August 2002

This material is provided for information purposes only under a grant from USAID through Development Alternatives Inc. Russian Microfinance Center, Development Alternatives Inc. and USAID shall not be liable for any damage to any organization's property due to any use of explanations, conclusions and interpretations of effective legislation contained herein.
Author: LEGEM PERFERRE
Short Version: Russian Microfinance Center

RF Tax System

No new federal laws on taxation were adopted in August; this inactivity may be due to parliamentary recess - the most recent laws adopted by the Duma were approved by the Federation Council, signed by the President and officially published in July (all of them were included in our July 2002 report).The Russian Ministry of Taxes and Levies has continued its efforts to harmonize its normative acts with the new version of the Tax Code - last august, as many as eight new tax regulations were endorsed by the Ministry of Justice and made public. This high level of performance by the tax authority followed the enactment of a 'technical' law of 29 May 2002 No 57-FZ. That said, most of newly adopted regulations do not apply to microfinance organizations as they regulate -
- the mining of mineral resources: a new form of tax return (Order of MTL of 15 July 2002 No BG-3-21/362.) was adopted, plus a new form of regular payments charged for the use of mineral resources, and the method of filling the form (Order of MTL of 19 August 2002 No BG-3-21/448.);
- excises - the form of related tax return and the Guidelines (Order of MTL of 16 July 2002 No BG-3-03/365.) for filling it were amended;
- value added tax: the Guidelines of applying Chapter 21 specifies the procedure of using the tax break granted to disability groups (Order of MTL of 6 August 2002 No BG-3-03/412.).
Due to the State Duma recess, the center of lawmaking shifted to the Federal Government in August. As a result, the 2003 budget and related package of bills were the central August events in the Duma. The package contains, among other things, bills on mandatory insurance payments.

On 20 August 2002, the Russian Government adopted Directive No 1147-r which endorsed a Plan of lawmaking for the second half of 2002. According to this paper, the Government shall:

• prepare and submit to the Duma, within required time periods, the following bills:- a new chapter of Part 2 of the Tax Code on real estate tax (deadline for submission - February 2003);
  - a new version of the Law on Foreign Currency Regulation and Control (deadline for submission - November 2002);
  - amendments of the Federal law on Protecting Competition in Financial Services Market (deadline for submission - December 2002);
• have adopted the following bills already pending before the Duma:
  - a package of government-sponsored bills amending Part I of the Tax Code (submitted to the State Duma in April 2001);
  - amendments to the Federal Law on Grants (Unrecoverable assistance) (See our June 2002 report.);
  - on credit cooperation (See our June 2002 report.), and others.

• The Russian President's Decree of 31 July 2002 No 824 on Nullifying Paragraph 1 of the Decree of the Russian Federation President of 15 march 2000 No 508 'On the Amount of sick leave allowance'.
  The text of the Decree is published in the Collection of Russian Laws of 5 August 2002, No 32, p. 3064.
  • The president repealed the norm which established maximum amounts of sick leave and maternity leave at 85 minimum wage levels. This norm is no longer relevant after the Federal Law on the 2002 Budget established more restrictive norms, limiting allowances to 11,700 per full calendar month (Article 15 of the Federal Law of 11 February 2002 No 17-FZ on the Budget of the Russian Social Insurance Fund as of 2002.).
  • However, restrictions established by the Federal Law on 2002 Budget can formally apply only until the end of the current year. A new law is required to extend restrictions to the next year, and they are already included in the Law on 2003 Budget.
• Order of the Russian Ministry of Taxes and Levies of 17 July 2002 No BG-3-05/367 on Amending the MTL Order of 01.02.2002 No BG-3-05/49"
  Registered with the Russian Ministry of Justice on 31 July 2002, Record No 3647.
  The text of the Order is published in Rossiyskaya Gazeta of 7 August 2002, No 145.
  • The Procedure of filling the form of Unified Social Tax advance payments has been amended.
  • New requirements for filling the form have been established: title page 1 and pages Nos 05-10 are filled by all taxpayers, while only those pages of Nos 02-04 are returned which apply to respective taxpayers. If taxpayers do not fill some of the tables in the advance payment form which they submit, a Z is drawn in the columns of such tables.
  • According to the new version of the Organization Procedure, individual entrepreneurs and persons not recognized as such, if they entered into work contracts and civil code service contracts or copyright contracts with physical persons, but did not make any payments or other remuneration to physical persons over the reporting period, must present advance payment forms for the reporting period to tax authorities.

• On tariffs of mandatory insurance for workplace accidents and professional diseases as of 2003
  • This bill extends for 2003 the rates of insurance tariffs and the procedure of their payment, effective as of 2001-2002.
• On the budget of Social Insurance Fund of the Russian Federation as of 2003
  • This bill proposes to extend to 2003 the limitation on maximum amounts of sick leave and maternity leave, effective as of 2002 (RUR 11,700 per month).
• The Russian Government is designing and will shortly submit to the State Duma the federal bill În amending Chapters 24, 26.2, 26.3 of Part Two of the Russian Federation Tax Code
  • The bill proposes to correct existing errors in those chapters of the Tax Code which establish special tax regimes for small business. In particular, it proposes:
    - To recognize persons and entities entitled to special tax regime as VAT payers if they import goods in the Russian customs territory;
    - To extend limitations on maximum rate established by Russian Tax Code Article 269 of Chapter 25 to include taxpayers using a simplified taxation system.

