Access of venture funds to state support may be limited

Tax incentives for the venture capital market, the parameters of which are currently being worked out by the government, will be able to take advantage of a limited number of funds. Benefits will be granted to funds included in a special register, and their total capital will not exceed 50 billion rubles. This follows from the bill developed by State Duma deputies from the New People faction Alexei Nechaev, Vladislav Davankov and Alexander Demin. On June 14, the bill was sent for approval by the government, follows from the deputies’ appeal addressed to Prime Minister Mikhail Mishustin, which Vedomosti also got acquainted with.

As follows from the text of the bill, which Vedomosti got acquainted with, the amendments provide for changes to the Tax Code (TC). Companies that will finance venture funds aimed at developing the IT sector will be able to count the cost of venture capital investments with a multiplier of 1.5, which will allow them to save on income tax (Vedomosti talked about this on June 8).

The representative of the faction confirmed the direction of the document. Vedomosti sent a request to the government.

As follows from the text of the bill, the proposed profit tax relief will only apply to those investment funds that operate in the form of an investment partnership agreement (IPA). Such an agreement must be concluded for a period of at least five years, the project states. And in order to participate in the preferential program, DIT must be entered in the register, “the procedure for maintaining which is approved by the government of the Russian Federation.”

The representative of the “New People” specified that it is proposed to give the Ministry of Economic Development the authority to maintain the register.

These measures, as follows from the bill, may be valid until January 1, 2026. “In the future, if the benefit shows its effectiveness, we will work to increase the limit of 50 billion rubles and extend the duration of the benefit,” – noted the representative of Nechaev. According to him, up to 40 funds can be included in the preferential program at the first stage.

“If the law is adopted in the near future, this year the shortfall in budget revenues will amount to no more than 10 billion rubles, but over the next few years we will receive up to 30 billion rubles. taxes from “grown up” venture startups,” Nechaev explained to Vedomosti. He added that to ensure the technological independence of Russia, investments in the amount of at least 200 billion rubles are needed. “But until 2024, 5 times less is budgeted for co-financing the creation and implementation of new domestic solutions: only 37.1 billion rubles,” he noted.

Nechaev expects the government-backed bill to pass before the end of the year.

In parallel with Nechaev, the Ministry of Digital Development is also developing its own set of measures to support venture capital for the development of the IT sector. And if Nechaev proposes changes only in the tax code, then the Ministry of Digital Development is developing a whole range of measures.

According to a representative of the Ministry of Digital Development, the ministry did not participate in the development of proposals from the New People faction and is preparing to present its set of measures within the framework of SPIEF-2023.

As a ministry representative told Vedomosti earlier, this complex includes measures to simplify the procedure for issuing DITs, introduce the possibility of individuals participating in them, also talk about removing excessive requirements that prevent the sale of assets and encouraging the introduction of long-term employee motivation systems based on options, etc. What kind of bills need amendments, the interlocutor did not specify.

According to Natalya Bunina, special adviser on corporate issues at Pen & Paper, we are talking about changes at least in the Tax Code and the Labor Code, the laws “On Joint-Stock Companies”, “On Investment Partnerships”, as well as in the provisions on registration of real estate.

“Only the proposed set of measures can give a powerful impetus to stimulate private investment in technology projects, 80% of which are in the field of IT,” commented Evgeny Titarenko, president of the Association of Specialists, Investors and Organizations in the field of information technology, who took part in the development of measures jointly with a number of Russian investment funds. According to him, at the stages of project idea and attracting the first venture investments in the Russian market, it is “actually scorched earth”, since there are very few funds that invest in startups at an early stage of development.

The measure of tax incentives with an increased coefficient of 1.5 is extremely important for the Russian venture, says Alexandra Orekhovich, director of legal initiatives of the IIDF. “Until now, a business could not reduce taxable income during the investment period even without a multiplying coefficient,” she said.

According to Orekhovich, at the end of 2022, just over 40 DITs were concluded in Russia for venture investments. “This is not much on a national scale, despite the fact that DIT is the most appropriate mechanism for attracting venture capital investments in the high-tech sector,” the expert added. According to her, it is he who allows, without creating a legal entity, to pool the funds of investors into a single pool, to effectively distribute risks and make decisions.

How DITs are designed, in particular, the Far Eastern Fund for the Development and Implementation of High Technologies, the Phystech-Ventures and da Vinci pre-ipo funds, as well as the Russian-Belarusian Venture Investment Fund, Orekhovich gives examples.

But in the form in which the tax incentives are formulated in the bill, they look like a very crude measure and probably will not withstand the expected criticism of the Ministry of Finance and other regulators, said Yevgeny Borisov, a partner at Kama Flow investment company.

“DIT is just a form of collective investment, if we limit the toolkit, then we need to talk not about the legal form, but about the content,” he argues. – DIT can be created for investments in real estate and in general any objects. In addition, an important parameter is the independence of such DITs from corporate investors, because otherwise a corporation can create a DIT with itself, put its own money there and get tax optimization. And the goal will not be achieved, because DIT will invest in the perimeter of the corporation.”

Supporting potential large investors through tax incentives is the right story, but far from the only one, continues Borisov. The admission of NPFs to the venture capital market has long been discussed, since the liquidity accumulated in NPFs is much greater than the money that corporations can potentially invest in funds or directly in projects, he says. Another necessary measure is the creation of a full-fledged pre-IPO market, Borisov notes.

“Therefore, in our opinion, to single out the proposed tax support measure as the main and key one, especially in such an undeveloped form, is more some kind of political PR than meaningful work,” he concluded.