Shatalov: tax reform in Russia on a number of large areas close to completion

Shatalov: tax reform in Russia on a number of large areas close to completion


MOSCOW, December 30. Expiring 2015 for the tax field was a turning point: several major reforms de-offshorization of the economy, Amnesty of capital, the taxes on the oil industry, changes in the taxation of real estate – though not completed, but already found solutions to the most contentious issues in these reforms.

As said in an interview with the Deputy Minister of Finance Sergey Shatalov: “In previous years we have set many ambitious goals for the reform of the tax sphere, gradually, not without discussions and disputes tough enough we moved to implement them. Something went slower, somewhere had to take a step backwards… But in General, the reforms for a number of key areas close to its logical end”.

Five years ago Shatalov expressed the view that it is time for a moratorium on changes in tax legislation, but only now there is a chance that at least on the main directions of the Deputy wishes will come true.

Oil disruption

In September 2015 the most discussed proposal for filling of the budget in 2016 was the idea of the Ministry of Finance to change the procedure of calculation of tax rates for mineral extraction /mineral extraction tax/ oil. These innovations would allow to receive an additional 600 billion roubles in 2016. But the proposal has met with strong negative response both from oil companies and from other ministries – Ministry of economic development and the Ministry of energy.

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As a result, the Finance Ministry came out with other adjustments of the tax regime, which were approved in the autumn session the state Duma. On the one hand, the export duty on oil will be reduced, as planned tax maneuver, to 36% and will remain at the level of 2015 – 42%. It will bring to the budget in 2016 about 200 billion rubles. On the other hand, changes in the procedure for calculating met on gas, which will bring another 100 billion roubles of additional revenues.

“In fact, we are talking about a partial suspension of the “big tax maneuver”. It would be correct if after 2016 we would go back to the route that was planned. Strength or not, the second question, next year will show,” – said Shatalov.

Another persistently discussed in the 2015 theme – the transition to the new system of oil industry taxation. According to Shatalov, instead of manually setting privileges for individual deposits, it is better to use universal plug and play mechanisms. To create them – a task that the Ministry of energy and Ministry of Finance are trying to solve for several years. The two departments have developed their own, according to experts, hardly compatible concepts. In particular, the Ministry of energy supported the concept of taxation of financial result (NFR) and proposed to implement it gradually, spending in 2016 the experiment on the “pilots”, including existing fields. The Finance Ministry proposed to introduce the tax, but only on new deposits.

NFR a bill was introduced in the state Duma in 2015, but at the end of this year, the Ministry of energy acknowledged that the bill will not have time to introduce from 2016. Then the Ministry moved on to discuss the single concept of taxation of the industry on the basis of the PDM.

“We have practically agreed with the Ministry of energy basic approaches to propose a new tax that would partially replace the mineral extraction tax and will together with the income tax to work in the oil industry. Of course, there are still a lot of questions on the parameters that need to be clarified. Something turns out an average between PDM and NR. It should work, from our point of view, for all “Greenfield”, which will receive the benefits of the extraction tax and the export duty for new fields in Eastern Siberia”, – said Shatalov.

According to him, the new tax regime will apply to traditional fields in Western Siberia as an experiment: within range, which will agree on some deposits, chosen by the companies themselves.

“For existing fields will be set quotas on the results of negotiations in the government with companies. Then this quota will be divided between the companies and each company will be able to tell us – the new regime will apply to such deposits. We will continue to watch, whether it be to give an additional recoil or just the company will receive a “cash machine” which will print additional revenue by reducing taxes,” – said Shatalov.

Since it is required to clarify many details of the new tax regime is unlikely to be launched in 2016, most likely we are talking about the year 2017.

“I think six months is enough to find solutions and to try, if not at the end of the spring session in early fall to try to pass a law to start from January 2017. In General, the transition to PDM will occur very gradually and may take decades, of course, if it will show its effectiveness”, – said Shatalov.

Thus, in the long term it is about replacing complex benefits to a unified system of taxation, which will make the cost-effective development of both new and existing fields.

Pure light and “green” trucks

Another “tax” story, which got a second life in 2015 – the abolition of the vehicle tax, but only for heavy vehicles. Now the Ministry of transport is drafting a bill exempting vehicles with a permissible maximum mass exceeding 12 tonnes, from the transport tax, so it was cancelled in early 2016.

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Transport tax is paid by all vehicle owners, funds are transferred to the road funds of subjects of the Russian Federation and are spent on local and regional roads. The tax is calculated on the basis of engine power. The subjects of the Russian Federation determine tax rates within the permitted limits, and also determine tax exemptions.

The idea of the abolition of the vehicle tax, the Russian authorities returned in connection with the introduction, on 15 November, the system “Platon” which provides charging of heavy vehicles for travel on Federal highways. Until March 1, 2016, trucks to pay 1,53 Euro for every kilometer, in the future, the rate will increase. The funds collected by the vehicle, proceed to the Federal road Fund in the future will be directed on repair of roads.

