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Certain type of intellectual services, listed in subparagraph 4 of Paragraph 1, Article 148 of the RF Tax Code, shall be regarded as rendered in Russia, and accordingly, shall be subject to VAT in the Russian Federation under the condition the buyer of the services is operating in Russia. According to the Tax Code, the following services are related to this category: consulting, legal, promotion, auditing, R&D services, as well as data-processing services. If the consumer (the buyer) of such services is not registered in the territory of the Russian Federation, the location of the buyer shall be regarded as the location of the services.

In the event the category of services are not included in the list, provided in Article 148 of the Tax Code, they are considered to be implemented at the business location of the seller. This requirement is stipulated in subparagraph 5 of Paragraph 1, Article 148 of the RF Tax Code.

In this regard, a question arise, to which category electronic commerce services should be related.

Here are some opinions, taken from a number of regulatory letters, issued by the Russian financial institutions, Statistics Committee, as well as taken from arbitration practice.

Thus, in was proposed in the letter, issued by the Federal Tax Service, dated as of August 16, 2000, and the letter of the Ministry if Finance # 04-03-98, dated December 1, 1988, proposing to regard development of software programs (solutions) as data-processing services. However, it should be noted, that those letters were issued before introduction of the second part of the RF Tax Code. Therefore, at this moment those documents are invalid in terms of legal status.

According to the RF Statistical Service (Regulations on statistical reports, approved by the Order 49, dated as of May 12, 1994), the development of software solutions is included in the research works. That is, as proposed in the above letters, those services were related to the category of intellectual services, listed in Subpara 4, Paragraph 1, Article 148 of the RF Tax Code. According to that Article, the location of the seller was regarded as the location of services provided. Subsequently, that Regulation was abolished. Moreover, in view of the fact, that the letters from the RF Tax Service and the Ministry of Finance were prepared before the introduction of the second part of the Tax Code, those documents are invalid as well.

There is another letter, issued by the Russian tax authorities, dated of February 18, 2002 (a response to a private taxpayers request), which provides an opinion on the application of VAT to the services on development and updating the Web-sites. In particular, the letter informs, that such services are not included in the list of intellectual services, listed in Subpara.4, Paragraph 1, Article 148 of the RF Tax Code. It turns out that in case such services are provided by a Russian company, they are considered to be implemented in the territory of the Russian Federation and are subject to VAT. In this case, there is no difference, whether the buyer is located in Russia or outside the country. Here the principle of location of services as per the seller business location is applied (Subpara.5, Paragraph 1, Article 148 of the RF Tax Code).

In conclusion, once again we would like to draw our attention to the fact, that to date, there is no officially stipulated approach as to the definition of services in the area of e-commerce for the purpose of VAT. Neither the RF Ministry of Finance, nor the Tax Service have not provided relevant regulations either in legislative, or in regulatory documents.

It is clear, that the issues, highlighted in this article, require immediate clarification in legal terms for both, tax authorities and taxpayers. The greatest experience in regulation of those problems is accumulated by OECD (Organization for Economic Cooperation and Development) and the European Community. The tax systems of some countries - members of those international organizations are similar to the Russian system.

It would be reasonable to bring over the EC tax regulations on VAT in e-commerce to Russia. We will provide more information on the Russian tax legislation ability to apply the international tax regulations in the future issues of the survey.

Meetings of the Government in November M. Goldin It was the crucial issue of the Results of federal budget execution over nine months of 2007 that was considered among others at the meetings of the Government of the Russian Federation among others in November.

*** On 28 November the results of federal budget execution over 9 months of 2007 were discussed at the meeting of the Government. It was stated that execution of cash expenses by main superintendents of cash budget during the year be highly unsatisfactory the fact that annually leads to substantial increase in expenses in 4 quarter and particularly in December of the current year. Over the whole 2007 this situation has attracted attention of the Government of the Russian Federation. On 24 May at the meeting of the Government it was pointed out for the main superintendents of the budget funds that there was a delay in spending of the funds mentioned and deadlines for preparation of norm-setting legal acts that should establish the procedure for financing of the corresponding federal budget expenses in 2007 were violated.

