Head of Audit Department
What is the Google tax, who should pay it, and what is the liability of companies that do not comply with the requirements of this law? Valentina Alexandrova, Head of Acsour’s Audit and Strategic Projects Department, found answers to these and other questions.
Google tax is a VAT on services in electronic form that foreign companies, that are not registered for tax purposes in Russia, provide to Russian consumers. The concept of “services in electronic form” was introduced into Russian tax legislation in 2017.
Starting from January 1, 2019, the incidence of tax has been expanded: now foreign companies that provide electronic services to Russian legal entities and individual entrepreneurs also have to register with the Russian tax authorities in order to calculate and pay VAT independently. Previously, such obligations were only for those foreign enterprises that provide services to Russian individuals. We have collected the most frequently asked questions concerning the practical application of legislation on electronic services.
What is considered as services in electronic form? The following types of services are subject to taxation (article 174.2 of the Tax Code of the Russian Federation):
In order to determine whether the company’s services are subject to Russian taxation and whether it has a need to register for tax purposes in Russia, a detailed analysis of the contract for rendering of services is required.
Please note: despite the fact that foreign companies that provide services in electronic form on the basis of a licensing agreement are exempt from paying VAT (sub-clause 26 of article 149 of the Tax Code of the Russian Federation), this does not exempt them from the obligation to register for tax purposes in the Russian Federation and submit “zero” tax returns. This follows from the letter No. 03-07-05/ 65680 of the Ministry of Finance of Russia dated September 13, 2018.
|Grounds for a fine||Amount of a fine||Explanation|
|Violation of the registration procedure||10,000 rubles||Violation of the stipulated deadline for submitting a statement for registration with the tax authority (clause 1 of article 116 of the Tax Code of the Russian Federation).|
|10 % of the income received while carrying on business without registration, but not less than 40,000 rubles.||Carrying on business by an organization or individual entrepreneur without registration with a tax authority (clause 2 of article 116 of the Tax Code of the Russian Federation).|
|Non-payment of VAT||— 20% of the amount of tax arrears; — 40% if the tax is not paid intentionally||A fine may be imposed if: -VAT is not paid owing to an understatement of the tax base; -VAT is incorrectly calculated; -other illegal actions are committed (clause 1 of article 122 of the Tax Code of the Russian Federation).|
|Understatement of the tax base for VAT||— 20% of the amount of tax arrears, but not less than 40,000 rubles (clause 3 of article 120 of the Tax Code of the Russian Federation);||Gross violation of accounting rules (article 120 of the Tax Code of the Russian Federation), which includes the following situations: — business transactions in accounting and (or) tax accounting and reporting are reflected late or incorrectly (more than 1 time during a calendar year); — unavailability of basic source documents.|
|— 20% of the amount of tax arrears; — 40% if the tax is not paid intentionally||A fine for non-payment of VAT owing to understatement of the tax base (article 122 of the Tax Code of the Russian Federation). Fines for article 120 and article 122 are not imposed simultaneously.|
|Failure to submit or late submission of the VAT declaration||For a company: 5% of tax unpaid in due time for each complete or incomplete month of delay (maximum is 30% of tax unpaid in due time, minimum — 1,000 rubles (clause 1 of article 119 of the Tax Code of the Russian Federation)). For a Director: 300 – 500 rubles.||In addition to fines, blocking of bank accounts is possible if you are late with the declaration for more than 10 working days (clause 6 of article 6.1, sub-clause 1 of clause 3, sub-clause 2 of clause 11 of article 76 of the Tax Code of the Russian Federation).|
Now let us have a look at what is necessary to be done by foreign companies that provide electronic services. Organizations that provide electronic services to Russian legal entities have to: register with the Federal Tax Service of Russia via the online service “VAT office of web companies”, obtain a taxpayer ID number (Russian acronym – INN) and submit reporting and pay VAT quarterly.
Those companies that as of January 1, 2019 provided services in electronic form and were subject to registration had to submit a statement to the tax authorities not later than February 15, 2019 (according to clause 3 of article 8 of Federal law No. 335-FZ dated November 27, 2017).
However, the Tax Code does not specify how the need for registration is determined. We suppose that until February 15, it was required to submit documents only to companies that issued certificates / invoices for the provision of electronic services monthly on a regular basis.
Other organizations have to submit a statement for registration not later than 30 calendar days from when the provision of these services begins (terminates) (the date is confirmed by the certificate or invoice).
Therefore, in order to meet the registration deadlines, it is necessary to monitor the facts of provision of services in electronic form by foreign organizations.
Those companies that have registered have to submit a declaration to the tax inspectorate not later than the 25th day of the month following the expired quarter (clauses 7 and 8 of article 174.2 of the Tax Code of the Russian Federation). For example, submission of the report for the first quarter of 2019 and payment of tax should be made before April 25, 2019.
If Russian tax authorities detect the fact that a foreign company is not registered for tax purposes in Russia, they can put freeze on the company’s bank accounts in Russia (if there are any) and file a claim to the court to seize the company’s assets in Russia. And Russian buyers of such a foreign company will not be able to accept VAT for deduction.
Now let us talk about how a Russian company can accept VAT on electronic services for deduction. In case of purchase of services in electronic form from foreign organizations, VAT may be accepted for deduction without issuing invoices.
However, to do this, a foreign supplier has to be registered on the website of the Federal Tax Service of Russia.
Also, it is necessary to have documents confirming the payment of tax: a contract with a foreign organization and a settlement document specifying the VAT amount and indicating INN and code of reason for tax registration (Russian acronym – KPP) of the foreign company.