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II. DECREES OF THE GOVERNMENT of the Russian Federation 1. ON THE STATE EXPERTISE OF MINERAL RESERVES, GEOLOGICAL, ECONOMIC AND ECOLOGICAL INFORMATION ON SUBSOIL SITES FOR WHICH THE RIGHT TO USE IS GRANTED, THE SIZE AND PROCEDURE OF CHARGE COLLECTION FOR ITS CONDUCT of 11.02.2005, No. A procedure has been established of carrying out the state expertise of mineral reserves, geological, economic and ecological information on subsoil sites for which the right to use is granted, and also the size and procedure of charge collection for its conduct. It has been established that organization of carrying out the state expertise of the above objects will be performed by the Federal Subsurface Management Agency, and as regards widespread mineral deposits by the executive body of respective Russian Federations subject.

The state expertise is carried out for creation of conditions for efficient and integrated use of mineral wealth, governmental accounting of mineral reserves and subsoil sites for which the right is granted for mineral production, and for purposes other than mineral production, determination of payment for use of mineral wealth, boundaries, subsoil sites, for which the right to use is granted, estimation of reliability of information on the quantity and quality of explored mineral reserves, other properties of deposits characterizing their value or danger. The state expertise may be carried out at any stage of exploration of deposit, provided that the obtained geological data allow to give an objective assessment of the quantity and quality of mineral reserves, their commercial significance, miningand-technical, hydro geological, ecological and other conditions of their production. Granting the right to mineral production is permitted only after the performance of the state expertise of mineral reserves.

The Decree of the RF Government of 28.02.1996, No. 210 On Bodies Carrying out the State Expertise of Mineral Reserves, Geological, Economic, and Ecological Information on Subsoil Sites for which the Right to Use is Granted is recognized as ceased to be in force.

III. ORDERS, INSTRUCTONS and DECREES 1. Decision of the Supreme Arbitration Court of the RF ON RECOGNITION INOPERATIVE THE LETER OF THE MINISTRY OF TAXATION OF RUSSIA OF 17.02.2004, NO. 04-2-06/ON TAXATION OF COMPENSATORY PAYMENTS FOR REIMBURSEMENT OF EXPENSES CONCERNED WITH BUSINESS TRIPS of 26.01.2005, No. 16141/The Letter of the Ministry of Taxation of the RF On Taxation of Compensatory Payments for Reimbursement of Expenses Concerned with Business Trips is recognized fully inoperative as not compliant to the Tax Code of the RF. The Supreme Arbitration Court of the RF recognized that daily allowances paid to workers are not imposed by personal income taxes, regardless of their size, based on point 3 of Article 217 of the Tax Code of the RF (reading that compensatory payments, introduced by legislation, are tax-free) and Articles 168 of the Customs Code of the RF (which reads that the size of compensation is assigned by organization itself).

Substantiating its letter the tax bodies cited the Decree of the RF Government of 08.02.2002, No. On Establishing the Expenditure Rates for Organizations to Pay for Daily Allowances or Field Provisions, Within the Frame of Which in Determination of the Tax Base of the Corporate Profit Tax, Such Expenditures Relate to Other Expenditures Concerned with Production and Sale and of 02.10.2002, No. 729 On the Size of Reimbursement of Expenses Concerned with Business Trips on the Territory of the Russian Federation to the Employees of Organizations, Financed from the Federal Budget.

The Court found that the minimum size of daily allowances cannot be recognized the rate of daily allowances used for profit taxation on physical persons, as in the Decree of 02.10.2002, No. 729 it has been established that it is used only for organizations financed from the federal budget, with regard to its compensating expenditures from the budget, while the Decree of 08.02.2002, No. 93 establishes the rates of daily allowances, used in determining the tax base of the corporate profit tax. In such a manner, in exceeding the size of employees daily allowances no money means can be collected as personal income tax, if daily allowances are paid within the rates established by the collective agreement or local legal act.

Moreover, the taxpayer income may be recognized only as his economic benefits in physical or in money terms. Meanwhile, in accordance with Article 166 of the Labor Code of the RF, a business trip is recognized a workers traveling exclusively on instructions of the employer for a certain period to fulfill an official order out of the permanent employment. Daily allowances are a compensatory payment for reimbursement of workers expenses caused by workers necessity to fulfill his functions out of his permanent employment. In the opinion of the Supreme Arbitration Court of the RF, collection of additional resources from a worker in the form of income tax in connection with receiving by the latter of funds necessary for fulfilling an official order, - is unlawfully.

2. The Letter of the Federal Tax Service of the RF ON THE USE OF DESCENDING TAX SCALE OF SINGLE SOCIAL TAX AND TARIFFS OF INSURANCE CONTRIBUTIONS FOR COMPULSORY PENSION INSURANCE of 01.02.2005, No. MM-6-05/72@ It is clarified that, because since January 1, 2005 point 2 of Article 241 of the Tax Code of the RF, which establishes the conditions of use of descending rates of single social tax (SST) and tariffs of insurance contributions for compulsory pension insurance, becomes inoperative, since January 1, taxpayers in calculation of SST rates and tariffs of insurance contributions for compulsory pension insurance must use the rates specified in Article 241 of the Tax Code of the RF and tariffs established by Articles 22 and 33 of the Federal Law of 15.12.2001, No. 167-FZ On Compulsory Pension Insurance in the Russian Federation.

3. The Letter of the Federal Tax Service of the RF ON FORWARDING THE LETTER OF THE RF MINISTRY OF NATURAL RESOURCES OF 12.01.2005, No. VS-58-42/39 of 10.02.2005, No.

21-2-05/9@ The Letter of the RF Ministry of Natural Resources On the Use of Tax Rate for the Tax on Extraction of Mineral Resources had been circulated. By that letter it is specified that the RF Ministry of Natural Resources in taxation on mineral production considers it necessary to take into account the standard losses of solid minerals, agreed and approved in accordance with the established order, proceeding from the validity period of January 1 to December 31 in the year in question.

Tolmacheva I.V.

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