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TIZ residents are also entitled to select the free customs zone regime within the zones territory1. Also they have certain benefits when writing-off R&D costs. Article 262 of the RF Tax Code provides for the possibility for average taxpayers to account the R&D expenses only after completing the research and after starting to implement their results2. In case these conditions are met, they may evenly account their R&D costs throughout one year3. For TIZ of the RF Tax Code allows for the regions to reduce the rate of Profit Tax subject to be paid into the budgets of the RF entities down to 13.5% - for the activities carried out in the territory of Technology Implementation Zone. TIZ residents are also granted privileges with regards to the Corporate Property Tax rates4.

The attempts to create a system of Research and Technology Parks turned out to be even less efficient. Other problems during their implementation were lack of clearly stated legal requirements towards this form of innovation support and the selected method: Research and Technology Parks were set up by the regions under the condition of receiving special earmarked subsidies from the federal budget. The possibility of receiving these subsidies was not dependent on regional Research and Technology Parks performance. As a result, the regions were focused more on receiving subsidies than on innovations per se.

In 20082009 the legislators attempted creation of friendly regimes in some areas of social and economic development. However, in our opinion they produced very little effect for the target groups at the same time damaging some public interest. One of the examples:

This allows SEZ residents to receive privileges with regards to payment of customs duty and VAT on foreign goods imported into the zone territory and recover (reimburse) VAT paid by them as part of the cost of Russian goods brought into the SEZ territory from other parts of the Russian Federation.

According to paragraphs 1 and 2 of item 2 of Article 262 of the RF Tax Code, taxpayers expenses for R&D pertaining to creating new or improving currently manufactured goods (work, services), in particular inventions costs incurred by the taxpayer independently or jointly with other companies (in the amount matching this particular taxpayers share), and based on contracts which this taxpayer executed as the customer for such R&D, shall be recognized for the purposes of tax assessment after completion of such R&D (or their stages) and execution of respective Delivery-Acceptance Acts by both parties. The above mentioned expenses shall be evenly included by the taxpayer into other costs during the period of one year under condition of using the results of such R&D in manufacturing and/or selling goods (work, services) starting from the 1st date of the month following the month of R&D (or their stages) completion.

Contrary to other taxpayers, SEZ residents are entitled to account for R&D costs directly in the tax period (reporting period) when these costs were incurred. According to p. 2 of Article 262 of the RF Tax Code, R&D costs (including the ones not resulting in a positive result) incurred by taxpayers organizations registered and operating in special economic zones territories shall be recognized in the tax period (reporting period) when they were incurred in the amount of actual costs.

Until 2010 TIZ residents were also exercising UST (Unified Social Tax) benefits allowing for decreasing the payroll tax burden. According to Article 241 of the RF Tax Code (currently lost effect), TIZ residents were paying UST at 14% rate instead of standard 26%. And because UST was actually decreased by the amount due to the Pension Fund, actually TIZ residents were paying only to the Pension Fund. However, the Federal Law No.212-FZ On Insurance Contributions into the RF Pension Fund, the RF Social Insurance Fund, and the RF Compulsory Medical Insurance Fund and territorial medical insurance funds of July 24, 2009, substituted the UST with separate payments to the extra-budgetary funds, and the total amount of payments increased. TIZ residents were also affected by this raise.

Annexes regulating the procedures of control and supervision by state power bodies1. Limitations were imposed in 20082999 on the grounds for field audits of small and medium-size businesses2;

the time for field audits of small businesses was reduced3; licensing of certain types of public services traditionally provided by small businesses was abolished; extra-judiciary rights of the RF Ministry of Internal Affairs were significantly limited leading to prohibition of tax audits performed by this Ministry without participation of Tax Inspectorate and to prohibition of other audits of businesses on the grounds other than on suspicion of a crime4, etc. These amendments resulted in some immaterial decrease of administrative pressure on small businesses with simultaneous growth of customers risks caused by abolishing licenses and by decreasing the level of control over quality of products/work/services sold by small businesses to the public, as well as growth of tax evasion risks.

However, in principle, friendly administration regimes are quite possible for certain types/areas of business activities. The distinctive features of a friendly regime are as follows:

Reduced number of procedures requiring permits/approvals (licenses);

Facilitated provision of government services;

Reduced number of checks/audits and improved protection for those being subject to such checks/audits;

Setting-up a one stop approach for interaction with government authorities;

Improved protection of businesses against illegal actions or failure to act on behalf of government authorities.

A series of decisions focused on removing administrative barriers in the interests of small and medium-size business were made in 20082009 at the federal level. The following laws were enacted with this purpose: Federal Law No.294-FZ On Protection of Rights of Legal Entities and Individual Entrepreneurs in the Process of State Control (Supervision) and Municipal Control of December 26, 2008; Federal Law No.313-FZ On Amending Certain Legal Acts of the Russian Federation with Regards to the Possibility to Substitute Mandatory Certificates with Declarations of Conformity of December 30, 2008; Federal Law No.293-FZ On Amending Certain Legal Acts of the Russian Federation with Regards to Excluding the Extra-Judiciary Rights of the RF Internal Affairs Departments in Checking Businesses and Entrepreneurs of December 26, 2008, as well as some other legal acts.

These limitations did not pertain to all types of audits, e.g., tax audits were not affected.