However, according to Shatalov, it is an occasion not only to abolish or reduce the tax for the trucks, but in principle, change the structure of the tax.

“The transport tax in General, not only on trucks, require very large improvements. It needs to be aimed at fleet renewal and environmental protection, we must change the tax base: he should be charged not with horsepower, and engine size. Because modern cars have a very small volume of the engine and are hi-tech and old cars with huge engines and small horsepower – not what we should strive”, – said Shatalov.

He recalled that many old, not too powerful but with high consumption of gasoline cars in Russia belong mainly to pensioners and low-income citizens. Accordingly, the tax burden on them can grow, at the same time, the owners of the collections expensive cars will surely benefit.

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“If we talk about social protection, one could speak of a transition period of 5-10 years in order to deal with old cars, with frozen tax regime. Suppose this would only apply to retirees or only one car of a pensioner”, – he explained.

The Deputy head of the Ministry of Finance considers that the tax can be applied the coefficients depending on the ecological class or the life of the vehicle.

“If we talk about trucks, it would be possible to try to account for tolls, imposed in November, in the amount of taxes that they pay, reducing other payments (income tax, simplified taxation, etc.) and not touching the vehicle tax. If the change of the transport tax inevitably, it is still an environmental component to maintain is very important. In this regard, the complete abolition of the environmental tax seems to me not the best solution,” said Shatalov.

Amnesty extended

The Amnesty of capital – still one of the longest projects in the tax field. Few people remember that the talk about tax amnesties conducted regularly since the mid 90-ies, however, have not been implemented: in 1995, 1998 and 2002, the relevant bills were not accepted by Parliament.

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And only in June 2015 was finally adopted the law on the voluntary Declaration of physical persons assets and Bank accounts (deposits) in banks. According to the law, foreign owners of property and Bank deposits to avoid administrative and tax liability for concealment of property, if they legalize it from July 1 to December 1, 2015 Directly to the withdrawal of the property from offshore will not be taxed (after translating it to Russian jurisdiction tax will be charged on a common basis). The Amnesty will apply only to violations that occurred prior to January 1, 2015

“Made the right decision to amend the law and extend Amnesty for another six months, because the declarations submitted quite a bit – about 200. The Ministry of Finance held consultations with business, with the law society, with bankers in order to understand why the effect was exactly that,” – said Shatalov.

He explained that adjustments to the rules of tax Amnesty is quite clear and is reduced to a small number of questions.

“Nevertheless they are extremely important – this is a list of property and assets that fall under the Amnesty, in particular there has to get debt, intangible assets, accounts in foreign banks,” – said Shatalov.

According to him, this would go in a more liberal way: identify what is needed to withdraw assets from the jurisdictions included in the “black list” of FATF (Financial Action Task Force, an intergovernmental organization that produces standards in the field of combating money laundering and financing of terrorism), and that repatriation should only apply to Bank accounts opened in foreign banks.

“In this case may be the transfer of funds is not necessarily to Russia, but a transfer to the jurisdiction with which there is an agreement on the exchange of information and avoidance of double taxation, with a corresponding informing of the tax authorities and the mention of this in the Declaration”, – said the Deputy Minister.

These solutions can be adopted by the state Duma in January – February 2016.

Deoffshorization – the last spurt

“De-offshorization law with a difficult fate, but, apparently, with good prospects. He passed only the first reading, we hope that it will be adopted in the second and third in January, and then many questions will be removed”, – said Shatalov.

According to the anti-offshore law signed by the President of the Russian Federation at the end of November 2014, the Russian tax residents will now be required to declare and confirm undistributed earnings of controlled foreign companies. Controlling is a natural or legal person, the share of which in foreign organization will be in 2015 more than 50%, 2016 – 25%.

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However, throughout 2015, the Finance Ministry was working on amendments to the law, to be effective in practice.

“This is the most favorable regime for the tax base to generate and report under IFRS, there will be amendments that will allow, if records are kept in the national currency, to convert each transaction from one currency to another, and to do this collectively the results of the tax period. Leave the double taxation of dividends from Russian companies by foreign companies, and then return to the Russian shareholder, and more”, – said Shatalov.

It will also cut statements, in particular, due to the fact that you will not be deemed controlled by those persons who exercise control exclusively through the Russian public companies.

“Are quite simple rules in order within the family from one person to cede control of the trust to another person, e.g. children, avoiding taxation. There will be clarification on the information potential of controlling persons if they own a small package. The tax authorities will be informed of these potential controlling persons that they are. This reduces the conflict situation”, – said the Deputy Minister.

Shatalov has underlined that “all the amendments of the liberal plan, the business community is waiting for them”.