Operations with securities
The new order of accounting for operations with securities has been adopted by the Ministry of Finance of RF. This order comes into force on 1 July 1997 and applies to all companies. The most significant tax issue resulting from the order is that it clarifies the definition of "actual costs for the acquisition of securities". The costs increase the book value of securities thus affecting the calculation of profit on sale/redemption of securities. Costs under the order include information and consultancy fees paid in connection with the acquisition of securities, commission fees, interest paid on funds borrowed to purchase the securities, other expenses directly connected with the acquisition.
Investment is to be booked to account 06 ("Long term financial investments") if the redemption term is longer than a year or the buyer intends to derive income from these securities for more than one year; or to account 58 ("Short term financial investments") if the redemption term is less than a year or the buyer does not intend to derive income from the securities for more than a year.
The order also introduced a new system of accounting for shares purchased from shareholders, which significantly influences the tax consequences on their eventual resale. In addition, companies are required to maintain a "Book of Purchased Securities" to record all of their investments.
Order of the Ministry of Finance of the RF # 2 of 15 January 1997
New Tax on purchase of cash foreign currency
The new tax "on purchase of cash foreign currency and of payment instruments denominated in foreign currency" was created and is effective since July 29, 1997. The tax base is the rouble amount paid for cash foreign currency and payment instruments denominated in foreign currency as well as amounts in cash foreign currency refunded by the banks on closure of deposit accounts if the deposit account was opened in roubles.
Purchases of cash foreign currency by a bank from the CBR or another bank are not subject to the tax. The position is unclear with regards to purchases by banks from individuals. The rate of tax is set at 0.5 per cent of tax base. The tax is withheld by the bank on purchase of the foreign currency.
The Federal Law # 120-FZ of 21 July 1997 "On the tax on purchasing of cash foreign currency and payment documents denominated in foreign currency"
Changes in the Moscow tax laws / Moscow city revenue to increase
In June 1997 most of the local Moscow tax laws were amended. We summarise the most important changes introduced.
The definition of taxpayers for the purposes of educational and housing fund taxes was broadened to include all business operating in Moscow: from now on not only branches and other similar divisions of legal entities with separate balance sheets and bank accounts are taxpayers, but also legal persons that act through representations and any other offices in Moscow. The new definition of taxpayers is similar to the one introduced in 1996 for the purposes of payment of the local portion of profits tax. We believe that the proportion of taxes payable to Moscow is defined on a similar basis to the one used currently for payment of the local portion of profits tax, as the Letter of the Moscow Tax Inspection No. 11-13/12444 of 4 June 1997 stipulates that the average number of staff and of the value of fixed assets should be used. It is possible that this basis will be changed after the Instructions on application of the amended laws are issued.
Mass media exemption in respect of educational and housing fund taxes similar to the one used for the purposes of VAT and profits tax were introduced by the laws.
The order of advance payments of housing fund tax was amended.
Moscow law of 4 June 1997 No. 15 "On amendments and additions to the Moscow law 'On educational tax'", Moscow law of 4 June 1997 No. 13 "On amendments and additions to the Moscow law 'On housing fund tax'", Moscow law of 4 June 1997 No. 12 "On amendments and additions to the Moscow law 'On rates and exemptions to the property tax'", Letter of the Moscow State Inspection # 11-13/12444 of 4 June 1997 "On local taxes"
Penalties for errors disclosed voluntary by the taxpayer
In general the voluntary correction of technical errors is not subject to penalties. However In reply to an enquiry from St. Petersburg tax officials, the State Tax Service stated that late payment interest should be levied in cases when taxpayers correct errors themselves and inform the tax authorities of the correction before the error is identified by the tax authorities.
The logic of this letter is that late payment interest should be considered only as an additional payment compensating losses of the state arising as a result of a non-timely payment of tax, not as a penalty. Therefore, letter # PV-6-09/450 which contains a different interpretation is expected to be amended accordingly.
Since late payment interest is charged at a rate of 0.3% per day the amount can be substantial.
Comment
For the majority of taxpayers the change in the tax authorities interpretation of the rules on disclosure of technical errors is likely to be the most significant change this week. Voluntary disclosure of errors no longer avoids all of the draconian penalties charged on even relatively minor infringements.
Letter # 11-05/131 of 20 March 1997 of the State Tax Service of the Russian Federation "On levying the late payment interest on the self-disclosure of errors by a taxpayer"
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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