• Directive of the Russian Central Bank of 6 August 2002 No 1185-U
  The text of the Directive is published in Vestnik Banka Rossii of 14 August 2002, No 47.
  • The Bank of Russia established, as of 7 August 2002, a rate of 21 per cent (the previous CB rate was 23 per cent).
• Letter of the Russian Central Bank of 6 August 2002" 109-L on state registration of the Bank of Russia's normative acts with the federal Ministry of Justice
  • This letter addressed to directors of CB RF structural departments informs them that, according to the new Law on the Bank of Russia, all CB normative acts shall be subject to state registration with the federal Ministry of Justice.
  • Normative Legal Acts which do not require such registration include those which establish:
    - Foreign currencies to Russian Ruble exchange rates;
    - Change in interest rates;
    - Reserve requirements;
    - Binding standards for credit organizations and banking groups;
    - Direct quantitative limitations;
    - Bank of Russia accounting and reporting rules;
    - Bank of Russia system operation procedures.
  • In addition, a procedure for amending previous CB RF acts has been established. In cases when a respective normative act has not been registered with the Ministry of Justice and needs to be amended by provisions subject to such registration under the new rules, a single new normative act should be designed and submitted to the Ministry of Justice. At the same time, the old act and any amendments to it which have not been registered shall lose effect.

• Order of the Ministry of Finance of July 2002 No 66n on the endorsement of the accounting Guidelines (AG) "Information on termination of activities" AG 16/02"
  Registered with the Russian Ministry of Justice on 2 August 2002, No 3655.
  The text of the Order is published in Rossiiskaya Gazeta of 10 August 2002, No 148.
  The Order becomes effective on 1 January 2003.
  • AG was designed pursuant to the introduction of international accounting standards in Russia. Its main function is to separate information on terminated activities from the rest of accounting reports.
  • AG is applicable if an organization, for whatever reason, decides to terminate some of its activities (either to close an operation or to withdraw from a geographical area). In particular, termination of activities may take the form of closing a branch, selling property, reorganization through detachment of one or more legal entities, etc.
  • The Guidelines authorize an organization to create reserves on its books and accounting reports as a provision for future costs involved in the termination of operation.
  • AG contains exhibits for disclosing information on terminated activities in accounting reports (sample income/expense statement, cash flow report, and explanatory note).

• Order of MTL of 31 July 2002 No BG-3-29/404 on the approval of Guidelines on the performance of statutory lien on taxpayer's property as security for tax payment
  The text of the order is published in Official Documents - weekly supplement to Accounting, Taxation, Law of 28 August 2002, No 31.
  • According to MTL recommendations, a taxpayer's property may be seized if such taxpayer or tax agent fails to pay a tax when due, and the tax authority has reasons to believe that the said taxpayer may attempt to go into hiding or to hide their property. Any one or more of the following may be interpreted by tax authorities as grounds for such actions:
    - If a taxpayer's or tax agent's balance contains personal property including securities, which, if sold, could pay more than 25 per cent of the amount of overdue tax;
    - Accounts receivable, due and enforceable, if no steps have been taken to recover the debt for more than one quarter;
    - Total debt on taxes and other dues (including penalties) exceeding 50 per cent of the balance value of a taxpayer's (tax agent's) property;
    - Actual location of property of debtor organization different from its official address of incorporation;
    - Other circumstances and information which tax authorities may find sufficient for enforcing a lien.

• The Russian Government submitted to the State Duma a federal bill în amending Articles 198 and 199 of the Russian Criminal Code.
  • The bill drafted by the Federal Tax Police aims at toughening measures against tax evasion and related crimes, proposing, in particular:
    - Liability for failure to provide to tax authorities any information necessary for levying taxes and dues, or providing false information;
    - Confiscation of property, in addition to imprisonment, for certain related crimes;
    - Limitation of the possibility to avoid criminal prosecution upon "active repentance" of the taxpayer (cooperation with investigation and compensation for damage inflicted).

• On amending the Federal Law "On combating legalization of proceeds from crime ('money laundering')."
  • The bill proposes to expand the list of operation subject to mandatory supervision. The list of agencies authorized to exercise such supervision in expanded correspondingly.
  • Credit institutions are empowered to refuse to open bank accounts for legal entities or individuals.
• On amending the Russian Code of Administrative Offenses.
  • The Russian President proposes to amend the effective CoAO by a new article on "Violation of the Law on combating the legalization of proceeds from crime ('money laundering') and the funding of terrorist operations."
  • Such violations include failure by organizations, which perform transactions involving money or other property, to document, store, and deliver information on such transactions subject to supervision, or a failure to exercise internal control.

• The Russian President vetoed the new version of the Law on Insolvency (Bankruptcy).
  • The bill was aimed against the use of bankruptcy legislation in business competition and against bankruptcy fraud.
  • The Russian President sent a letter to the State Duma with his recommendations for improving the bill. In particular, the President proposed to amend it with a norm providing for an early termination of bankruptcy whereby the debtor's founders may, at any time during external management, satisfy all creditors' claims and stop bankruptcy proceedings.
  • Provided the State Duma complies with the President's recommendations, the law will be adopted under a rapid procedure.