Software is becoming an increasingly important asset in the digital economy, and its taxation issues are attracting the attention of both business and regulatory authorities.

In the article of EZ-Jurist and on our website, Tax Compliance tax consultant Sergey Ivanov analyzed the main aspects of software taxation in Russia, considered the application of benefits and current situations faced by market participants.

In the field of information technology (hereinafter - IT), software includes programs that are designed to solve a wide range of tasks, including writing code, database management, editing graphics and multimedia, automation of business processes, development of web applications, cybersecurity, cloud computing and many other tasks related to IT. 

At the moment, tax incentives have been developed, which contribute, among other things, to support Russian software developers and create favorable conditions for the development of their business. 

VAT exemption issue

To apply the VAT exemption for transactions with computer programs and databases, a mandatory condition is inclusion in the register of Russian software and (or) a unified register of military, special or dual-use R&D results (R&D register), and also that the operation does not fall under the list of exceptions. 

Exceptions include situations when the transferred rights consist in obtaining the opportunity to distribute advertising information on the Internet or gain access to such information, post advertisements for the purchase and sale of goods (works, services), property rights on the Internet , search for information about potential buyers (sellers) or enter into transactions (subclause 26, clause 2, article 149 of the Tax Code of the Russian Federation). In such cases, VAT exemption does not apply. 

It is important that the software is legally introduced into civil circulation on the territory of the Russian Federation, copies of the software or the right to use the software, services for providing access to the software are freely implemented throughout the Russian Federation, there are no restrictions established, including by foreign states, that prevent the distribution or other use of the program for electronic computers and databases on the territory of the Russian Federation or the territories of individual constituent entities of the Russian Federation (clause 5 of the resolution of the Government of the Russian Federation dated November 16, 2015 No. 1236).

In the event of compliance with all requirements, the taxpayer must apply subpar. 26 п. 2 of Art. 149 of the Tax Code of the Russian Federation exemption from VAT and has no right to refuse its application (letter of the Ministry of Finance of Russia from 26.04.2022 No 03-07-08/37837). 

It is important to note that the law does not establish any restrictions to the type of contract under which exclusive rights should be transferred (realization of pro-software). This position is contained in the letters of the Ministry of Finance of the Russian Federation (for example, the letter of the Ministry of Finance of Russia from 29.04.2022 No 03-07-08/39839). 

At the same time, when the condition of inclusion of software in the relevant register is met, the exemption extends not only to the transfer of exclusive rights or rights to use the program, but also to the transfer of updates and additional functionality of the program (letter of the Ministry of Finance of Russia dated 05.02.2021 No 03-07-07/7583). 

In the decision of the Moscow City Court of Arbitration of 25.11.2020 in case No A40-26708/20-12-170 expressed the position that software updates and new versions are computer programs, as well as the original software. Similarly, in the ruling of FAS Moscow District of 11.06.2013 in case No. A40-130312/12-140-876: “software updates are an independent result of intellectual activity and, as a consequence, an independent object of exclusive rights.

Thus, when transferring the rights to use software by providing remote access to it via the Internet and not involving installation (downloading) of a copy of the software, the taxpayer has the right to take advantage of the VAT exemption (example No. 7 of the attachment to the letter Ministry of Finance of Russia dated December 18, 2020 No. 03-07-07/111669 “On the application from January 1, 2021 of the provisions of subparagraph 26 of paragraph 2 of Article 149, paragraph 1.15 of Article 284 and paragraph 5 of Article 427 of the Tax Code of the Russian Federation, taking into account amendments introduced by Federal Law dated July 31, 2020 No. 265-FZ"). 

Exemption from VAT also applies in the following cases:

• when transferring rights to software developed by third parties, which is an integral part of other software included in the register (letter of the Federal Tax Service of Russia No. SD-4-3/20902@ dated 12/18/2020); 
• if the cost of the software included in the software and hardware complexes is indicated separately in the price of the software and hardware complex (letter of the Ministry of Finance of Russia dated June 27, 2023 No. 03-07-07/59422). 

At the same time, as noted by the Russian Ministry of Finance, VAT exemption does not apply to the provision of technical support services and other related services, except in cases where such services are directly related to the use of computer programs and are included in the price transferred rights to use these programs and separating the cost of such services from the cost of transferred rights is impossible (letter of the Ministry of Finance of Russia dated 08/03/2023 No. 03-07-07/72795). 