According to pp. 2 and 3 of Article 14 of Law No.294-FZ, the total amount of time of a scheduled field audit per one small business entity may not exceed 50 hours for a small business and 15 hours for a micro-business per year. In some exclusive cases associated with the need to conduct a complex and/or time-consuming audit including complicated tests, trials, expert evaluations and investigations based on justified proposals of supervisory authority officers or municipal control officers engaged in such scheduled audit, the period of such field audit may be extended by no more than 20 working days with regards to a small business, and by no more than 15 hours with regards to a micro-business.

Federal Law No.293-FZ of December 26, 2008 prohibited law-enforcing agencies in case of suspecting a legal entity to have committed a criminal or administrative offense to carry out audits of the activities of such legal entity or to demand such audits, as well as to carry out inspection of business premises and transportation vehicles owned by such legal entity, to study its documentation, to withdraw samples of raw materials and commercial good for expert evaluation (with this purpose sub-paragraph 25 of Article 11 of the Federal Law On Militia was abolished). With that suspicion of crime still provides for sufficient grounds for the militia to control organizations/businesses through all the above mentioned measures.

RUSSIAN ECONOMY IN trends and outlooks Friendly Administration in Skolkovo The attempt to implement friendly administration principles was to the maximum extent tried during development of the legal framework Skolkovo Innovation Center (IC). It should be noted that it was for the first time that Russian legislators tried to create special government administration conditions at a limited territory. Previously all privileges including special tax regimes pertained mainly to financial benefits, such as: reduced rates for taxes and duties, subsidies from the budget, reduced lease fees for state and municipal premises, etc.

However, now the attempt is made in the new law to provide a different kind of benefit, formalization of which is extremely difficult at the legislative level, in particular the benefit of friendly administration and removing some administrative barriers impeding business activities across the country1.

And this special regime was formed not just in the taxation sphere, but for different areas of innovative companies activities associated with the need to obtain permits and approvals (construction, land use, fire and sanitary control, etc.).

In order to overcome the traditional Russian administrative barriers specialized offices of government authorities will be established in the territory of Skolkovo to perform the functions of control, supervision, issuing permits, approvals and licenses. For example, it is planned to set up specialized divisions of the RF Ministry of Internal Affairs, migration, tax control, customs, fire prevention and fire-fighting and emergency response, consumers rights and public well-being protection, intellectual property/patents/trade marks protection.

Also, similar to major taxpayers, Skolkovo residents will all be registered with one specialized tax inspectorate, checking procedures for them will be performed in one and the same government agencies.

It should be noted that setting up specialized tax inspectorates (and other supervisory authorities subdivisions) does not guarantee friendly regime in real life2. The problem is it is practically impossible to formalize in the law the obligation of supervisors/auditors not to violate the taxpayers rights and to perform all the required checks/audits with minimal time and effort. The experience of major taxpayers regime shows that the fact of being registered with specialized tax offices has not led to improving the services. However, it may be assumed that informally directors of taxation and other agencies recognize their responsibility for assuring high quality and convenience of services that they will be providing to Skolkovo Project participants. In relation to this the experiment of improving government services within one particular territory may turn out successful. It seems that it would be feasible to formalize friendly administration targeted at improving the conditions for the Project participants in the regulations covering the respective function of supervisory authorities. In future these regulations may serve as best practices examples and become the basis for improving the We already mentioned above that such friendly regime would be very useful not just for Skolkovo Project participants, but to all the taxpayers who suffer from the same problems as companies operating within Skolkovo territory. In particular, it could lead to resolving one of the key problems in Russian innovations sector and give a new spur to demand for innovations on behalf of the real sector of Russian economy (this demand currently still being pretty low). However, the model proposed for innovation center may not turn out operational for the whole country, so its massive roll-out is impossible. Other measures will be required to support innovation companies not engaged in Skolkovo Project, as well as innovative products customers.

The same related to other spheres of government control exercised by specialized government agencies in the territory of Skolkovo Innovation Center.

Annexes quality of government services, as well as facilitating and simplifying administrative procedures beyond the territory of the Innovation Center.

Simultaneously some additional complications may emerge in the process of implementing the friendly administration approach. In particular:

a) A number of innovative projects planned for implementation in the territory of Skolkovo IC should be launched right now, while specialized supervision and control agencies will start functioning at least several years from now, after the respective infrastructure is set up. It looks like the most feasible solution would be to set up specialized agencies including those of tax control now and already use them for registration of innovation companies taking part in Skolkovo Project implementation prior to full-scale launching of the Innovation Center;

b) One Stop approach remains not fully implemented in interaction with tax authorities and extra-budgetary funds. Both tax authorities and extra-budgetary funds keep their powers for independent control over taxpayers activities and powers for calling them liable. Besides, single tax return is not an option stipulated for Skolkovo Project participants. Thus, all the negative consequences of passing the insurance contribution administration function to extrabudgetary funds will have equal negative effect both on regular taxpayers and on Skolkovo Project participants;

c) The practice of provision of additional procedural guarantees used during audits of small businesses and self-regulating organizations so far has not been used in friendly administration. Such practice of providing additional procedural guarantees for the right of audited entities is stipulated in the text of Federal Law No.294-FZ On Protection of Rights of Legal Entities and Individual Entrepreneurs in the Process of Government Control (Supervision) and Municipal Control of December 26, 2008. However this Law does not cover tax and fiscal control, currency control and some other types of control. Due to this, general procedural guarantees provided to audited entities in accordance with Federal Law No.294-FZ of December 26, 2008, do not allow for full-scale friendly administration which that much needed by Skolkovo Project participants.

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