Russian Federation: Tax Alert 4/96 - New Tax Reform And Amnesty Decree

Last Updated: 27 May 1996
1. In this Tax Alert we consider Presidential Decree No. 685 of 8 May 1996 which was published in Rossijskaja Gazeta of 23 May 1996.

Status of the Decree

2. The Decree contains four categories of provision:

  • A limited number of items enter into force on 20 May 1996;
  • The Decree contains suggestions and proposals for a draft law on a "tax amnesty" and a draft law on deductible expenses and
  • depreciation. Such laws would have to be approved by the State Duma, which has the right to amend proposed drafts and it is very likely that the final version of such laws would differ from the intentions expressed in the Decree.
  • Other parts of the Decree are scheduled to enter into force at a later date and require additional Government regulations to be adopted or amended, although the Government is bound by the instructions given by the President;
  • Finally, the Decree makes some general statements of principle regarding the future development of the Russian tax system.


3. The following changes are directly implemented by the Decree, although in line with current practice, tax offices are unlikely to apply these until "officially" introduced by a letter or instruction from the State Tax Service.

  • From 20 May 1996, the rate of late payment interest is reduced to 0.3% per day. This effectively repeals the 0.7% per day rate that was brought into force by Presidential Decree No. 2270 of 22 December 1993, when the rate of inflation was much higher than at the present time. Whilst this reduction applies equally to personal income tax, it is however believed that the rate of interest for late payment of contributions to the non-budgetary funds will remain unchanged, i.e. 1% per day (except for the Social Insurance and Employment Funds), the interest in the
  • Funds' legislation being linked to the interest provisions in the Law on the Fundamentals of the Tax System.
  • "Technical errors" in the preparation of tax returns which are reported on a "timely basis" to the tax authorities are not considered to be tax violations, and thus penalties and interest are not payable from 23 May 1996 as a result of such errors.
  • "Technical error" appears to mean arithmetic error rather than, for example, differences in interpretation. The requirement to report such errors "on a timely basis" probably implies the obligation to disclose the error before it is discovered by the tax authorities. Previous practice was not to levy concealment penalties in such cases, but late payment interest remained payable.
  • If taxes have been collected by the tax authorities without proper legal basis, reimbursement has to take place within three days after the error has been conceded or the relevant court decision has entered into force. In the past, the tax authorities have been reluctant to reimburse such amounts but have instead set them off against future tax liabilities, and we believe that in practice the tax authorities will try and persuade taxpayers to accept an offset against other liabilities. The reimbursement would not, however, apply to overpayments of taxes as a result of a miscalculation by the taxpayer.
  • Interest on tax arrears due to the Federal budget as at 20 May will cease to be charged from that date, whilst arrears arising after 20 May will be charged at the 0.3 % per day rate described above. It should be noted that this provision does not extend to interest on tax payable to the local budget.


4. The Decree instructs the Government to prepare, within one month, a tax amnesty proposal which would include the following orders to the State Tax Service:

  • not to charge penalties and interest during 1996 on voluntary tax payments, including taxes previously concealed. This exemption would not apply if the tax authorities have "discovered" underdeclared or concealed taxes before such amounts are disclosed by the taxpayer;
  • to cancel the tax liabilities of enterprises fulfilling defence orientated orders.

Profits Tax: deductible expenses

5. Currently, an expense is only deductible if listed in the legislation as a deductible item. The Decree instructs the Government to amend the system of profit tax deductions and stipulates that all expenses connected with generating income are in principle tax deductible and lists certain explicitly non-deductible items.

6. It should be noted that the rules for deductibility of interest will change. The intention is to waive the limitation on the deductibility of interest on bank loans used for capital expenditure. It appears that interest will become deductible irrespective of the nature of the creditor and of the purpose of the loan. There will however be an overall ceiling for deductibility established by resolution of the Government.

