New Law to change how zero VAT rate is applied to

www.pwc.com/ru/tax
New Law to change how
zero VAT rate is applied to
transportation services
Tax Flash Report
Russia, Issue # 20 (234
34), November 2010
PwC
New Law to change how zero VAT rate is applied to transportation
services
On 24 November 2010, Russia’s Federation Council approved Law No 391528-5
391528 “On the introduction of changes
to Chapter 21, Part 2 of the Tax Code of the Russian Federation” (the “Law”).
“
The Law makes significant changes
in how taxpayers apply and substantiate zero VAT rate on transportation services and other services related to
transporting goods (Articles 164 and 165 of the Russian Tax Code).
When do the new rules take
effect?
Applying zero VAT rate to
transportation and related
services
The Law was officially published in
Rossiyskaya Gazeta on 29 November
2010, after which the new rules will take
effect from 1 January 2011.
How to apply zero VAT rate to import /
export transportation services is currently
a pressing issue for both transportation
companies and importers / exporters. The
amendments contained in the Law
significantly change how the application
of zero VAT rate to goods transport
services is regulated.
The Law cancels the old wording of Article
164.1.2 of the Russian Tax Code (RTC)
and introduces two new sub-paragraphs
sub
(21-28) to RTC Article 164.1, which
establish how zero VAT rate should be
applied to goods transportation services
and a range of other services. Under the
new wording, there is a closed list of
services that are subject to zero VAT rate.
Most of the services named in the list can
be grouped as follows:
follows
 International goods transportation
services (sub-paragraph
paragraph 21), which covers
shipments made by all means of
transportation provided that either the
point of dispatch or the destination of the
goods is located outside of Russia.
 Freight-forwarding
forwarding services (subparagraph 21). In essence, the new
wording gives a definition of freightfreight
forwarding services for the purposes of
applying zero VAT rate since the relevant
sub-paragraph
paragraph includes a list of the types
of activities that come under freightfreight
forwarding services.
For example, this list includes receiving and
delivering freight, loading-unloading and
warehousing services, and freight insurance
services. According to the new provisions
the zero VAT rate can be applied to freightforwarding services only if the services are
being provided under a freight-forwarding
contract. The introduction of a “definition”
of freight-forwarding services prompts a
number of different questions. For example,
can the provision of only one or several of
the types of activities named in the list (e.g.
customs clearance of freight, servicing and
repairing containers) be considered as
freight-forwarding services? Or, what is the
minimum list of activities necessary for
them to be considered as freight-forwarding
services?
 Transport and certain related services for
oil, oil products, natural gas and electrical
power transmission (sub-paragraphs 22-24).
For these types of services, the Law
provides special rules for applying zero VAT
rate.
 Services provided at river and sea ports,
as well as the trans-shipment and storage of
goods brought across the Russian border at
such ports (sub-paragraph 25). To this
category of services has been added, in
particular, services for the storage of goods.
PwC
November 2010
2
Substantiating documents
and how to calculate the 180day period
Transportation of goods
within the Customs Union
What action should you take
now?
The Law also makes changes in RTC
Article 165, specifically sub-paragraphs
sub
31
8
-3 have been added which establish the
list of required documents for
substantiating the taxpayer’s right to
apply zero VAT rate for each type of
service outlined in sub-paragraphs
sub
21-28
of RTC Article 164. No significant changes
have been made to the list of zero rate
confirmation documents, with the
exception, for example, of the cancellation
of mandatory submission to the tax
authorities of customs declarations
substantiating zero VAT rate for electrical
power transmission services.
The Law also establishes how the 180-day
period should be calculated for each type of
service outlined in sub-paragraphs 21-28 of
RTC Article 164.
The current practice within the Customs
Union (CU) is that goods transportation
services are VATable at 18%. The Law
establishes that zero VAT rate should
apply to shipping services, freightfreight
forwarding services and certain other
services for providing railroad rolling
stock and/or containers while exporting
goods from Russia to a CU member state
or importing goods from a CU member
state into Russia.
Before the start of 2011, we recommend
that all companies currently either
providing or using import / export
transportation services should carefully
analyze the practical implications of the
new zero VAT rate application rules. In
particular, one key question that you may
examine is to what degree the services
your company renders or uses correspond
to the list of services and types of
contracts indicated in the new wording of
RTC Article 164 contained in the Law.
This question is particularly relevant from
the point of view of both the application of
zero VAT rate by service providers and the
recovery of 18% VAT by buyers of such
services.
Zero VAT rate on import / export
transportation services currently applies to
various different types of contracts, not only
to freight-forwarding contracts and
shipping contracts. Thus, the new rules may
require that you make changes in your
contractual arrangements (for example,
concluding freight-forwarding contacts
when planning international shipments).
We will continue to monitor new
developments and inform you with timely
updates about any significant changes in
the practical application of these rules. We
would also be happy to provide you with
more in-depth insight on any aspect of this
issue.
PwC
November 2010
3
Contacts in Russia
David John
Partner, Russia Tax & Legal
Leader
david.c.john@ru.pwc.com
Natalia Kuznetsova
Partner
International Tax Structuring
natalia.kuznetsova@ru.pwc.com
uznetsova@ru.pwc.com
Ekaterina Lazorina
Partner, Financial Services
ekaterina.lazorina@ru.pwc.com
Evgenia Veter
Director, Transfer Pricing
evgenia.veter@ru.pwc.com
Peter Solyonov
Partner, Energy, Utilities
and Mining
peter.solyonov@ru.pwc.com
Galina Naumenko
Partner, Mergers and
Acquisitions Tax Services
galina.naumenko@ru.pwc.com
Irina Martakova
Partner, Consumer Industrial
Products
irina.martakova@ru.pwc.com
Vladimir Konstantinov
Partner, Indirect Tax Services
and Customs
vladimir.konstantinov@ru.pwc.com
Natalia Milchakova
Partner, Technology InfoCom
Entertainment
natalia.milchakova@ru.pwc.com
Kirill Nikitin
Partner, Tax Management
and Accounting Services
kirill.nikitin@ru.pwc.com
Karina Khudenko
Partner, International
Assignments and HR Services
karina.khudenko@ru.pwc.com
Yana Zoloeva
Partner, Legal Practice Leader
yana.zoloeva@ru.pwc.com
The Tax Flash Report is issued in Russian and English
to keep PricewaterhouseCoopers clients abreast of
changes in Russian legislation which may be of special
interest. The information presented does not
constitute professional advice provided by our
specialists solely on individual basis.
© 2010 PricewaterhouseCoopers Russia B.V. All
rights reserved.
In this document "PwC" refers
to PricewaterhouseCoopers Russia B.V., which is a
member firm of PricewaterhouseCoopers
International Limited, each member firm of which is a
separate legal entity.
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