancies in it.

Ekaterina Lutenko

Internal Auditor