At the RUIE forum, the risks of providing tax preferences were identified

The authorities’ idea of ​​stimulating private investment within the framework of the concept of “benefits in exchange for investment” has encountered external restrictions, as shown by a discussion at the Tax Forum of the Russian Union of Industrialists and Entrepreneurs. Business proposes to reduce the level of taxation for investment-active companies. The Federal Tax Service warns about the risk of receiving excessive tax benefits in light of the global fight against understatement of taxes by transnational companies. With an effective income tax rate below 15%, companies operating abroad will actually have to pay extra for benefits in the Russian Federation to the budget of another country, and this is unacceptable for the Russian authorities.

At the Tax Forum, held on Friday as part of the Russian Business Weeks of the Russian Union of Industrialists and Entrepreneurs, entrepreneurs formulated two requests to the government – to ensure predictability of tax conditions and to link the tax burden with the investment activity of enterprises. As an example of what should not be done from a business point of view, the speakers cited the exchange rates adopted on an emergency basis. Let us remind you that they became known in September 2023, and already in October, without a substantive dialogue with business, these payments were introduced to stabilize the exchange rate of the weakened ruble. A few months later, the mechanism had to be adjusted – goods dependent on the import of key components, as well as high-tech products, were subject to duties.

“We believe that duties do not take into account the predicted price environment and the real financial condition of companies and industries. This negatively affects the implementation of investment programs,” said Alexander Shokhin, head of the Russian Union of Industrialists and Entrepreneurs, at the forum. According to him, companies are “pausing” some investment programs (investment projects with unchanged conditions within the framework of SZPK and SPIC are not taken into account) due to changes in the tax burden. The head of the RSPP Committee on Tax Policy, Vladimir Rashevsky, clarified that in fact, 25% of exporters are now subject to duties (the rest are subject to exceptions). “If you look at the scale, this is approximately equal to an average of 60% of the investment programs that these industries had,” he noted.

To maintain the investment activity of companies, the RSPP proposes to differentiate taxation depending on the volume of capital investments of companies. “Every ruble of additional taxes withdrawn leads to the fact that companies lose two, three or four rubles of investment potential,” said Mr. Rashevsky. One way of differentiation could be the federal investment tax deduction (INV). Let us explain that now companies can reduce the amount of profit tax paid to the budget of a constituent entity of the Russian Federation – from January 1, 2024, up to 25% of capital costs can be reimbursed at a profit tax rate to the regional budget of no more than 10%. At the same time, in order to apply the deduction, an investment agreement must be concluded between the investor and the regional authorities, which in practice not all entities agree to. To expand business opportunities, the RSSP proposes to introduce INV for the federal part of the tax.

Deputy Head of the Federal Tax Service Yulia Shepeleva warned businesses against receiving excessive tax benefits due to the risks of global tax reform. She explained that to address base erosion and profit shifting (BEPS), countries have agreed on a minimum tax rate for international companies of 15% (Pillar 2) – this is necessary to combat tax avoidance in low-tax jurisdictions. Although Russia will not implement Pillar 2 due to sanctions, many Russian companies continue to operate abroad and are subject to the new requirements of foreign regulators. They are being implemented most actively in Europe, but Asian countries are also beginning to join the tax reform. According to Yulia Shepeleva, if the company’s effective profit tax rate is less than 15%, then the benefits provided by the Russian Federation will, in fact, be compensated by payments to the budget of another country. “To imagine that the Russian Federation will do this is, at the very least, wrong,” noted a representative of the Federal Tax Service.

B1 company partner Marina Belyakova agrees with this logic: “For medium-term planning, an international group of companies needs to rely on 15%; a lower rate carries inevitable risks.” She explains that a group with a parent company in the Russian Federation is not “under attack” yet, but there is a legal entity with a parent company in Cyprus and Holland – and they face additional tax on income in 2024. Moreover, the rules are such that if the parent company does not bring the tax to the target 15%, then other countries in which the group operates can charge additional taxes in a certain proportion. “Is it worth trying to achieve a zero tax burden in the long term?” – the expert asks.

Diana Galieva