In the Letter from 1 October 2007 No 02-03-09/2474 the Ministry of Finance of the Russian Federation drew attention of the main superintendents of the federal budget funds to the necessity of the provision of uniform and effective spending of federal budget funds in 2007.

At the meeting of the Government upon analyzing the quality of federal budget execution the reasons for low level of federal budget execution by expenditures in 2007 were denoted:

1. Violation of deadlines for preparation of projects of norm-setting legal acts of the Government of the Russian Federation that regulate carrying out the expenditures of the federal budget by the corresponding federal executive bodies.

In order to fulfill the Federal Law On federal budget for 2007 it was necessary to adopt 37 norm-setting acts of the Government of the Russian Federation, only 17 of which had been submitted within the set period. According to the data of the Ministry of Finance of the Russian Federation by 1 January 2007 there was not regulatory legal base for spending of RUR 1031.3 bln of budget allocation (which is 18.9% of yearly allotment), by 1 April 2007 RUR 394.5 bln (7.1%), by 1 July 2007 RUR 266.1 bln (4.8 %) and by 1 October 2007 RUR 208.4 bln (3.7 %).

2. Untimely preparation and adoption of Federal Target Programs and Investment fund projects.

According to the federal budget for 2007 budget allocations at the sum of RUR 509.5 bln were envisaged in order to fulfill 47 Federal Target Programs, 5 of which had not been considered and adopted in compliance with the established procedure by 1 January.

Investment fund for 2007 was established at the sum of RUR 175.0 bln (including RUR 64.4 bln of the funds balance of 2006), of which RUR 8.0 mln was spent over 9 months of the current year.

3. Late approval of the list of construction sights and objects for government purposes.

The list of construction sights and objects for government purposes for 2007 was submitted to the Government of the Russian Federation by the Ministry for Economic Development and Trade on 9 January and adopted 08.02.2007 according to resolution No 146-.

Out of the total volume of budget allocations at the sum of RUR 527.1 bln to fulfill budget investments in compliance with the List in 1 quarter 2007 RUR 13.9 bln was used (2.6%of the yearly allotment), in 2 quarter RUR 106.5 bln (20.2%), in 3 quarter RUR 127.2 bln (24.1%), and to draw yearly allotment in 4 quarter 53.0% of the yearly amount should be used.

4. Incomplete distribution of the limits of budget responsibility by the main superintendents of the federal budget funds.

A considerable part of federal budget funds limit allocated according to the set deadlines and procedure to the main superintendents of the budget funds remains undistributed among the lower managers and recipients of budget funds, which makes planning and execution of cash expenditures more complicated.

5. Low quality of cash planning of expenditures In general permanent and large-scale redistribution of budget allocations by quarters testifies that main superintendents of federal budget funds do not have an efficient system of cash planning.

For 4 of the main superintendents of the federal budget funds the increase of budget allocations planned according to 1 October 2007 for 4 quarter is two times higher than the projects for the quarter in question that were originally submitted by the superintendents.

6. Possibility to transfer the balance of the unused in the current financial year budget funds.

The possibility envisaged by the budgetary legislation to transfer of the rest of budget funds that was not used for some reasons to the next financial year leads to relaxation of budgetary discipline and increasing difficulties in conditions for federal budget execution.

Review of Economic Legislation over November I. Tolmacheva In November the following changes to the existing legislation were made: the volume of the basic rate for the retirement pensions was increased as well as monthly payments for some categories of citizens; the procedure for creation of special port economic zones was defined; the data used to calculate severance tax in regard to oil for March 2007 are prepared for application I. FEDERAL LAWS of the Russian Federation 1. ON MAKING AMENDMENTS TO SOME LEGISLATIVE ACTS OF THE RUSSIAN FEDERATION IN ORDER TO INCREASE THE LEVEL OF MATERIAL WELL-BEING OF SOME CATEGORIES OF CITIZENS dated from 01.11.2007 No 244- Comes into effect on 01 December 2007, excluding some regulations that come into effect on other dates.

