03.05.07

The Federation Council has approved amendments to the Tax Code section concerning special tax regimes for small businesses. Corrections and additions were introduced to Article 25 of the Tax Code. According to those who worked on the amendments, they should eliminate a number of flaws in the implementation of the Simplified System of Taxation (SST) and the Unified Tax on Imputed Income for certain kinds of activities. They also clarify the procedure for Value Added Tax payments for this category of taxpayers.

According to the Council’s press service, the new law clarifies the list of documents that must be provided by taxpayers switching from special to ordinary tax treatment to receive the right to exemption from VAT. The necessity of the amendment was apparent because until now there was no definite list of documents that had to be presented by organizations or sole proprietors in such circumstances. Recall that taxpayers must confirm that the amount of earnings from sales of products over 3 months did not exceed 2 million rubles.

But a taxpayer switching to paying VAT from the simplified system of taxation was exempt from VAT accounting and payment of VAT. Correspondingly, he doesn’t have documents that must be shown to be exempt from the tax. This could be an excerpt from the accounting balance sheet, an excerpt from the sales record book, an excerpt from the income and expenses records and business operations for sole proprietors, or a copy of the journal of accounts paid and receivable. This difficulty also arises for sole proprietors.

The amendments resolve this problem. The bill proposes that an excerpt from the record of income and expenses will serve as a document confirming the right to exemption from VAT. Such a document is at the disposal of small businesses.

Regarding unified agricultural tax (UAT), the majority of changes concern agricultural consumer cooperatives, which were put in the category of UAT taxpayers, but which could not take advantage of this tax regime.  Now, after clarification of the concept of agricultural consumer cooperatives, they have the opportunity to apply the special tax regime.

The law also clarifies the mechanism for indexing the maximum level of income of organizations switching to SST. Amendment was necessary because certain foreign organizations register on the territory of the Russian Federation according to the location of real estate they own.  They do not conduct business in Russia and are only payers of real estate tax of the organization.  Nevertheless, they submit an application to switch to SST for the purpose of minimizing taxation.  To resolve this situation, a change was introduced to prohibit application of the SST by a foreign organization in such a case.

The procedure was defined by which the right to apply the SST would be lost in the case of a taxpayer participating in a simple partnership agreement. If a taxpayer using an object of taxation in the form of income became a participant in a simple partnership agreement or a fiduciary management agreement during the tax accounting period, then this is grounds for him to be considered as having lost the right to use the simplified system of taxation.  Further, this would apply from the beginning of the quarter during which the requirements were not met.

A special privilege offers the opportunity to a taxpayer applying the special regime to reduce his tax base with a number of additional expenses.  The current version of the law considers the possibility of including expenses for storage, servicing, and transport only in connection with sale of goods.  The amendment provides that such expenses can be counted also in connection with acquisition of goods.  The amendments also allow taxpayers to expense all forms of mandatory insurance.

The majority of amendments regarding the special tax regime for small business are of a technical nature. One of the changes allows the exclusion from income of reimbursed sums of advances and prepayments that were counted as income when they were received. The amendments are intended to simplify tax accounting, and allow in accordance with the cash method inclusion in expenses indicated expenditures after their actual payment, and not according to their write-off in the production of raw materials and materials, which would only complicate tax accounting.

The current version of the law, according to which accounting for expenses in paying for the cost of goods acquired for future sales is made according to the amount of sales of goods, contradicts the cash method.  Sales of goods is recognized as the transfer on a reimbursable basis (and in circumstances provided for in the tax code of the Russian Federation, on a nonreimbursable basis) the right of ownership of goods, and this means that the realization of goods and payment for them may not coincide in time.

Another amendment intended to simplify tax accounting and allow according to the cash method the inclusion in expenses of indicated expenditures after their actual payment.  The current version of the norm, according to which calculation of expenses for payment of the cost of goods acquired for future sales is conducted according to the amount of goods sold, also contradicts the cash method.

The amendments proposed in the federal bill “On Amendments to Chapters 21, 20 6.1, 26.2, and 26.3 of Part Two of the Tax Code of the Russian Federation” would not lead to a reduction of taxes into the budget.
The law will be signed by the president in the near future and will take effect January 1, 2008, but no earlier than one month from its official publication.

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