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The Ministry of Finance explains that it is done on the basis of the taxpayers application and the act of the joint check of the taxes paid by the taxpayer. It should be mentioned that the taxation body recalculates penalty fees, accrued on the sum of the tax, over the period from the day of its actual payment to the budgetary system to the day of the taxation body making the decision on the correcting of the payment. At the same time the Ministry of Finance of the Russian Federation consider that it is possible to use the term for the application consideration, which corresponds to the term of consideration of the taxpayers application on offsetting (refund) of the excessively paid sum of the tax, which was established by article 78 of the Tax Code.

11. Letter of the Ministry of Finance of the Russian Federation from 31 July 2008 No 03-02-07/1327 elucidates the issue on conducting of an independent field taxation check of separate departments gambling machine halls that are not branches or representatives of the taxpaying organization.

The Ministry of Finance of the Russian Federation draws attention to two points. On one hand, according to paragraph 2 article 11 of the Tax Code of the Russian Federation any department that is territorially separate from the organization and where permanent workplaces are installed is referred to as a separate department of the organization. The separate department of the organization is to be recognized as such irregardless of the fact whether its creation is reflected in charter and other organizational order documents, and irregardless of the authorities this department was given.

At the same time the rights of the local taxation bodies to conduct field taxation check of the separate organizations departments that are not organizations branches or representatives is not envisaged. That is, the position of the Ministry of Finance is to be interpreted as the following: the field taxation check is not justified in case there are no permanent workplaces (no ushers, guards etc.) in the gambling machine hall.

12. Letter of the Ministry of Finance of the Russian Federation from 31 July 2008 No 03-1104/3/565 elucidates the issue on the application of the single tax on the imputed income fro some kinds of the activity concerning entrepreneurial activity on passenger and freight transportation with the subsequent compensation of the expenses by the budget funds.

The Ministry of Finance of the Russian Federation explained that it is the number of transport vehicles and not the source of the services payment that is to serve as the criterion.

AUGUST 13. Letter of the Ministry of Finance of the Russian Federation from 7 August 2008 No 03-11-02/informs on the decisions of the Supreme Arbitrary Court of the Russian Federation, countermanding some letters issued by the Ministry of Finance of the Russian Federation, concerning the transfer of organizations to the simplified system of profit tax payment.

The letters of the Ministry of Finance now abolished commented the application of the criteria of participation of other natural persons and organizations in the charter capital (fund) of the taxpaying organization when transferring to the simplified system of the taxation. For instance, the Ministry of Finance of the Russian Federation explained that according to subparagraph 14 paragraph 3 article 346.12 of the Tax Code of the Russian Federation the organizations. In which the share of other organizations participation is more than 25per cent, do not have a right for simplified taxation system application.

At the same time the Ministry of Finance of the Russian Federation did not mention that this criteria does not apply to stocks (shares, stakes), paid at the expense of the budget. The Supreme Arbitrary Court of the Russian Federation draws attention to the fact that the Russian Federation and the subjects of the Russian Federation and municipal organizations are not juridical entities in concordance with the civil legislation and are not subject to the definition of the organization for the purposes of the legislation on taxes and duties application. Consequently, the participation of the subjects mentioned in stock companies cannot be the obstacle for application of the simplified taxation system by such stock companies.

14. According to the letter of the Ministry of Finance of the Russian Federation from 11 August 2008 No 03-03-06/1/453 the procedure of calculation of the profit tax taxation base is clarified in case the credit organization changed the interest rate for the provided credits during the term of the contract.

For instance, the Ministry of Finance of the Russian Federation explained, that in accordance with the Tax Code of the Russian Federation, the refinancing interest rate of the Central Bank of the Russian Federation is interpreted as the following: concerning debt liabilities, not containing the condition of the interest rate change during the whole term of the liability as the refinancing rate on the date of the attraction of the money; concerning other debt liabilities as refinancing rate that is in effect on the date of expenses in the form of interest recognition.

Consequently, in case the credit contract contains a reservation of the possibility for the change in the interest rate, the debtor on calculating the expenses in the form of the interest rate uses the refinancing rate for the date of the expenses in the form of interest recognition.

The discussion of the financial aspects of municipal reform by the Council for Local Self-Government I. Starodubrovskaya On 3 July 2008, there was a general meeting of the Council for Local Self-Government under the Chairman of the State Duma that addressed the issue The problems of financial security of municipal formations and the ways for finding solutions to them on the basis of improving the performance of bodies of local self-government. The discussion revealed a lack of consensus in respect of the key problems existing in the financing of local self-government. The Councils decision contains no radical proposals as to how the central issues may be resolved.

In accordance with Federal Law No 129-FZ of 12 October 2005, the onset of the full-scale implementation of municipal reform as envisaged by Federal Law No 131-FZ of 6 October 2003 On the general principles of the organization of local self-government in the Russian Federation, which was to begin as of 1 January 2006 ., was postponed for three more years. Until then, a transition period was established, during which the regions were authorized to annually set by their own laws the procedures through which the newly established settlements were to provide solutions to the issues of local importance faced by them, including the volume of powers consolidated to these settlements, the organization of the financing backing to issues of local importance, etc.; besides, they were able to exert a substantial influence on the approaches to financing municipal formations.