7. Entertainment, business trips and training expenses will be deductible up to 10% of the post tax profit (as calculated before deducting the corresponding expense). Depending on the cost structure of an enterprise, the application of this rule may worsen the deductibility of certain expenses as compared to the current situation. If deductibility is not granted because the limit is exceeded, the Decree provides there should be a possibility of carrying forward these expenses to the subsequent accounting period.

Profits Tax: depreciation

8. Depreciation rates for profits tax purposes are somewhat more generous than the ones currently in force and are very similar to those used for property tax purposes in respect of foreign legal entities in Russia. Small enterprises are allowed to use higher depreciation rates. An item with a value less than 100 times the statutory minimum monthly wage (approximately US $ 1,500) can immediately be charged as an expense. The detailed scale of depreciation norms is to be abolished and four schedules for different types of property introduced with fixed rates. The schedules will broadly differentiate between: immovable property (except land), vehicles and office equipment, other equipment and intangible assets.

Profits Tax: accruals basis for sales

9. With effect from of 1 October 1996, sales income for profits tax purposes will be calculated on an accruals basis, such that a sale is recognised on the earlier of either the date a prepayment is received, or the production is shipped/service rendered. Small businesses will continue to be able to choose between the cash and accruals basis.


Value Added Tax: Export, Import, Invoicing

10. The Decree states that, with effect from 1 July 1996, input VAT incurred in relation to exported goods will only be reimbursed after the payment has first been received in a Russian bank account. This generally reinforces one of the current provisions of paragraph 22 of Instruction ¥ 39 of the State Tax Service of RF "On the Procedure for Calculation and Payment of Value Added Tax" dated 11 October 1995 which states that, in order to recover input VAT on exported goods, a taxpayer must also keep in its files documents confirming payment for exported goods as well as a copy of the export contract with a foreign customer and customs declaration which confirms the export. The attention paid by the tax authorities to the compliance of a taxpayer with this provision of the Decree and Instruction No. 39 might therefore increase.

11. With effect from 1 July 1996, import VAT should be paid when payment is made for the imported goods but no later than the date the goods are cleared through customs. Currently, import VAT is payable upon clearance through customs. The new rule would thus adversely affect importers which make prepayments to their foreign suppliers.

12. With effect from 1 January 1997, an invoice has to be issued within 10 days after a prepayment has been received or supply has taken place.

13. Although the Decree establishes the right to escape an advance payments procedure for taxpayers from 1 January 1996, we believe the criteria for obtaining the exemption are unrealistic and unlikely to be met by most taxpayers.


14. There is a stated intention to make the Russian tax system more stable with future changes introduced and effective only from the beginning of a calendar year. The system of taxes is intended to be of universal application throughout Russia with a detailed but shorter list of taxes and a fair allocation of major taxes between local, regional and federal budgets. In line with this requirement it is expected that non-budgetary social funds will be consolidated from 1 January 1997.

15. The President promises a reduction in the number of tax allowances whilst lightening the tax burden for producers of goods.

16. It is envisaged that excise duties on mineral resources will be replaced by payments under production sharing agreements or fixed monthly payments to be levied on each extraction site. The proportion of environment pollution fines and penalties in total revenue is expected to increase.


17. The Decree goes some way to meeting criticism of the punitive penalty and interest regime in Russia, but nevertheless still falls short of marking a wholesale reform in this area of law. The amnesty provisions in relation to voluntary tax payments are important, are seen as a tool to assist in revenue collection, but the detailed proposals will need to be reviewed before being able to come to any conclusion on this point, and previous tax amnesties have had little effect. Finally, the general provisions relating to the profits tax law pre-empt some of the provisions of the draft Tax Code, and it remains to be seen whether these will indeed enter into force before the Code.


On an unrelated topic, the State Tax service issued a letter on 14 May 1996 (No PV-6-13/325) confirming that it will accept company accounts without an audit opinion.

This publication is intended for public guidance only and should not form the basis for specific decisions.

For further information contact the firm on +007 503 232 5511 or enter a text search 'Coopers & Lybrand' and 'Business Monitor'.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions