MOSCOW, January 1. /TASS/. Foreign companies that provide electronic services in the B2B segment are required to register for taxation and independently pay the VAT in Russia starting from January 1, 2019. Starting today, the relevant changes to the Tax Code have entered into force.

Prior to this, foreign companies were obligated to pay the VAT for providing electronic services (known as the “Google tax”) only in the framework of transactions with individuals (B2C). Now, the requirement for foreign companies to pay the VAT when rendering electronic services also applies to deals with Russian organizations and individual entrepreneurs.

This new development might complicate the activities of a large number of foreign companies in Russia, according to Arseny Seidov, a partner at Baker McKenzie. According to him, this statute does not take into account the experience of foreign countries and the peculiarities of operations by multinational corporations. “For example, in e-commerce, the practice when one company provides services, and another (treasury) company of the group receives remuneration is widespread. Russian B2B customers may not receive a tax deduction under such circumstances, since based on the current legislation, the service provider and the recipient of funds must be one and the same person for the paperwork to get the deduction,” he explained.

Even if there is no such separation within a foreign corporation, there may be another hurdle. Seyidov noted that the policy of many foreign corporations does not imply a full-fledged tax registration of the supplier of electronic services on the B2B market in every country where business is conducted. “A number of companies may think that the share of revenue attributable to Russia is not large enough to make a decision on tax registration in Russia. They may decide to leave the Russian market,” he said.

The expert added that the majority of multinational groups that allocate part of the global software costs (along with other headquarters expenses) to Russian subsidiaries are also subject to the new system.

 

Positions of foreign companies

 

Large foreign corporations have already been warned about the future changes. “Due to the changes in Russian tax regulation, which introduces VAT for digital services furnished by foreign providers to commercial customers in Russia, from January 1, 2019, Microsoft Ireland Operations Limited (MIOL) will include VAT in bills,” Microsoft’s press service told TASS.

At the same time, Facebook announced an update in terms of taxation in Russia. “Beginning January 2019, Facebook ads in Russia will be subject to a value added tax (VAT) of 20%. This update affects all ad accounts that have their business country set to Russia,” the social network said in a press release.

Google, after which the law was named, did not respond to TASS’s request about its plans in the context of the changed legislation. Apple’s press service did not provide TASS with any comments on the issue.

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