It should be noted that the conditions for exemption from VAT of certain transactions related to the sale (transfer) in the territory of the Russian Federation of exclusive rights to computer programs, as well as the rights to use them, not only do not constitute a benefit within the framework of IT This maneuver, as it may seem at first glance, is partly a forced negative consequence of the tax IT maneuver. 

If we refer to the text of the law and the explanations of the regulatory authorities of previous years, we can see that the tax benefit in the form of exemption from VAT for such transactions was in effect before, in contrast to the condition of the need to be included in the relevant register . But to compensate for the shortfall in budget revenues due to the use of lower income tax rates and insurance premium rates, the 0% VAT rate was abolished as part of the tax incentive for IT companies (tax maneuver in the IT industry). when implementing programs not included in the relevant register. 

Also, the changes provided for by Federal Law No. 265-FZ of July 31, 2020 “On Amendments to Part Two of the Tax Code of the Russian Federation” also affected the taxation of some relevant business transactions. The Ministry of Finance of Russia considered these as examples in its letter dated December 18, 2020 No. 03-07-07/111669. 

Thus, VAT exemption applies to the following transactions:

• if the program provides broad functionality for electronic document management, in particular, creation, modification, storage, transfer, exchange, coordination, including between various entities, search for documents, then the rights transferred under the license agreement are subject to release from VAT; 
• if under a license agreement the rights to customer relationship management (CRM) software are transferred, automating the processes of customer service, data collection, planning, marketing campaigns, loyalty programs and analysis of their results. Among other things, this program allows you to send messages via email and instant electronic messaging services, and the relationship between the parties presupposes the ability to manage the client base, as well as disseminate any information, such implementation is subject to release from VAT; 
• if under a license agreement the exclusive right to software is transferred that allows for analysis and verification of counterparties based on information from a wide range of sources (Unified State Register of Legal Entities, court information databases, Rosstat, data from trading platforms, etc.) d.) and track changes in this information, then such sales are subject to VAT exemption;
• if under a license agreement the exclusive right to software is transferred to organize the process of creating, editing and managing a website (-CMS), then such implementation is subject to VAT exemption. In this case, the essence of the relationship between the parties presupposes that the licensee will be able to use this software to construct a website, including for an online store. The nature of the information posted within the functionality of the site, including advertising information about goods sold by this online store, or information in the form of posted offers for the sale of goods and the opportunity to conclude a deal on such offers , does not change the essence of the relations of the parties under such a license agreement. 

Also in practice, the question arose: how to determine the moment from which it is possible to apply the VAT exemption? 

According to the common position of the Federal Tax Service and the Ministry of Finance of the Russian Federation, from the moment computer programs and databases are included in the unified register of Russian programs for electronic computers and databases, services for the transfer of rights to use such programs for electronic computers machines and databases are exempt from VAT (letter of the Ministry of Finance of Russia dated 06/09/2022 No. 03-07-08/54716, clause 7 of the Appendix to the letter of the Federal Tax Service dated 12/18/2020 No. SD-4-3/20902@, defined ruling of the Supreme Court of the Russian Federation dated 04/04/2024 in case No. A40-236292/2022, dated 02/05/2024 in case No. A40- 236292/2022). 

The moment of determining the tax base for VAT when granting rights to use the software 

In 2019, an agreement was concluded between the IT company and the bank, according to which the IT company granted the bank the right to use the software for a period of three years. According to the tax legislation in force at the time of conclusion of the agreement, the sale of rights to computer programs was not subject to VAT. In 2020, changes were made to the legislation, according to which, from January 1, 2021, VAT exemption is valid only for the sale of rights to computer programs and databases included in the register of Russian programs ( Ruling of the Supreme Court of the Russian Federation dated April 4, 2024 in case No. A40-236292/2022). 

Since the software was not included in the register, the IT company considered that the remuneration for granting the right to use the software should be increased by the amount of VAT. At the same time, for the second licensing year, the bank paid the remuneration without VAT, and the IT company had to pay additional tax to the budget from its own funds. In this regard, the IT company went to court demanding the collection of debt in the amount of VAT unpaid by the bank. 

The court of first instance noted that the parties did not enter into any agreements to change the amount of remuneration and/or impose obligations on the bank to pay VAT in excess of the price established in the agreement. A change in the current taxation procedure and the risk of additional VAT assessment for the company do not constitute grounds for the defendant to become obligated to pay additional VAT in excess of the price (remuneration) agreed upon in the contract. 

