At the end of July, Federal Law No. 389-FZ dated 31.07.2023 "On Amending Parts One and Two of the Tax Code of the Russian Federation, Certain Legislative Acts of the Russian Federation and on Suspension of Paragraph Two of Clause 1 of Article 78 of Part One of the Tax Code of the Russian Federation" was adopted. The new changes affect VAT, corporate income tax, CFC taxation issues and much more.

This article will discuss some of the innovations.

1. VAT paid by foreign companies selling electronic services

Now only those foreign organizations that provide electronic services to individuals on the territory of the Russian Federation need to register (paragraph 4.6 of Article 83, paragraph 5.5 of Article 84 of the Tax Code of the Russian Federation).

2. Extends the list of permitted expenses for profits tax purposes

Expenses for bringing gratuitously received property (property rights) to a usable condition may now be included in profits tax expenses (paragraph 6 of Article 252 of the Tax Code of the Russian Federation). This innovation is relevant for persons engaged in the finalization of software.

3. The list of income from sources in the Russian Federation is expanded

According to the new wording of Article 208 of the Tax Code, employees' income from sources in the Russian Federation is recognized as, inter alia:

• wages and other remuneration paid by a Russian organization to remote workers located abroad;
• remuneration paid to an employee for remotely performed work and rendered services via the Internet using Russian domain names, information systems or complexes of software and hardware.

4. Taxation of CFC profits

Article 25.15 of the Tax Code determines the procedure for accounting for the profits of a controlled foreign company in taxation.

The above article is now supplemented with the provision that the established accounting procedure does not apply to the profits of a controlled foreign company if it is a foreign structure without the formation of a legal entity and the following conditions are simultaneously met:

• the said structure, in accordance with its personal law, is a form of realization of collective investments;
• profit (income) of the said entity in accordance with its personal law is not subject to taxation;
• profit (income) distributed by the above structure to its participants (shareholders and other persons) or beneficiaries shall be taken into account in determining the tax base for taxes of taxpayers recognized as controlling persons of this structure.

5. Expansion of powers of tax authorities

The Federal Tax Service is given the authority to determine the specifics of accounting for major taxpayers and, in particular, to work out criteria for classifying persons as major taxpayers. Prior to the introduction of the amendments, these powers were vested in the Russian Ministry of Finance.

6. The procedure for conducting mutual agreement procedures has been improved

The Federal Law amends procedures relating to the request for additional information from a taxpayer and the tax authorities and the procedure for implementing decisions reached in the course of mutually agreed procedures in practice.

7. Recognition of notification as not provided

From October 1, 2023, if the tax authority finds that the indicators of the submitted notifications on the calculated amounts of taxes, fees, advance payments of taxes, insurance contributions do not correspond to the control ratios, indicating a violation of the procedure for their completion, such notifications will be considered not submitted in full or in part, which will be reported to the taxpayer (paragraph 9 of Article 58 of the Tax Code of the Russian Federation).

8. It has become easier for a sole proprietor to submit a notification

Individual entrepreneurs may send documents (a notification of calculated payments and an application for a credit against a forthcoming obligation to pay a particular tax) through their personal account using a non-qualified electronic signature. Previously, this required a qualified electronic signature.

Based on the results of the analysis of the amendments, it can be concluded that many of the amendments made to the Tax Code of the Russian Federation are aimed at expanding the powers of tax authorities, digitalization of relations between state authorities and taxpayers, as well as specification of certain provisions taking into account geopolitical changes.