Accordingly, the year 2008 is the last year of the transition period, and from 1 January 2009 onward municipal reform should be implemented on a full-scale basis throughout the whole territory of this country. One might have assumed that it is during this year that a comprehensive analysis and in-depth discussion of the results of the transition period would be accomplished, alongside amendments to municipal legislation designed to reflect the lessons learned in the previous three years. However, so far these expectations have proved to be unrealistic. No serious changes have taken place in the sphere of municipal regulation; the discussions of municipal problems occurring within bodies of state authority and think tanks have been rather sporadic and failed to result in the development of any comprehensive system of proposals that could have a potential of stirring large-scale public response.

Against this background the general meeting of the Council for Local Self-Government under the Chairman of the State Duma that took place on 3 July 2008 and addressed the issue The problems of financial security of municipal formations and the ways for finding solutions to them on the basis of improving the performance of bodies of local self-government may indeed be viewed as one of the central events in this sphere. The importance, in particular, of the financial aspects of municipal reforms implementation was emphasized by nearly every speaker. The general opinion was expressed by Chairman of the State Duma B. V. Gryzlov, who stressed the point that the problem of providing financing to local self-government is still rooted in the system as such, and is by no means a reflection of local problems faced by certain regions or municipal formations. Although the revenues of local budgets are growing sufficiently fast (according to the information presented by the RF Ministry of Finance, during the first four months of 2008 they rose by 40 % on the same period of last year), the financial problems plaguing municipal formations have not been solved. The participants in the Councils meeting cited numerous evidence of the unfavorable situation in this sphere.

Firstly, municipal formations are highly dependent on subsidies; the share of interbudgetary transfers (less subventions) in revenues proper of local budgets is more than 50 % in 64.4 % of all municipal formations, and less than 10 % in only 16.6 % of municipal formations. Secondly, the share of revenues from local taxes is negligible, constituting only 12.3 % of all tax revenues. Thirdly, financial resources are clearly insufficient for dealing with issues of local importance, which has been confirmed, in particular, by the data provided by the Audit Chamber and stating that in more than a half of all municipal formations 70% of their budget expenditure is constituted by wages and salaries and by utilities, whereas the share of capital disbursements is very low. Besides, alongside growth of local budgets there is also an increase in the amount of liabilities being transferred to bodies of local selfgovernment.

At the same time, despite the assurances of the speakers that nearly all the problems existing in this sphere can be tackled by introducing appropriate changes into federal and regional legislation, no radical proposals found their way into the decision adopted by the Council. The most important among the proposed measures are as follows:

- a more rapid introduction of the tax on immovables (on condition that the tax burden on the low-income citizens should remain at its current level);

- additional profits tax allocations (at the rate of 1.5 %) to the budgets of the Federations subjects, on condition that the corresponding tax revenues should be received by local budgets;

- abolition of federal benefits with regard to regional and local taxes;

- adoption of a set of measures designed to improve the administration of local taxes, and first of all the land tax;

- a recommendation to the Federations subjects that they should expand their practice of establishing standard allocations from taxes to local budgets (including a standard deduction from the transport tax in the amount of 50 %).

At the same time it was recommended that changes should be made to budget legislation envisaging the introduction of mechanisms for equalizing the level of budget endowment on the basis of sufficiency of the financing powers granted to bodies of local self-government, as well as methodological recommendations should be developed in respect of estimating the volume of spending liabilities of municipal formations associated with their dealing with issues of local importance.

Alongside growth of local budget revenues, the recommendations issued by the Council have also emphasized the necessity to improve the efficiency of financial management within municipal formations, which should result in an optimization of expenditures.

However the rather neutral wording of the Councils decision masks, in fact, not only the dramatic differences in opinions revealed during the discussion, but an actual lack of conciliation between the existing standpoints in respect of a number of issues. The main stumbling block was the problem that has been reappearing under different disguises throughout the whole history of local self-governments regulation in Russia. That is, what should be given priority - the regulation of expenditures of municipal formations, which should is some or other way be covered by revenues, or the imposition of general rules for the regulation of revenues as a framework for executing the expenditures earmarked for issues of local importance In its initial point, the ideology of municipal reform was orientated towards the latter approach: certain revenue sources were consolidated to municipal formations on a permanent basis, coupled with properly regulated rules for allocating interbudgetary transfers. At the same time, the standards and norms for the provision of municipal services were to be established at the local level and could considerably vary between different municipal formations. However, such an approach was in conflict with the rigid norms established by federal legislation and designed to regulate the territorial organization of local self-government (which largely provided for the establishment of limits to the revenue bases of municipal formations), as well as with the rigid character of the list of issues of local importance (which determined low variability of spending powers granted to municipalities).

Thus, during the implementation of reform certain arguments have been regularly arising to the effect that the state, having determined the territories and powers of municipal formations, is obliged to provide at least a minimum of financial resources for tackling the issues of local importance existing within the established borders. At the same time the transition from the regulation of revenues to covering the expenditures of municipalities, which evidently is dictated by the overall logic of municipal reform, will inevitably give rise to numerous negative consequences, such as still greater limitation of the independence of local self-governments with regard to financial issues; lower incentives for development and a more prominent striving, at the level of municipal formations, to live at somebody elses expense; the appearance of non-financed mandates associated with shortage of money needed for satisfying the needs (which it would be impossible, in principle, to estimate with any degree of objectivity); etc.

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