From 1 December 2007 the basic rate of the old age, disability, survivors pensions granted and paid in compliance with the Federal law from 17.12.2001 No 173- On retirement pensions in the Russian Federation. For instance the volume of the basic rates of the old-age pension is increased from RUR 1260 to RUR 1560 per month, the basic rate of disability pension for people having grade 3 limitation for work - from RUR 2520 to RUR 3120 per month and the volume of basic rate of survivors pension for orphans who have lost both parents increased from RUR 1260 to 1560 per month.

From 1 August 2008 basic rated of the old-age retirement pension will be equal to RUR 1794 per month.

The basic rates of other pensions will be increased simultaneously.

From 1 April 2008 the amount of monthly payments for war veterans, the disabled, people, experienced radiation as a result of Chernobyl catastrophe or as a result of nuclear tests at Semipalatinsk testing grounds will be increased. For instance, monthly payments for the disabled veterans will be equal to RUR 2645, for participants of the Great Motherland War to 1985 , for disabled people having grade 3 limitation for work to RUR 1855.

2. ON MAKING AMENDMENTS TO THE FEDERAL LAW ON SPECIAL ECONOMIC ZONES IN THE RUSSIAN FEDERATION AND SOME LEGISLATIVE ACTS OF THE RUSSIAN FEDERATION dated from 30.10.2007 No 240- Comes into effect in 30 days after official promulgation, excluding separate regulations.

In accordance with the amendments made in the territory of the sea and river ports available for international communication and for foreign ships calling, of airports, available for receiving and dispatching of airplanes, performing international air service, as well as in the territories envisaged for their construction, reconstruction and operation special port economic zones can be created.

Special port economic zones are created on the plots of the territory of no more than fifty square kilometers. Regulation of issues on expanding the area mentioned is implemented by the Government of the Russian Federation. The period for special port economic zones existence is 49 years without the possibility of its prolongation. The requirements for the residents of the special port economic zones were defined, the procedure for making and cancellation of agreements on carrying out the activity in the special port economic zone was regulated.

Some changes and add-ins were made to some legislative acts of the Russian Federation concerning creation of special port economic zones: to part two of the Tax Code of the Russian Federation, Land, Customs and Town-planning Cades as well as to other laws.

In particular, changes to part two of the Tax Code of the Russian Federation establish the procedure of value added tax exemption in case residents of a special port economic zone make jobs (render services) for residents of the special port economic zone in the special port economic zone, as well as exemption from excise payment when excisable goods are imported to the special port economic zone. These amendments will come into effect no sooner than a month after official promulgation and no sooner than the first day of the next taxation period by the corresponding tax.

II. ORDERS, LETTERS 1. Letter of the Federal Tax Service of the Russian Federation ON DATA, NECESSARY TO CALCULATE SEVERANCE RATE IN REGARD TO OIL FOR OCTOBER 2007 dated 17.04.2007, No -611/897@ The data, applied to calculation of the severance tax in regard to oil for October 2007, are prepared for application:

- average level of prices for oil grade Urals USD 79.55 per barrel;

- Average rate of US dollar exchange rate against ruble of the Russian Federation over all the days of tax period 24.8940;

- Cp coefficient value 6.7290.

2. The Order of the Ministry for Economic Development and Trade of the Russian Federation ON ESTABLISHING OF DEFLATOR COEFFICIENT IN ORDER TO APPLY CHAPTER 26.2 OF THE TAX CODE OF THE RUSSIAN FEDERATION SIMPLIFIED TAXATION SYSTEM FOR 2008 dated 22.10.2007 No Registered at the Ministry of Justice of the Russian Federation on 14.11.2007 No 10481.

Deflator coefficient equal to 1.34 that is necessary for chapter 26.3 of the Tax Code of the Russian Federation Simplified taxation system to be applied is established.

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