Russian IT-companies will be allowed not to pay the “tax on Google”

Benefit your

Wednesday, March 30, held a meeting with first Deputy head of the presidential administration Vyacheslav Volodin. It was devoted to the bill, which envisages the introduction in Russia of the VAT for IT services. On the meeting, RBC told two of his party. The reason was to gather a negative opinion of the government on the bill and disappointment that the innovation is causing the industry, says one of them.

The meeting was attended by the Minister of communications Nikolay Nikiforov, aide to the President Igor Shchegolev, presidential Advisor Herman Klimenko, the head of the Federal tax service Mikhail Mishustin, the Chairman of the Duma Committee on budget and taxes Andrey Makarov, Chairman of the Committee on information policy Leonid Levin and others. Levin and Klimenko RBC confirmed its participation.

On behalf of the industry were made by Klimenko, who reported that the introduction of VAT for the online companies will significantly complicate the life of Russian IT-companies. He was supported by other participants. In the end, it was decided that a bill that requires IT companies to pay VAT from 1 January 2017, shall not affect the Russian developers. In April the document will be appropriately modified by the relevant committees.

“We said earlier that we cannot support the increase in the tax burden for Russian companies is 18%, so as not to worsen their economic situation,” said RBC Levin. Existing incentives — exemption from VAT — will remain for Russian companies, in the text of the bill, the domestic developers will not be mentioned, promised RBC Klimenko: “All agreed that a story about the regulation of foreign companies must continue, and about a Russian company we forget”. However, according to Klymenko, the Ministry of Finance was unable to offer a formula under which a foreign company could be taxed, and the Russian to leave to their benefit.

If the bill was passed in its current form, the Russian developer of the operating system “Alt Linux” would fall under its scope, told RBC Director-General Alexei Smirnov. With 2015 due to the fall of the ruble, the domestic developers can’t compete on wages for IT specialists with foreign players, so the incentives to Russian companies need. “If the bill now will correct, will be fine,” says Smirnov.

If under the bill will get only Western companies, Russian legislation equal to the European: in the EU there is a law that implies that the user pays VAT, for example, in the Google Play app store for point of service, says Director of external communications Rambler&Co Matvey Alekseev. Companies such as “Yandex”, Mail.Ru Group, Rambler&Co and pay all required taxes in Russia and considered Russian, he says. Alexeyev hopes that Russia will succeed to build a system of administration, which will take VAT on electronic services. In particular, the Federal tax service will have to determine that a person is in the territory of a certain country, his Bank card bound to a Russian Bank, etc. With consultation of industry representatives, this mechanism can be worked out, he hopes.

Where did the idea

A bill to impose VAT for IT companies introduced in December 2015 to the state Duma deputies Andrei Lugovoi (LDPR) Vladimir Parakhin (“Fair Russia”). The interlocutor of RBC, close to the leadership of the state Duma, then claimed that the document has a high chance of becoming law. At the end of February 2016, the state Duma adopted the bill in the first reading, wrote RBC.

For the second reading the deputies had to finalize the document taking into account the comments of the government: in particular, further discussion was required for the provision of the zero rate the export of services and software, said the then Deputy Minister of Finance Ilya Trunin. In addition, the government offered to take additional tax breaks on income for services for development of software for domestic producers.

Now the bill affects virtually all aspects of services on the IT market. In the current edition of the document listed 12 types of e-services that should be subject to additional tax: the sale of digital content and software in digital form, hosting, domain registration, voice services over the Internet, storing and processing of information, broadcasting of television and radio services for remote system administration and remote software support, system search, advertising and other services to establish contacts and (or) transactions between sellers and buyers.

Overseas taxes on the profits of transnational corporations is called “tax on Google”. However, in Russia from VAT were released, not only foreign IT services (e.g. Apple Store, Google Play), but also domestic companies that sell software licenses for personal computers and databases (Parallels, “Kaspersky Lab”, etc.). If the bill is passed in its current version, the developers of mobile apps and games will be in a losing position: they are those market players who sell goods through a foreign intermediary (App Store, Google Play, etc.), explained the representatives of the Russian Association for electronic communications (unites more than 100 Russian Internet companies).

If the Russian company sells mobile game, it concludes an agreement with a foreign app store, so even if the game buys Russian user, the company will have to pay twice — for the first time on their own, the second is through the app store, said RBC analyst RAEC Karen Ghazaryan. The result of such regulation may become even greater outflow of manufacturers of games and applications to other jurisdictions, he warned.

In addition, the increase in the tax burden on IT companies could lead to higher prices for their products, warned analysts surveyed by RBC.