The Supreme Court of the Russian Federation took the position of an IT company, indicating that granting the right to use software for VAT purposes qualifies as a service; accordingly, the moment of determining the tax base is the period of actual use of the software provided under the license, and not the date of conclusion agreement.

State accreditation and tax incentives

Tax benefits for IT companies are special tax conditions and preferences that apply to companies whose activities are related to information technology and meet certain criteria. These benefits include, for example, reduced tax rates, exemptions from certain types of taxes, as well as other benefits aimed at stimulating the development of the IT sector. 

To apply tax benefits, a company must, in the prescribed manner, obtain accreditation of an IT company from the Ministry of Digital Development, Communications and Mass Communications and meet the criteria for accredited IT companies (Resolution of the Government of the Russian Federation dated September 30, 2022 No. 1729). 

So, in particular, to obtain state accreditation, a company must meet the following conditions: 

• the main type of activity of the company must correspond to the list enshrined in Appendix No. 1 of Decree of the Government of the Russian Federation No. 1729; 
• the company’s employees for the last three months of the last reporting (settlement) period must receive a salary higher than the average for the country or for the constituent entity of the Russian Federation; 
• based on the results of the year preceding the date of filing the application for state accreditation, the share of income from activities in the field of information technology is more than 30% of the organization’s total income; 
• information about the IT activities carried out by this organization (in Russian) should be posted on the company’s official website on the Internet; 
• the company provides the opportunity to disclose information to the authorized body for the previous and current years (if the organization submits documents for state accreditation during the year in which it is registered, for the current year) and for a period of at least two calendar years after submitting an application for state accreditation, submitting the appropriate consent to the tax authorities in accordance with paragraphs. 1 clause 1, clause 2.3 art. 102 Tax Code of the Russian Federation;
• the company does not meet the criteria specified in clause 17 of these Regulations. 

At the same time, for the application of tax benefits, clause 1.15 of Art. 284 and paragraph 5 of Art. 427 of the Tax Code of the Russian Federation (application of a tax rate for income tax of 0% and reduced tariffs for insurance contributions), the criteria are even narrower. 

In addition to obtaining state accreditation, the company's revenue from IT activities must be at least 70% of the company's total revenue (as opposed to accreditation, where only 30% is required). 

In addition, in order to apply the benefits, it is necessary to provide the services listed in clause 1.15 of Art. 284 IP.5 Art. 427 Tax Code of the Russian Federation. These, for example, include services such as: 

• sale of copies developed, adapted and (or) modified by an organization or a person belonging to the same group of persons with this organization, and transfer of exclusive rights to its own computer programs, databases; 
• granting by this organization the rights to use its own computer programs, databases, including by providing remote access to its own computer programs, databases, including updates to them, and additional functionality through information and telecommunications network, including through the information and telecommunications network Internet;
• development, adaptation and modification of computer programs, databases (software and information products of computer technology); 
• installation, testing and maintenance of own computer programs, databases and custom computer programs, etc. 

If you pay attention to the wording of services, which directly affects the specifics of the services provided and the right to take into account certain income from the provision of such services for the purpose of applying tax benefits, we can distinguish two terms: in-house programs and custom ones. 

Own computer programs are programs that were developed, adapted and (or) modified by a given organization or a person belonging to the same group of persons with this organization, and custom computer programs are those programs that services (works) for the development, adaptation, modification of which were carried out by this IT organization for the customer (letter of the Ministry of Finance of Russia dated 05/03/2023 No. 03-03-06/1/40700). 

At the same time, custom programs also include those programs for which the IT organization provided services only for modification or adaptation without development (letter of the Federal Tax Service of Russia dated January 25, 2023 No. SD-4-3/763@). 

Main conclusions

As can be seen from the above, the conditions for preferential taxation are subject to strict legislative regulation and at the same time some legal uncertainty, which is partially compensated by clarifications from government bodies. 

Mandatory requirements for companies planning to carry out IT activities include: 

• obtaining the status of an accredited IT company and its timely confirmation (confirmation is not required only in exceptional cases); 
• inclusion of appropriate software in the register (if the activity is related specifically to computer programs); 
• compliance with the requirements for accredited IT organizations and for the application of tax incentives, in particular, for the share of revenue from IT services provided throughout the entire activity; 
• compliance of the IT services provided with the requirements of tax legislation, ensuring proper contractual binding and documentary confirmation.