As you know, under the Russian Federal Law No. 335-ФЗ of 27.11.2017 all foreign e-services providers must register with the Russian tax authorities and pay Russian VAT themselves. This has given rise to many questions and technical difficulties. On 24April 2019 the Russian Federal Tax Service (“FTS”) issued the long-awaited guidance letter No. СД-4-3/7937@, where they attempted to adequately address these issues. The major conclusions discussed in the letter can be summarized as follows:
- The Russian Tax Code expressly provides that starting from 1 January 2019 foreign e-services providers must be registered with the Russian tax authorities and pay Russian VAT themselves. Russian purchasers of e-services do not act as tax agents (even if a foreign e-services provider failed to register).
- When purchasing any other (non-electronic) services, work or goods subject to Russian VAT from a foreign e-services provider, Russian customers should only withhold the tax from the remuneration paid for such other (non-electronic) services, work or goods only if the e-services provider has no tax registration in Russia. If it registered as a Russian taxpayer, by default the e-services provider should pay VAT on other (non-electronic) sales by itself.
- At the same time, if a Russian purchaser withheld VAT in a situation where the tax should have been paid by the foreign supplier in accordance with the above procedure, the tax authorities do not have the right to claim the same tax from the supplier again or to challenge the VAT deduction applied by the purchaser. This conclusion applies both to provision of e-services and to other sales (of non-electronic services, work or goods).
- Where the Russian purchaser “voluntarily” withholds VAT in the above manner, a foreign e-services provider registered with the Russian tax authorities does not include the same sales in its VAT return filed through the taxpayer’s online account.
Please note that the conclusions discussed in points 3 and 4 above do not directly follow from the Russian Tax Code. They are rather something of a temporary compromise. As stated in the letter, the issue of further improvements in VAT administration for e-services is under consideration. This clearly implies that amendments to the Russian tax legislation should follow. Without them, the mechanism proposed by FTS is not fully legitimate.
The lack of consistency in the approaches to the discussed issues is also indicated by recent guidance letters of the Russian Ministry of Finance. They take the position that foreign e-services providers should pay VAT themselves, without mentioning any alternative form of “voluntary” withholding of tax by the purchasers (Russian Ministry of Finance Letters No. 03-07-08/21484 of 28.03.2019, No. 03-07-08/17231 of 15.03.2019, No. 03-07-08/24055 of 05.04.2019).
We would also like to remind you, that Russian FTS Order No. ММВ-7-3/118@ of 05.03.2019 introduced several amendments to the VAT return form filed by e-services providers. The new form now allows the inclusion of non-electronic sales in the return and the application of alternative tax rates (other than rates established for e-services only).
Dentons’ Tax practice will be happy to assist you in all the issues associated with payment of VAT on e-services and help managing such tasks as:
- assessing specific intragroup transactions as to whether they are e-services and the need to register foreign suppliers with the Russian tax authorities;
- getting official clarifications from the fiscal authorities on e-services questions;
- elaborating possible options for structuring relationships with Russian customers in the context of the new procedure of charging VAT on e-services;
- registering foreign e-services suppliers with the Russian tax authorities;
- assessing of tax liabilities and filing of VAT tax returns concerning e-services transactions.