The state Duma has approved in the first reading “tax on Google”

The state Duma has approved in the first reading the bill about the taxation of the VAT of Russian and foreign IT-companies, the correspondent of the state Duma. The document was approved by majority vote. The bill will be revised for the second reading: the government will prepare the amendments, said the journalists Deputy Minister of Finance Ilya Trunin Wednesday, February 24.

The draft law in December last year was made by state Duma deputies Andrei Lugovoi (LDPR) Vladimir Parakhin (“Fair Russia”). A source close to the leadership of the state Duma, then claimed that the document has a high chance of becoming law.

The bill affects virtually all aspects of services on the IT market. In the current version of the document listed 12 types of electronic services, which, on a plan of deputies, should be subject to VAT. Including sales 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.

For the second reading the deputies will have to finalize the bill taking into account the comments of governments. In particular, further consideration needs provision to zero-rate the export of services and software, said Ilya Trunin, following the meeting of the profile Committee of the Duma on budget and taxes February 24. In addition, the government proposes not to accept additional tax breaks on income for services for development of software for domestic producers, the official added.

According to the position of the Ministry of Finance, additional benefits for IT companies will reduce the income in the budget office recommends that you do not provide compensating benefits to companies (including Russian), says analyst RAEC Karen Ghazaryan.

Comments to the bill was expressed by the Committee on the budget: the text of the bill follows that the right for tax deductions will receive not only the Russian software developers, who will have to pay VAT, but companies that provide e-services.

In addition, a provision of the bill granting the right to deduct VAT on transactions that are not taxed on the territory of Russia, contradicts the principle of VAT collection, and “will result in unequal treatment of taxpayers, provide other services, the implementation of which recognized the territory of Russia”, stated in the opinion of the Committee. The provision of these preferences does not guarantee maintaining the price of the services that Internet companies have in the Russian market, notes the Committee.

Now from VAT exempt foreign IT companies, as well as those Russian companies that sell software licenses for personal computers and databases. For example, VAT is not paid in Russian app stores Apple Store, Google Play, Russian Parallels, “Kaspersky Lab” and others. If the bill is passed, companies that provide electronic services on the Internet will be required to pay an additional tax from 1 January 2017. Overseas taxes on the profits of transnational corporations is called “tax on Google”.

The bill could lead to a massive increase in the prices of e-services, warned in its initial position of the Russian Association of electronic communications, which brings together more than 100 Russian Internet companies. In RAEC noted that in the framework of the new bill were finally abolished VAT exemptions on software licensing. In the RAEC considered that the economic effect of the introduction of this bill are too high. MPs, citing expert estimates, was indicated in the explanatory note to the draft law that its adoption will lead to growth of budget revenues 52.8 bn in 2017.

RAEC also stressed that the Russian developers of mobile applications and games will be in a losing position: they are those market players who sell goods through a foreign intermediary application stores App Store, Google Play or others. 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 an application store, explained the 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 early February, President Vladimir Putin instructed to study the question of creating “equal conditions for conducting activity” of the Russian and foreign IT companies. One of the measures in that regard, considered the introduction of the VAT to services, which are sold by companies such as Google and Apple.